Document:

Unassociated Document

SEPARATION AGREEMENT AND RELEASE OF CLAIMS

This Separation Agreement and Release of Claims (this “Agreement”) is entered into as of the date last written below by and between SeaChange International, Inc. (the “Company” or “SeaChange”) and William C. Styslinger, III (“Executive”) (individually, a “Party,” and collectively, the “Parties”).  The Parties hereby agree as follows:

 

1.           Resignation from Employment; Benefits.  The Parties acknowledge and agree that Executive has resigned from employment with the Company, effective December 8, 2011 (the “Separation Date”).   Between the date Executive signs this Agreement and the Separation Date (the “Transition Period”), Executive will perform such duties and responsibilities as the Company’s Board of Directors (the “Board”), or its individual members as so designated, may request, but shall not otherwise perform any work for or on behalf of the Company.

 

Executive will be paid no later than the next regular payroll date that falls on or after the Separation Date for all base salary earned through the Separation Date, together with all accrued but unused paid vacation time as of the Separation Date.  Following the Separation Date, Executive agrees that he is not entitled to any salary, bonus, equity or other compensation from SeaChange, except as expressly set forth herein.

 

For the period subsequent to the Separation Date, Executive may be eligible to elect continued group health and dental insurance coverage pursuant to the federal law known as COBRA.  Notification of Executive’s COBRA rights will be sent under separate cover.  Effective on the Separation Date, Executive’s entitlement to or participation in any and all other Company benefits, benefit plans, policies or programs shall cease, except as expressly set forth herein.

 

2.           Resignation from Other Positions; Transfer of Subsidiary Interests.  Executive shall resign from all officer, director and other positions with SeaChange and all of its subsidiaries (including but not limited to his positions as Chief Executive Officer and as member and Chairman of the Board of Directors of SeaChange) effective on the Separation Date. Executive hereby sells, transfers and assigns to the Company, for consideration of $1.00 in the aggregate, each of Executive’s shares of capital stock or other equity interests of any of the Company’s subsidiaries (including without limitation SeaChange Philippines Corporation and SeaChange Telekomunikasyon Hizmetleri Anonim Sirekti).

 

3.           Severance.  In consideration of Executive’s execution and non-revocation of this Agreement, the Company will

 

	
  

	
a.

	
pay Executive an amount equal to two times his current annual base salary, or a total of $950,000, less applicable taxes and withholdings (the “Severance Pay”), to be paid in twelve equal monthly installments in accordance with the Company’s regular payroll practices, commencing on the first regular payroll date coinciding with or next following December 8, 2011 and concluding twelve (12) months thereafter (the “Severance Period”);

 

  

  

  

 

	
  

	
b.

	
pay for twenty-four (24) months of Executive’s coverage under comparable medical and dental benefit plans to those by which Executive was covered immediately prior to the Separation Date (“Benefits Continuation”).  For the first eighteen months following the Separation Date, this coverage shall be provided via Executive’s election of continued COBRA coverage under the Company’s benefits plans.  Thereafter, the Company shall pay the reasonable cost of Executive’s coverage under comparable individual health and dental plans, unless and until Executive is eligible for coverage under health or dental plans either through his own employment or that of his spouse. Notwithstanding the provisions set forth above in this Section 3(b), if the Company determines at any time in its sole discretion that it cannot provide or continue to provide all or any portion the Benefits Continuation without potentially violating, or being subject to an excise tax under, applicable law (including, without limitation, Section 2716 of the Public Health Service Act), or the terms of the applicable insurance policy, the Company shall in lieu of providing the Benefits Continuation pay to the Executive for each of the remaining twenty-four (24) months a taxable cash payment equal to the COBRA premium determined for the first month of COBRA coverage (the “Taxable Payments”).  Such Taxable Payments shall be paid monthly on the first regular Company payroll date of each applicable month for the remainder of the twenty-four (24) month period.  For the avoidance of doubt, the Taxable Payments may be used by the Executive for any purpose, including, but not limited to continuation coverage under COBRA;

 

	
  

	
c.

	
waive any continuing employment requirement applicable to any unvested restricted stock units previously granted to Executive that are outstanding on the Separation Date notwithstanding Executive’s separation from employment, which restricted stock units shall remain subject to the same vesting and payment schedule to which they were subject immediately prior to execution of this Agreement (the “RSU Vesting”);

 

	
  

