SCHEDULE 14A INFORMATION

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LIONS GATE ENTERTAINMENT CORP.

 

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LIONS GATE ENTERTAINMENT CORP.

 

 

 

 

 

NOTICE OF ANNUAL GENERAL MEETING

OF SHAREHOLDERS

To Be Held September 11, 2007

 

 

 

 

 

To Our Shareholders:

 

The 2007 Annual General Meeting of Shareholders of Lions Gate Entertainment Corp. will be held at the Four Seasons Hotel, Windows West Room, 21 Avenue Road, Toronto, Ontario, M5R 2G1, on Tuesday, September 11, 2007, beginning at 10:00 a.m., local time. At the meeting, shareholders will act on the following matters:

 

1. Electing 12 directors, each for a term of one year;

 

2. Re-appointing Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2008 and authorizing our Audit Committee to determine the remuneration to be paid to Ernst & Young LLP;

 

3. Voting on an increase in the number of common shares reserved for issuance under the Lions Gate Entertainment Corp. 2004 Performance Incentive Plan;

 

4. Receiving the audited consolidated financial statements of the Company for the fiscal year ended March 31, 2007, together with the auditor’s report thereon; and

 

5. Transacting such further and other business as may properly come before the meeting and any continuations, adjournments or postponements thereof.

 

Shareholders of record at the close of business on July 13, 2007 are entitled to vote at the meeting or any continuations, adjournments or postponements thereof. It is expected that these materials first will be mailed to stockholders on or about July 26, 2007.

 

By Order of Our Board of Directors,

 

Jon Feltheimer

Chief Executive Officer and Co-Chairman of the Board

 

Vancouver, British Columbia

July 26, 2007

TABLE OF CONTENTS

 

2007 ANNUAL GENERAL MEETING OF SHAREHOLDERS

LIONS GATE ENTERTAINMENT CORP.

 

 

PROXY STATEMENT

 

 

 

 

This proxy statement is part of a solicitation by the board of directors and management of Lions Gate Entertainment Corp. and contains information relating to our annual general meeting of shareholders (the “Annual Meeting”) to be held on Tuesday, September 11, 2007, beginning at 10:00 a.m., local time, at the Four Seasons Hotel, Windows West Room, 21 Avenue Road, Toronto, Ontario, M5R 2G1, and to any continuations, adjournments or postponements thereof. All dollar figures contained in this proxy statement are United States dollars unless otherwise indicated. The Notice of Annual Meeting, this Proxy Statement and the enclosed proxy card first will be mailed to shareholders on or about July 26, 2007.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will act upon the matters outlined in the accompanying notice of meeting, including the election of directors. In addition, our management will report on our performance during fiscal 2007 and respond to appropriate questions from shareholders.

 

Who is entitled to vote?

 

Only shareholders of record who own the Company’s common shares (NYSE symbol: “LGF”) at the close of business on July 13, 2007, the “Record Date,” are entitled to receive notice of the Annual Meeting and to vote the common shares that they held on that date at the meeting, or any continuations, adjournments or postponements of the meeting. Each outstanding common share entitles its holder to cast one vote on each matter to be voted upon. As of the Record Date, 119,201,707 common shares were outstanding and entitled to vote and held by approximately 477 shareholders of record.

 

Who can attend and vote at the meeting?

 

Only registered shareholders of the Company or the persons they appoint as their proxies are permitted to attend and vote at the Annual Meeting. Most shareholders of the Company are “non-registered” shareholders (“Non-Registered Shareholders”) because the shares they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the shares. Shares beneficially owned by a Non-Registered Shareholder are registered either: (i) in the name of an intermediary (an “Intermediary”) that the Non-Registered Shareholder deals with in respect of the shares of the Company (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (ii) in the name of a clearing agency (such as The Canadian Depository for Securities Limited or The Depository Trust & Clearing Corporation) of which the intermediary is a participant. In accordance with applicable securities law requirements, the Company will have distributed copies of the Notice of Annual Meeting, this Proxy Statement, and the proxy card (collectively, the “Meeting Materials”) to the clearing agencies and Intermediaries for distribution to Non-Registered Shareholders.