	
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in the event that a Change in Control (as defined in Amended and Restated Change-in-Control Severance Agreement, as amended (the “CIC Agreement”)) occurs after December 8, 2011 but on or before September 30, 2012, provide Executive with a lump-sum payment in an amount equal to the difference between the sum of the cash value of the 2012 Bonus (whether paid in RSUs or cash, and assuming, for this purpose, that if Executive has elected to receive payment of the 2012 Bonus in cash, he shall nevertheless be deemed to have received 100% of the fair market value of the RSUs awarded under the 2012 Bonus)  and the Severance Pay, on the one hand, and the cash value of the compensation set forth in Sections 2.2(a)(i) and (ii) of the CIC Agreement, on the other, less applicable taxes and withholdings (the “CIC Payment”).  This payment shall be made on the business day coinciding with or next following the date that is thirty (30) days after the closing of the triggering Change in Control.  In addition, in the event of such a Change in Control, all unvested RSUs then held by the Executive shall immediately vest in full as provided in Section 2.1(b) of the CIC Agreement.  Additionally, in the event a Change in Control as defined in the CIC Agreement occurs at any time on or before September 30, 2012, Executive, if so requested by the Board, shall execute and deliver to the Company a voting and support agreement in a form satisfactory to the Company. Executive acknowledges and agrees that the Severance Pay, Benefits Continuation, RSU Vesting, and CIC Payment (the “Severance Benefits”) are being provided in exchange for his assent to the terms of this Agreement and are not amounts or benefits to which he is otherwise entitled.

 

  

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Notwithstanding the foregoing, if, on or before December 8, 2011,  the Company enters into a definitive agreement providing for a Change in Control within the meaning of the CIC Agreement, and if that Change in Control is thereafter consummated such that Executive is entitled to compensation and benefits under the CIC Agreement, Executive shall be entitled only to such compensation and benefits set forth in the CIC Agreement, and not to any compensation or benefits set forth in Sections 3 or 4 herein.  However, in that event, the remainder of this Agreement (not including Section 3 or 4 herein) shall remain in full force and effect.

 

4.           Bonus; Equity.

 

	
  

	
a.

	
Fiscal Year 2012 Bonus.  Pursuant to the terms of the Company’s fiscal year 2012 compensation and bonus plans (the “2012 Plans”), Executive shall remain eligible for a target bonus of 125,000 restricted stock units (RSUs) and additional RSUs with a value of $330,000 (the “2012 Bonus”), in accordance with and subject to the terms and conditions of the 2012 Plans.  The 2012 Bonus (if earned) shall be paid at such time and under such terms as would have applied under the terms of the 2012 Plans and the Company’s regular practices had the Executive remained actively employed at the Company; provided that the Executive shall have the right to elect to receive any earned 2012 Bonus in cash in lieu of RSUs, in an amount equal to 70% of the fair market  value of the RSUs he would have received as his 2012 Bonus, less applicable taxes and withholdings, such fair market value to be determined as of the date of approval of such 2012 Bonus by the Board of Directors.  Executive shall inform the Company no later than ten (10) days prior to the regular payout date of the Bonus if he wishes to elect the cash payment in lieu of RSUs.  Executive acknowledges and agrees that he is not eligible for any other bonus compensation for the fiscal year 2012 other than the 2012 Bonus, and that he has been paid all bonuses and compensation earned by him in fiscal years prior to 2012.

 

	
  

	
b.

	
Equity.  The Parties acknowledge and agree that Executive’s equity awards as of the Separation Date under the Company’s Amended and Restated 2005 Equity Compensation and Incentive Plan and 2011 Compensation and Incentive Plan (the “Equity Plans’) are as set forth in Exhibit A hereto.  Executive’s options and restricted stock units shall continue to be governed by the terms and conditions set forth in the Equity Plans, which shall continue in full force and effect following execution of this Agreement, except to the extent expressly modified in Section 3(c) above or in this Section 4(b).

 

In accordance with the Equity Plans, Executive shall have ninety (90) days following the Separation Date to exercise any vested but unexercised stock options.  Any unvested stock options shall be forfeited on the Separation Date, in accordance with the Equity Plans.

 

  

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Executive currently has 191,004 unvested RSUs (the “Unvested RSUs”).  All such Unvested RSUs will continue to vest following the Separation Date pursuant to Section 3(c) above.

 

Under Paragraph 8(d) of the Corporate Governance Guidelines, Executive is prohibited from selling any Company stock for a period of ninety (90) days following the Separation Date.

 

5.           Section 409A Compliance. It is the intention of the parties that this Agreement comply with and be interpreted in accordance with Section 409A of the Internal Revenue Code of 1986, as amended and the United States Department of Treasury regulations and other guidance issued thereunder (collectively, “Section 409A”).  Each payment in a series of payments provided to the Executive pursuant to this Agreement will be deemed a separate payment for purposes of Section 409A.  If any amount payable under this Agreement upon a termination of employment is determined by the Company to constitute nonqualified deferred compensation for purposes of Section 409A (after taking into account the short-term deferral exception and the involuntary separation pay exception of the regulations promulgated under Section 409A which are hereby incorporated by reference), such amount shall not be paid unless and until the Executive's termination of employment also constitutes a “separation from service” from the Company for purposes of Section 409A.  In the event that the Executive is determined by the Company to be a “specified employee” for purposes of Section 409A at the time of his separation from service with the Company, any payments of nonqualified deferred compensation (after giving effect to any exemptions available under Section 409A) otherwise payable to the Executive during the first six (6) months following his separation from service shall be delayed and paid in a lump sum upon the earlier of (x) the Executive’s date of death, or (y) the first day of the seventh month following the Executive’s separation from service, and the balance of the installments (if any) will be payable in accordance with their original schedule.

 

6.           Releases of Claims.

 

	
  

	
a.

	
Executive, on behalf of himself and his spouse, heirs, children, successors, current and former agents, representatives, executors, beneficiaries, administrators, trustees, attorneys and assigns, voluntarily releases and discharges SeaChange International, Inc. and each of its predecessors, successors, subsidiaries, investors and current and former assigns, agents, officers, partners, members, directors, shareholders, employees, consultants, representatives, insurers, attorneys, affiliates, and any other related entities; and all persons acting by, through, under, or in concert with any of them (any and all of which are referred to as “Releasees”), from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, causes of action, damages, losses, expenses, and debts of any nature whatsoever, known or unknown (“Claims”), which Executive has, claims to have, ever had, or ever claimed to have had against Releasees through the date last written below.  This general release of Claims includes, without implication of limitation, all Claims relating to Executive’s employment and separation from employment with SeaChange; all Claims relating to Executive’s positions and duties with SeaChange; all Claims relating to Executive’s equity and other rights as to SeaChange; all Claims of discrimination, harassment and retaliation prohibited by any federal, state, or local statute, regulation, or ordinance, including without implication of limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act and any similar applicable state laws; and all other statutory or common law Claims.  Executive also waives any Claim for reinstatement, attorneys’ fees, interest, or costs, and all Claims for wages, bonuses, severance, equity or other compensation, provided that this Release shall not be construed to impair (i) any rights pursuant to any qualified retirement or welfare benefit plan maintained by the Company, (ii) any rights to be indemnified by the Company pursuant to the Company’s articles of incorporation or bylaws, applicable law, or rights under any Company D & O policy, or (iii) Executive’s rights under this Agreement.  Additionally, nothing in this Agreement shall be interpreted to prohibit Executive from filing an age discrimination claim with any anti-discrimination agency, or from participating in an age discrimination investigation or proceeding conducted by any such agency.  However, by signing this Agreement, Executive acknowledges that he is waiving any and all rights to money damages and any other relief that might otherwise be available should he or any other entity pursue claims against the Releasees.

 

  

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The Company, on behalf of itself and its predecessors, successors, subsidiaries, investors and current and former assigns, agents, officers, partners, members, directors, shareholders, employees, consultants, representatives, insurers, attorneys, affiliates, and any other related entities; and all persons acting by, through, under, or in concert with any of them, voluntarily releases and discharges Executive and his spouse, heirs, children, successors, current and former agents, representatives, executors, beneficiaries, administrators, trustees, attorneys and assigns (any and all of which are referred to as “Executive Releasees”), from any and all Claims which the Company has, claims to have, ever had, or ever claimed to have had against Executive Releasees through the date last written below.  This general release of Claims includes, without implication of limitation, all Claims relating to Executive’s employment and separation from employment with SeaChange; all Claims relating to Executive’s positions and duties with SeaChange; all Claims relating to Executive’s equity and other rights as to SeaChange; and all other statutory or common law Claims; provided that (i) nothing in this Agreement shall be construed to impair the Company’s rights under this Agreement or any agreement referenced in Section 17 below; and (ii) notwithstanding the foregoing, the Company shall retain the right to pursue and proceed with any Claims relating to events, actions or inactions for which the Executive would not be indemnified under applicable law or under any indemnification agreements or policies applicable to the Executive.