 

Intermediaries are required to forward the Meeting Materials to Non-Registered Shareholders unless a Non-Registered Shareholder has waived the right to receive them. Intermediaries often use service companies to forward

the Meeting Materials to Non-Registered Shareholders. Generally, Non-Registered Shareholders who have not waived the right to receive Meeting Materials will either:

 

(i) be given a voting instruction form which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions (often called a “voting instruction form”) which the Intermediary must follow. Typically, the voting instruction form will consist of a one-page printed form. Sometimes, instead of the one-page pre-printed form, the voting instruction form will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar code and other information. In order for the form of proxy to validly constitute a voting instruction form, the Non-Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or

 

(ii) be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of shares beneficially owned by the Non-Registered Shareholder but which is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non-Registered Shareholder when submitting the proxy. In this case, the Non-Registered Shareholder who wishes to submit a proxy should properly complete the form of proxy and deposit it with the Company, c/o CIBC Mellon Trust Company, P.O. Box 721, Agincourt, Ontario, M1S 0A1.

 

In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the shares of the Company they beneficially own. Should a Non-Registered Shareholder who receives one of the above forms wish to vote at the Annual Meeting in person (or have another person attend and vote on behalf of the Non-Registered Shareholder), the Non-Registered Shareholder should strike out the persons named in the form of proxy and insert the Non-Registered Shareholder or such other person’s name in the blank space provided. In either case, the Non-Registered Shareholders should carefully follow the instructions of their Intermediary, including those regarding when and where the proxy or voting instruction form is to be delivered.

 

A Non-Registered Shareholder may revoke a voting instruction form or a waiver of the right to receive Meeting Materials and to vote which has been given to an Intermediary at any time by written notice to the Intermediary provided that an Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive Meeting Materials and to vote which is not received by the Intermediary at least seven days prior to the Annual Meeting.

 

What constitutes a quorum?

 

A quorum is necessary to hold a valid meeting of shareholders. The presence at the meeting, in person or by proxy, of two holders of common shares outstanding on the Record Date who, in the aggregate, hold at least 10% of the issued common shares, will constitute a quorum.

 

How do I vote?

 

If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct. If you are a registered shareholder and you attend the meeting, you may deliver your completed proxy card in person. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy from the institution that holds their shares, see “Who can attend and vote at the meeting?” above. At the Annual Meeting, one or more representatives from CIBC Mellon Trust Company, the Company’s transfer agent, shall be appointed to act as scrutineers. These scrutineers will determine the number of common shares represented at the meeting, the existence of a quorum and the validity of proxies, will count the votes and ballots, if required, and will determine and report the results to us.

Can I change my vote after I return my proxy card?

 

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with our Corporate Secretary at one of our principal executive offices either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy.

 

What are the board’s recommendations?

 

The enclosed proxy is solicited on behalf of our board of directors and management. Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors set forth with the description of each item in this proxy statement. In summary, our board of directors recommends a vote:

 

 

Our board of directors does not know of any other matters that may be brought before the meeting, nor does it foresee or have reason to believe that the proxy holders will have to vote for substitute or alternate board nominees. If any other matter should properly come before the meeting or any nominee is not available for election, the proxy holders will vote as recommended by our board of directors or, if no recommendation is given, in accordance with their best judgment.

 

What vote is required to approve each item?

 

In order to be approved, the proposals included in this proxy statement — for the election of each of the nominated directors (Proposal 1), the re-appointment of Ernst & Young LLP as our independent registered public accounting firm (Proposal 2) and approval of an increase in the number of common shares reserved for issuance under the Lions Gate Entertainment Corp. 2004 Performance Incentive Plan (Proposal 3) — each requires the affirmative vote of a majority of the common shares present or represented by proxy. With respect to Proposals 1 and 2, abstentions and broker non-votes will not be counted in determining the number of shares necessary for approval of any item. With respect to Proposal 3, broker non-votes and abstentions will have the effect of a vote AGAINST the approval of the amendment to increase the shares reserved for issuance.

 

Who pays for the preparation of the proxy statement?

 

We will pay the cost of preparing, assembling and mailing the proxy statement, notice of meeting and enclosed proxy card. In addition to the use of mail, our employees may solicit proxies personally and by telephone. Our employees will receive no compensation for soliciting proxies other than their regular salaries. We may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy materials to their principals and to request authority for the execution of proxies and we may reimburse those persons for their expenses incurred in connection with these activities. We will compensate only independent third-party agents that are not affiliated with us but who solicit proxies. At this time, we do not anticipate that we will be retaining a third-party solicitation firm, but should we determine, in the future, that it is in our best interests to do so, we will retain a solicitation firm and pay all costs and expenses associated with retaining this solicitation firm.

 

May I propose actions for consideration at next year’s annual general meeting of shareholders?