 

7.           Non-Filing of Complaint or Charges.  Executive represents that he has not filed any complaint or charge against any of the Releasees with any local, state or federal agency or court, or assigned any of the Claims released in Section 6(a) to any third party.  The Company represents that it has not filed any complaint or charge against any of the Executive Releasees with any local, state or federal agency or court, or assigned any of the Claims released in Section 6(b) to any third party.

 

  

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8.           Confidentiality; Intellectual Property.

 

	
  

	
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The Executive agrees that he will not at any time, directly or indirectly, disclose or use any Confidential Information (as hereinafter defined), except to the extent required by law (but only after the Executive has provided the Company with reasonable notice and opportunity to take action against any legally required disclosure).  As used herein, “Confidential Information” means all trade secrets and all other information of a business, financial, marketing, technical or other nature relating to the business of the Company including, without limitation, any customer or vendor lists, prospective customer names, financial statements and projections, know-how, pricing policies, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, computer hardware, software programs, business plans and projects pertaining to the Company and including any information of others that the Company has agreed to keep confidential; provided, that Confidential Information shall not include any information that has entered or enters the public domain through no fault of the Executive.

 

	
  

	
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All inventions, modifications, discoveries, designs, developments, improvements, processes, software programs, works of authorship, documentation, formulae, data, techniques, know-how, secrets or intellectual property rights or any interest therein (collectively, the “Developments”) made by the Executive, either alone or in conjunction with others, at any time or at any place during the Executive’s employment with the Company, whether or not reduced to writing or practice during such period of employment, which relate to the business in which the Company is engaged or, to the knowledge of the Executive, in which the Company intends to engage, shall be and hereby are the exclusive property of the Company without any further compensation to the Executive.  In addition, without limiting the generality of the prior sentence, all Developments which are copyrightable work by the Executive are intended to be “work made for hire” as defined in Section 101 of the Copyright Act of 1976, as amended, and shall be and hereby are the property of the Company.

 

	
  

	
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If any Development is not the property of the Company by operation of law, this Agreement or otherwise, the Executive will, and hereby does, assign to the Company all right, title and interest in such Development, without further consideration, and will assist the Company and its nominees in every way, at the Company’s expense, to secure, maintain and defend the Company’s rights in such Development.  The Executive shall sign all instruments necessary for the filing and prosecution of any applications for, or extension or renewals of, letters patent (or other intellectual property registrations or filings) of the USA or any foreign country which the Company desires to file and relates to any Development.  The Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as such Executive’s agent and attorney-in-fact (which designation and appointment shall be deemed coupled with an interest and shall survive the Executive’s death or incapacity), to act for and in the Executive’s behalf to execute and file any such applications, extensions or renewals and to do all other lawfully permitted acts to further the prosecution and issuance of such letters patent, other intellectual property registrations or filings, or such other similar documents with the same legal force and effect as if executed by the Executive.

 

  

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9.           Nonsolicitation and Noncompetition.  The Executive agrees that, during the Transition Period and for twelve (12) months following the Separation Date, he will not, directly or indirectly, individually or as a consultant to, or an employee, officer, director, manager, stockholder (except as the owner of less than 1% of the stock of a publicly traded company), partner, member or other owner or participant in any business entity:

 

	
  

	
a.

	
solicit away from the Company or endeavor to entice away from the Company, or otherwise interfere with the business relationship of the Company with, any person or entity who is, or was within the one year period immediately prior thereto, (i) employed by, associated with or a consultant to the Company, or (ii) a customer, prospective customer, dealer, distributor or client of, supplier, vendor or service provider to, or other party having business relations with, the Company;

 

	
  

	
b.

	
engage in, perform work for, or participate or assist in any business conducted anywhere in the United States that competes with any business in which the Company is engaged as of the Separation Date.