 

Yes. For your proposal to be considered for inclusion in our proxy statement for next year’s annual meeting, we must receive your written proposal no later than May 28, 2008. You should also be aware that your proposal must comply with U.S. Securities and Exchange Commission regulations regarding inclusion of shareholder proposals in

company-sponsored proxy materials. Shareholder proposals submitted outside the proxy process (i.e., a proposal to be presented at the next annual general meeting of shareholders) must be received by our Corporate Secretary at either of our principal executive offices no later than June 11, 2008 and must comply with the requirements of the Business Corporations Act (British Columbia).

 

If the date of the 2008 annual meeting is advanced or delayed more than 30 days from the date of the 2007 annual meeting, shareholder proposals intended to be included in the proxy statement for the 2008 annual meeting must be received by us within a reasonable time before we begin to print and mail the proxy statement for the 2008 annual meeting. Upon any determination that the date of the 2008 annual meeting will be advanced or delayed by more than 30 days from the date of the 2007 annual meeting, we will disclose the change in the earliest practicable Quarterly Report on Form 10-Q.

 

SEC rules also govern a company’s ability to use discretionary proxy authority with respect to shareholder proposals that were not submitted by the shareholders in time to be included in the proxy statement. In the event a shareholder proposal is not submitted to us prior to July 11, 2008, the proxies solicited by the Board for the 2008 annual meeting of shareholders will confer authority on the proxyholders to vote the shares in accordance with the recommendations of the Board if the proposal is presented at the 2008 annual meeting of shareholders without any discussion of the proposal in the proxy statement for such meeting. If the date of the 2008 annual meeting is advanced or delayed more than 30 days from the date of the 2008 annual meeting, then the shareholder proposal must not have been submitted to us within a reasonable time before we mail the proxy statement for the 2008 annual meeting.

 

 

 

 

NO PERSON IS AUTHORIZED ON BEHALF OF THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING, OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION AND/OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED, AND THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

 

 

 

 

Our head office is located at 1055 West Hastings Street, Suite 2200, Vancouver, British Columbia V6E 2E9, and our telephone number there is (877) 848-3866. Our principal executive offices are located at our head office and at 2700 Colorado Avenue, Suite 200, Santa Monica, California 90404; (310) 449-9200. Our website is located at www.lionsgate.com. Website addresses referred to in this proxy statement are not intended to function as hyperlinks, and the information contained on our website is not a part of this proxy statement. As used in this proxy statement, unless the context requires otherwise, the terms “we,” “us,” “our” and the “Company” refer to Lions Gate Entertainment Corp. and its subsidiaries.

 

 

 

 

 

The date of this proxy statement is July 26, 2007

 

The following table presents certain information about beneficial ownership of our common shares as of July 13, 2007, by (1) each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of our common shares, (2) each director and nominee for director and each officer named on the Executive Officer Compensation Table, and (3) all directors and executive officers as a group. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all common shares shown as beneficially owned by them, subject to community property laws, where applicable. None of the shares in this table have been pledged as a security.

 

 

 

 

 

 

On May 30, 2007, as permitted by Canadian law and our Articles, our board set the number of directors at 12 for the ensuing year. Our board of directors is limited by our Articles to a minimum of five directors and a maximum of 18 directors. Our Articles also provide that the holder of our Series B preferred shares is entitled to elect one member of our board of directors, who shall be Mark Amin (and only Mr. Amin), so long as any Series B preferred shares are outstanding and Mr. Amin is legally qualified to serve on our board of directors. Mr. Amin, as the sole holder of Series B preferred shares, will elect himself as a director effective as of the Annual Meeting, and will continue to serve as such until our 2008 annual general meeting of shareholders, subject to the terms of our Articles.

 

Nominees for Directors

 

Each nominee, if elected at the Annual Meeting, will serve until our 2008 annual general meeting of shareholders, or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated in accordance with our Articles.

 

The following nominees have consented to serve on our board of directors and our board of directors has no reason to believe that they will not serve if elected. However, if any of them should become unavailable to serve as a director, and if our board of directors has designated a substitute nominee, the persons named as proxies will vote for this substitute nominee.

 

Norman Bacal.  Mr. Bacal became a director in December 2004. Mr. Bacal has been a partner with the law firm of Heenan Blaikie LLP since 1987 and has been co-managing partner of the firm since 1997. Mr. Bacal is 51 years old and his place of residence is Toronto, Ontario.

 

Michael Burns.  Mr. Burns became a director in August 1999 and has been our Vice Chairman since March 2000. During his tenure at Prudential Securities Inc.’s Los Angeles Investment Banking Office from 1991 to March 2000, Mr. Burns served as Managing Director and Head of the Office. Mr. Burns is Chairman and a director of Novica.com. Mr. Burns is 48 years old and his place of residence is Los Angeles, California.

 

Arthur Evrensel.  Mr. Evrensel became a director in September 2001 and is Chairman of our Compensation Committee. Mr. Evrensel has been a partner with the law firm of Heenan Blaikie LLP since 1992. Mr. Evrensel is 49 years old and his place of residence is North Vancouver, British Columbia.

Jon Feltheimer.  Mr. Feltheimer became a director in January 2000 and Co-Chairman of our board of directors in June 2005, and has been our Chief Executive Officer since March 2000. Mr. Feltheimer worked for Sony Pictures Entertainment from 1991-1999, serving as Founder and President of TriStar Television from 1991-1993, as President of Columbia TriStar Television from 1993-1995 and from 1995-1999 as President of Columbia TriStar Television Group and EVP of Sony Pictures Entertainment. Mr. Feltheimer is 55 years old and his place of residence is Los Angeles, California.

 

Morley Koffman.  Mr. Koffman has been a director since November 1997 and is a member of our Audit Committee and Chairman of our Nominating & Corporate Governance Committee. Mr. Koffman is a lawyer with the firm of Koffman Kalef, where he has practiced since 1993. Mr. Koffman is a director and the Chairman of the Corporate Governance Committee of Ainsworth Lumber Co. Ltd. Mr. Koffman is 77 years old and his place of residence is Vancouver, British Columbia.

 

Harald Ludwig.  Mr. Ludwig previously served as a director from November 1997 to December 2004, and was re-appointed to our board of directors in June 2005. Mr. Ludwig is currently Co-Chairman of our board of directors and Chairman of our Strategic Advisory Committee. Since 1985, Mr. Ludwig has served as President of Macluan Capital Corporation, a leveraged buy-out company. Mr. Ludwig is a director, a member of the Governance Committee and chairman of the Compensation Committee of West Fraser Timber Co. Limited. Mr. Ludwig is also an advisor to Tennenbaum Capital Partners, LLC and to General Capital Group. Mr. Ludwig is 52 years old and his place of residence is West Vancouver, British Columbia.

 

Laurie May.  Ms. May has been a director since September 2005. Ms. May is Co-President of Maple Pictures Corp. (“Maple Pictures”). Ms. May joined our company as Vice President, Business & Legal Affairs in March 1997, and was promoted to Senior Vice President, Business & Legal Affairs, which position she held until April 2005. In April 2005, the Company spun off its Canadian distribution operation into Maple Pictures, which distributes the Company’s film and TV programs in Canada, as well as produces and distributes other filmed entertainment in Canada. Prior to joining the Company, Ms. May practiced corporate and entertainment law at Osler, Hoskin & Harcourt for three years. She was also an adjunct professor of Entertainment and Sports Law at the University of Western Ontario. She received her Bachelor of Laws from the University of Toronto Law School. Ms. May is 40 years old and her place of residence is Toronto, Ontario.

 

G. Scott Paterson.  Mr. Paterson has been a director since November 1997 and is Chairman of our Audit Committee and a member of our Strategic Advisory Committee. Mr. Paterson is Chief Executive Officer of JumpTV Inc., one of the world’s leading broadcasters of international television and sports over the Internet. From October 1998 to December 2001, Mr. Paterson served as Chairman and Chief Executive Officer of Yorkton Securities Inc., which was then the leading underwriter of technology and film and entertainment companies in Canada. He is currently the Chairman of the board of directors of Automated Benefits Corp. and a director of Rand A Technology Corp., public companies listed on the Toronto Venture Exchange and Toronto Stock Exchange, respectively. Mr. Paterson is the past Chairman of the Canadian Venture Stock Exchange and a former Vice Chairman of the Toronto Stock Exchange. In December 2001, Mr. Paterson entered into a Settlement Agreement with the Ontario Securities Commission in connection with conduct that was, in the view of the Commission, contrary to the public interest in connection with certain corporate finance and trading activities engaged in by Mr. Paterson and the investment dealer with which he was associated. Mr. Paterson has fulfilled the terms of the Settlement Agreement which provided that he could not be registered under the Securities Act (Ontario) until December 19, 2003, that he make a voluntary payment to the Commission of one million Canadian dollars and that he temporarily cease trading for a six-month period. There were no allegations of securities rule or law breaches. Mr. Paterson is 43 years old and his place of residence is Toronto, Ontario.