 

10.           Return of Information and Property.  Executive represents and warrants that he has either returned or will return to Kevin Bisson, Chief Financial Officer, on or before the Separation Date any and all Company property and documents; provided that (a) Executive shall be permitted to retain his current cell phone number, although all Company-paid services relating to his cell phone and the devices listed in Section 10(b) shall cease on the Separation Date; and (b) the Company shall return to Executive his current iPhone, iPad, and Macbook laptop once the Company has removed all Company information and data from such devices.  Executive further agrees that on and after the Separation Date, he will not for any purpose attempt to access or use any SeaChange computer or computer network or system, including its servers and electronic mail system.  Executive also represents that he has left intact all of the Company’s electronic files, including those that he developed or helped develop during his employment with the Company.

 

11.           Cooperation.  During the Transition Period and the Severance Period, Executive agrees that upon request by SeaChange, he shall provide, at mutually agreeable times and in reasonable amounts, assistance to and cooperation with SeaChange in order to ensure a smooth transition of his duties and responsibilities.

 

  

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During the Severance Period and at all times thereafter, Executive agrees to cooperate fully with SeaChange in the defense or prosecution of any threatened or actual claims or actions which may be brought by, against or on behalf of SeaChange or its predecessors, subsidiaries, affiliates or any of their current or former partners, investors, agents, employees, officers, or directors and which relate to events or occurrences that transpired or are alleged to have transpired during his employment or affiliation with SeaChange.  Such cooperation shall include, without implication of limitation, being available to meet at mutually agreeable times with the Company’s counsel to prepare for discovery or trial and to testify truthfully as a witness when reasonably requested by SeaChange.

 

12.           Non-Disparagement.  Executive agrees not to make any statement, written or oral, which disparages SeaChange or any of its services, subsidiaries, affiliates, shareholders, investors, partners, members, directors, officers, employees, or agents.  Executive further agrees not to make any statement or take any action which has the intended or foreseeable effect of harming SeaChange.  For its part, the Company agrees that (i) neither its current President nor its current Board members shall make any statement, written or oral, which disparages Executive; and (ii) the Company shall not include any written statements that disparage the Executive in any official public Company announcement.

 

Nothing in this Section or in Section 8 herein shall prohibit either Party from providing truthful testimony in any legal proceeding, communicating with any governmental agency or representative, or from making any truthful disclosure required by law; provided, however, that in the event of such a disclosure, each Party agrees to provide advance written notice to the non-disclosing Party of his/its intent to make such disclosures and provided that best efforts will be used by the Parties to ensure that this Section and Section 8 are complied with to the maximum extent possible.  Moreover, nothing herein shall prevent Executive from participating in any proceeding before any federal or state administrative agency to the fullest extent permitted by applicable law, provided that he will be prohibited to the fullest extent authorized by law from obtaining monetary damages and any other relief in any agency proceeding in which he does so participate.

 

13.           Accord and Satisfaction.  It is expressly agreed that the payments and benefits set forth in this Agreement, together with all other payments and benefits previously provided to Executive by SeaChange, are complete payment, settlement, satisfaction and accord with respect to all obligations and liabilities of the Releasees to Executive.  SeaChange agrees that Executive’s undertakings in this Agreement are complete payment, settlement, satisfaction and accord with respect to all obligations and liabilities of Executive to SeaChange.

 

14.           Further Assurances.  The Parties agree to execute, acknowledge (if necessary), and deliver such documents, certificates or other instruments and take such other actions as may be reasonably required from time to time to carry out the intents and purposes of this Agreement.

 

15.           Remedy for Breach.  Executive understands and agrees that SeaChange may terminate his continued eligibility for the Severance Pay, Benefits Continuation, CIC Payment and/or 2012 Bonus if he violates this Agreement. In addition, in the event any legal authority determinates that Executive has violated this Agreement, the Company may also recover or retract any Severance Benefits and/or 2012 Bonus provided to Executive after the first date of such violation.  The Parties further agree that a breach of Sections 7, 8, 9, 10, 11 and/or 12 (and the first paragraph of Section 1) herein would result in irreparable harm to the non-breaching Party, that money damages would not provide an adequate remedy, and, therefore, that in addition to any other rights that the non-breaching Parties may have, the non-breaching Party shall have the right to specific performance and injunctive relief in the event of a breach any of those Sections of this Agreement.  In addition, in the event of any violation of those Sections of this Agreement, the non-breaching Party shall be entitled to recover its attorneys fees and costs incurred in connection with any efforts to enforce its rights under this Agreement.

 

  

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16.           Voluntary Waiver and Acknowledgement.  Executive acknowledges that he has had the opportunity to consult with the attorney of his choice in connection with executing this Agreement, and that he has been given the opportunity, if so desired, to consider this Release for twenty-one (21) days before executing it.  If Executive does not sign this Agreement and return it to Kevin Bisson, Chief Financial Officer, at the Company’s principal business address so that it is received within twenty-one (21) days of the Separation Date, it will not be valid.  In the event that Executive executes this Release within less than 21 days, he acknowledges that such decision was entirely voluntary and that he had the opportunity to consider this Release for the entire 21-day period.  Any change to this Agreement, whether material or otherwise, will not re-start this 21-day period.

 

The Parties acknowledge that, for a period of seven (7) days from the date that Executive signs this Agreement (the “Revocation Period”), he will retain the right to revoke this Agreement by written notice to Kevin Bisson, Chief Financial Officer, at the Company’s principal business address, received before the end of the Revocation Period, and that this Agreement will not become effective or enforceable until the expiration of the Revocation Period.

 

Executive agrees that he has carefully read and understands all of the provisions of this Agreement, and that he is voluntarily entering into this Agreement.  Executive further represents and acknowledges that in executing this Agreement, he is not relying and has not relied upon any representation or statement made by any of the Releasees with regard to the subject matter, basis or effect of this Agreement.

 

17.           Entire Agreement.  With the exception of the 2012 Plans, the Equity Plans and the Corporate Governance Guidelines, all of which shall survive in full force and effect except as expressly amended herein, this Agreement constitutes the entire understanding and agreement of the Parties regarding the matters set forth herein and supersedes any prior communications, agreements and understandings, written or oral, with respect to the matters set forth herein (including but not limited to all provisions of the Employment Agreement except Article III).

 

18.           Other Terms.  This Agreement may be modified only by a written agreement signed by Executive and an authorized officer of SeaChange.  The waiver by any party of a breach of this Agreement shall not operate or be construed as a waiver of any subsequent breach.  This Agreement may be executed in separate counter-parts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.  This Agreement shall be governed by and construed in accordance with the laws of the state of Massachusetts without regard for the conflict of laws principles thereof.  The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the Parties.  This Agreement is not, and shall not be construed to be, an admission of any violation of any federal, state or local statute or regulation, or of any duty owed by Executive or any of the Releasees.  If any provision of this Agreement is deemed invalid, the remaining provisions shall not be affected and shall be enforced to the maximum extent permitted by law.  This Agreement shall be binding upon and inure to the benefit of the Parties’ successors and assigns, except that Executive’s obligations herein are personal and may not be assigned.

 

  

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date last written below.

 

	/s/ William C. Styslinger, III	November 29, 2011
	WILLIAM C. STYSLINGER, III	DATE
	 	 
	 	 
	 	 
	

SEACHANGE INTERNATIONAL, INC.

	 
	 	 
	By /s/ Kevin M. Bisson    	November 29, 2011
	Name: Kevin M. Bisson 	DATE
	

Title:  CFO

	 

 

 

  

10Unassociated Document

 Exhibit 10.67

 

AURA SYSTEMS, INC.

 

DIRECTORS AND EXECUTIVE OFFICERS STOCK OPTION PLAN

 

1.           Purpose

 

The purpose of the Aura Systems, Inc. Director and Executive Officer Stock Option Plan (the “Plan”) is to attract and retain the services of experienced and knowledgeable directors and executive officers of Aura Systems, Inc. (the “Corporation”) for the benefit of the Corporation and its stockholders and to provide additional incentive for such directors and executive officers to continue to work for the best interests of the Corporation and its stockholders through continuing ownership of its common stock.

 

2.           Shares Subject to the Plan

 

The total number of shares of common stock (“Shares”) of the Corporation for which options may be granted under the Plan shall not exceed 15% of the Corporation’s issued and outstanding shares of common stock.  Subject to the foregoing, the total aggregate number of Shares reserved and available for grant and issuance pursuant to the Plan will be 10,497,473, and shall increase as the number of shares of common stock outstanding is increased.  Within the foregoing limitations, Shares for which options have been granted pursuant to the Plan but which options have lapsed or otherwise terminated shall become available for the grant of additional options.