 

Daryl Simm.  Mr. Simm became a director in September 2004 and is a member of our Compensation Committee and our Nominating & Corporate Governance Committee. Since 1998 Mr. Simm has been Chief Executive Officer of Omnicom Media Group, a division of Omnicom Group, Inc., of which he is an officer. Omnicom Media Group companies provide media planning and buying and related services to advertisers. Mr. Simm is 46 years old and his place of residence is New York, New York.

 

Hardwick Simmons.  Mr. Simmons became a director in June 2005 and is a member of our Compensation Committee and our Nominating & Corporate Governance Committee. During his tenure at The NASDAQ Stock

Market Inc. from February 2001 to June 2003, Mr. Simmons served first as Chief Executive Officer and then as Chairman and Chief Executive Officer. From May 1991 to December 2000, Mr. Simmons served as President and Chief Executive Officer of Prudential Securities Incorporated. Mr. Simmons is currently the lead director and a member of the Governance and Compensation Committee for Raymond James Financial, a public company listed on the New York Stock Exchange and a director of Geneva Acquisition Corp., a special purpose acquisition company listed on the American Stock Exchange. Mr. Simmons is 67 years old and his place of residence is Katonah, New York.

 

Brian V. Tobin.  Mr. Tobin became a director in January 2004 and is a member of our Audit Committee and our Strategic Advisory Committee. Mr. Tobin is a director and member of the Corporate Governance Committee of Aecon Group Inc., a public company listed on the Toronto Stock Exchange, and is Vice Chairman of the board for Consolidated Thompson — Lundmark Gold Mines Ltd. and Chairman of the board of New Flyer Industries Inc., also listed on the Toronto Stock Exchange. Mr. Tobin is a director of Persona Communications, the Canadian Phone Directories and Marport Canada, Inc., a privately held company. Mr. Tobin is currently a Senior Business Advisor with Fraser Milner Casgrain LLP in Toronto, Canada and is Special Advisor for the Canadian Youth Business Foundation. Mr. Tobin has been a consultant since 2002 and prior to that held numerous political positions in Canada, both federal and provincial, including as Federal Minister of Industry from October 2000 to January 2002 and Premier of Newfoundland and Labrador from 1996 to 2000. Mr. Tobin is 52 years old and his place of residence is Toronto, Ontario.

 

Elected as Director

 

The following individual will be elected at the Annual Meeting by the holder of our Series B preferred shares under the terms of our Articles, as described above.

 

Mark Amin.  Mr. Amin has been Vice Chairman of our board of directors since June 2006. Mr. Amin was our Vice Chairman from October 2000 to April 2006. From 1984 to October 2000, Mr. Amin served as Chief Executive Officer or Chairman of Trimark Holdings, Inc., which he founded. Since 1998 Mr. Amin has been Chairman of CinemaNow, Inc. and since 2001 the owner and Chief Executive Officer of Sobini Films. Mr. Amin became a director in October 2000 and is a member of our Strategic Advisory Committee. Mr. Amin is also a director of JumpTV, Inc., a public company listed on the Toronto Stock Exchange. Mr. Amin is 57 years old and his place of residence is Los Angeles, California.

 

Vote Required and Board of Directors Recommendation

 

The affirmative vote of a majority of the common shares present at the Annual Meeting or represented by proxy is required for the election of each of the nominated directors. For purposes of this proposal, abstentions and broker non-votes will not be counted in determining the number of votes necessary for the election of each of the nominated directors.

 

Unless such authority is withheld, the proxies given pursuant to this solicitation will be voted FOR the election of directors. Our board of directors recommends a vote FOR each of the nominees.

 

At the request of our Audit Committee, Ernst & Young LLP will be nominated at the Annual Meeting for re-appointment as the Company’s independent registered public accounting firm at a remuneration to be fixed by our Audit Committee. Ernst & Young LLP has been our independent registered public accounting firm since August 2001.

 

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, and will have the opportunity to make a statement if they desire to do so, and to respond to appropriate questions from shareholders.

Vote Required and Board of Directors Recommendation

 

The affirmative vote of a majority of the common shares present at the Annual Meeting or represented by proxy is required for the re-appointment of Ernst & Young LLP as our independent registered public accounting firm. For purposes of this proposal, abstentions and broker non-votes will not be counted in determining the number of votes necessary for the re-appointment of Ernst & Young LLP as our independent registered public accounting firm.