 

3.           Administration of Plan

 

The Board of Directors of the Corporation shall administer the Plan.  The Board may delegate responsibility for administration of the Plan to a Board committee (the “Committee”) composed solely of two or more directors, each of whom is a “Non-Employee Director” as that term is defined in Rule 16b-3(b) promulgated by the Securities and Exchange Commission pursuant to its authority under the Securities Exchange Act of 1934 (the “Exchange Act”).  The Board or the Committee, as the case may be, shall have the power to construe the Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable.  References to the “Board” in this Plan shall be deemed to refer to either the Board or the Committee, whichever is appropriate in the context in which the word is used.

 

4.           Discretionary Option Grants

 

Pursuant to this Plan, the Board may grant in its discretion an option to any person who is elected or appointed a director or an executive officer of the Corporation.  An executive officer shall be defined in accordance with Rule 3b-7 of the Securities Exchange Act of 1934.  No director or executive officer shall have any claim or right to be granted an option under this Plan.  Having received an option under this Plan shall not give a director or an executive officer any right to receive any other grant or option under this Plan and the Board may determine that any or all director(s) or executive officer(s)

 

  

  

  

 

are not eligible to receive an option under this Plan for an indefinite period or for a specified year or years.

 

5.           Option Agreement

 

Each option granted under the Plan shall be evidenced by an option agreement (the “Agreement”) duly executed on behalf of the Corporation and by the director or executive officer to whom such option is granted, which Agreements may, but need not be, identical and which shall (a) comply with and be subject to the terms and conditions of the Plan and (b) provide that the director or executive officer agrees not to exercise an option granted from this Plan for a period of at least six months and one day from the date of grant.  Any Agreement may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Board.  No option shall be deemed granted within the meaning of the Plan and no purported grant of any option shall be effective, until such Agreement shall have been duly executed on behalf of the Corporation and the director to whom the option is to be granted.

 

6.           Option Exercise Price

 

The exercise price for an option granted pursuant to Section 4 of the Plan may not be less than fair market value, provided, however, that the exercise price must be at least 110% of the fair market value of the shares on the date of grant if the option is intended to compy with Section 422 of the Internal Revenue Code and is awarded to an executive officer who owns 10% of the total combined voting power of the Corporation’s common stock.  For purposes hereof, fair market value shall be the closing price of the Corporation’s common stock on the date of the option grant, as reported on the principal national securities exchange or quotation service on which the Shares are then listed for trading.

 

7.           Time and Manner of Exercise of Option

 

(a)           The Board shall set the vesting schedule for options granted pursuant to Section 4 of the Plan in its discretion.

 

(b)           To the extent that the right to exercise an option has vested and is in effect, the option may be exercised from time to time, by giving written notice, signed by the person or persons exercising the option, to the Corporation, stating the number of Shares with respect to which the option is being exercised, accompanied by payment in full for such Shares, which payment may be in whole or in part in shares of the common stock of the Corporation already owned by the person or persons exercising the option, valued at fair market value on the date of payment.  For purposes hereof, the fair market value of shares already owned by the person or persons exercising the option shall be the closing price of the shares on the exercise date as reported on the principal national securities exchange or the quotation service on which the Shares are then listed for trading.

 

(c)           Upon exercise of the option, delivery of a certificate for fully paid and non-assessable Shares shall be made at the principal office of the Corporation to the person or persons exercising the option as soon as practicable (but in no event more than 30 days) after the date of receipt of the notice of exercise by the Corporation, or at such time, place, and manner as may be agreed upon by the Corporation and the person or persons exercising the option.

 

  

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8.           Term of Options

 

Each option shall expire no more than five years from the date of the granting thereof.  The options shall be subject to earlier termination as follows:

 

(a)           In the event of the death, retirement or disability of an option holder, the option granted to such person may be exercised, to the extent exercisable on the date of such person’s death, retirement or disability, on the later of (i) any date prior to the date on which the option expires by its terms or (ii) 90 days, by the person or the estate of such person, or by any person or persons who acquired the right to exercise such option by will or by the laws of descent and distribution.

 

(b)           In the event that an option holder ceases to be a director or executive officer of the Corporation, other than by reason of his or her death, retirement or disability, an option granted to such person may be exercised, to the extent exercisable on the date such person ceases to be a director or executive officer, within 90 days after the date such person ceases to be a director or executive officer (irrespective of the option expiration date) unless the Board or the Committee designates another date that is a later date.

 

9.           Merger, Consolidation, Sale of Assets, etc., Resulting in a Change in Control

 

(a)           In the event of a Change in Control (as hereinafter defined), notwithstanding the vesting provisions contained in the Agreement granting an option to a director or an executive officer pursuant to this Plan, such option shall become fully exercisable if, within one year of such Change in Control, such director or executive officer shall cease for any reason to be a member of the Board or an employee of the Corporation.  For purposes hereof, a Change in Control of the Corporation shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the common stock of the Corporation would be converted into cash, securities, or other property, other than a merger of the Corporation in which the holders of the common stock of the Corporation immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) 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 Corporation; or (ii) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation; or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more that 50% of the Corporation’s outstanding common stock.

 

(b)           Any exercise of an option permitted pursuant to this Section 9 shall be made within 15 days of the director’s or the executive officer’s termination as a director or employee.

 

10.           Options Not Transferable

 

  

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An option granted pursuant to the Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the option holder, only by the option holder; provided that the Board may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability.

 

11.           No Rights as Stockholder Until Exercise

 

Neither the recipient of an option under the Plan nor his successors in interest shall have any rights as a stockholder of the Corporation with respect to any Shares subject to an option granted to such person until such person becomes a holder of record of such Shares.

 

12.           Adjustments Upon Changes in Capitalization or Merger

 

Subject to any required action by the stockholders of the Corporation, the number of shares of common stock covered by each outstanding option, and the number of shares of common stock which have been authorized for issuance under the Plan but as to which no options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an option, as well as the price per share of common stock covered by each outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or any other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by the Corporation; provided, however, that conversion of any convertible securities of the Corporation shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive.  Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of common stock subject to an option.

 

In the event of the proposed dissolution or liquidation of the Corporation, an outstanding option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.  The Board may, in the exercise of its sole discretion in such instances, declare that any option shall terminate as of a date fixed by the Board and give each option holder the right to exercise an option as to all or any part of the stock covered by such option, including Shares as to which the option would not otherwise be exercisable.  In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger of the Corporation with or into another corporation, each option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume each option or to substitute an equivalent option, in which case the Board shall, in lieu of such assumption or substitution, provide for the option holder to have the right to exercise such option as to all of the stock covered by such option, including Shares as to which such option would not otherwise be exercisable.  If the Board makes an option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the option holder that the option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the option will terminate upon the expiration of such period.

 

13.           Restrictions on Issue of Shares

 

  

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Notwithstanding anything in this Plan to the contrary, the Corporation may delay the issuance of Shares covered by the exercise of any option and the delivery of a certificate for such Shares until one of the following conditions shall be satisfied:

 

(a)           the Shares with respect to which an option has been exercised are at the time of the issue or transfer of such Shares effectively registered under applicable federal securities laws now in force or hereafter amended; or

 

(b)           counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such Shares are exempt from registration under applicable federal securities laws now in force or hereafter amended.

 

It is intended that all exercises of options shall be effective.  Accordingly, the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense solely for the purpose of covering the issuance or transfer from the Corporation’s treasury of Shares in respect of which any option may be exercised.

 

14.           Purchase for Investment

 

Unless the Shares to be issued upon exercise of an option granted under the Plan have been effectively registered under the Securities Act of 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue or transfer any Shares covered by any option unless the person or persons who exercise such option, in whole or in part, shall give a written representation and undertaking to the Corporation, which is satisfactory in form and scope to counsel to the Corporation and upon which, in the opinion of such counsel, the Corporation may reasonably rely, that he or she is acquiring the shares issued or transferred to him or her for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution for any such Shares, and that he or she will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act of 1933, or any other applicable law, and that if Shares are issued or transferred without such registration a legend to this effect may be placed upon the certificates representing the Shares.

 

15.           Effective Date

 

The effective date (the “Effective Date”) of this Plan shall be the date on which the Plan is approved by the Board of Directors of the Corporation.

 

16.           Expenses of the Plan

 

  

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All costs and expenses of the adoption and administration of the Plan shall be borne by the Corporation and none of such expenses shall be charged to any director.

 

17.           Termination and Amendment of Plan

 

Unless sooner terminated as herein provided, the Plan shall terminate ten years from the Effective Date.  The Board may at any time terminate the Plan or make such modification or amendment thereof as it deems advisable.  The Board shall not amend the provisions in the Plan regarding the amount, pricing, and timing for grants pursuant to this Plan more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder.  Termination or any modification or amendment of the Plan shall not, without the consent of an option holder, affect his or her rights under an option previously granted to him or her.

 

  

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