 

Unless such authority is withheld, the proxies given pursuant to this solicitation will be voted FOR the re-appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company to hold office until the close of the 2008 annual general meeting of shareholders, or until a successor is appointed, at a remuneration to be determined by our Audit Committee. Our board of directors recommends their re-appointment.

 

In July 2007, our board of directors unanimously approved an amendment to the Lions Gate Entertainment Corp. 2004 Performance Incentive Plan (the “2004 Plan”), which authorizes the Company to issue various equity-based incentives to our directors, officers, employees and providers. Subject to shareholder approval, the proposed amendment provides for an increase in the number of common shares available for grant purposes under the 2004 Plan from 7,000,000 to 14,000,000. The proposed amendment would also increase the number of shares that may be subject to grants of “full-value awards” (which generally includes awards other than options or share appreciation rights) under the 2004 Plan from 6,500,000 to 13,500,000.

 

As of July 13, 2007, a total of 8,531,014 common shares were then subject to outstanding awards granted under the 2004 Plan, and an additional 55,580 common shares were then available for new award grants under the 2004 Plan.

 

We believe that incentives and share-based awards focus employees on the objective of creating shareholder value and promoting the success of the Company, and that incentive compensation plans like the 2004 Plan are an important attraction, retention and motivation tool for participants in the plan. Our board of directors approved the proposed amendment (subject to shareholder approval) based on a belief that the number of common shares currently available under the 2004 Plan does not give the Company sufficient authority and flexibility to adequately provide for future incentives. Long-term key employee retention is of particular significance to the Company, as competition for the limited number of business, production and creative personnel necessary to create and distribute our entertainment content is intense and may grow in the future. If shareholders do not approve the proposed amendment to the 2004 Plan, we will continue to have authority to grant awards under the 2004 Plan within the existing 2004 Plan share limits.

 

Summary Description of the 2004 Plan

 

The principal terms of the 2004 Plan as proposed to be amended are summarized below. The following summary is qualified in its entirety by the full text of the 2004 Plan, as proposed to be amended, which has been filed as an appendix to the copy of this proxy statement that was filed electronically with the Securities and Exchange Commission and can be reviewed on the Securities and Exchange Commission’s website at http://www.sec.gov. A copy of the 2004 Plan is also available, free of charge, upon request (to be directed to our Corporate Secretary at either of our principal executive offices).

 

Purpose.  The purpose of the 2004 Plan is to promote the success of the Company and the interests of our shareholders by providing an additional means for us to attract, motivate, retain and reward directors, officers, employees and other eligible persons through the grant of awards and incentives for high levels of individual performance and improved financial performance of the Company. Equity-based awards are also intended to further align the interests of award recipients and our shareholders.

Administration.  Our board of directors or one or more committees appointed by our board of directors administers the 2004 Plan. Our board of directors has delegated general administrative authority for the 2004 Plan to our Compensation Committee. A committee may delegate some or all of its authority with respect to the 2004 Plan to another committee of directors and certain limited award grant authority to grant awards to employees may be delegated to one or more officers of the Company. The appropriate acting body, be it our board of directors, a committee within its delegated authority, or an officer within his or her delegated authority, is referred to in this proposal as the “Administrator.”

 

The Administrator has broad authority under the 2004 Plan with respect to award grants including, without limitation, the authority:

 

 

No Repricing.  In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that may be approved by shareholders) will any adjustment be made to a stock option or share appreciation right award under the 2004 Plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per share exercise or base price of the award.

 

Eligibility.  Persons eligible to receive awards under the 2004 Plan include officers or employees of the Company or any of our subsidiaries, directors of the Company, and certain consultants and advisors to the Company or any of our subsidiaries.

 

Authorized Shares; Limits on Awards.  The maximum number of the Company’s common shares that may be issued or transferred pursuant to awards under the 2004 Plan equals the sum of: (1) 7,000,000 shares, plus (2) the number of shares available for additional award grant purposes under the Company’s Employees’ and Directors’ Equity Incentive Plan (the “Equity Incentive Plan”) as of September 14, 2004, plus (3) the number of any shares subject to stock options granted under the Equity Incentive Plan and outstanding as of September 14, 2004 which expire, or for any reason are cancelled or terminated, after that date without being exercised. If shareholders approve the proposed 2004 Plan amendment, the number of shares available for award grant purposes under the 2004 Plan will be increased by an additional 7,000,000 shares.

 

The following other limits are also contained in the 2004 Plan:

 

 

 

To the extent that an award is settled in cash or a form other than shares, the shares that would have been delivered had there been no such cash or other settlement will not be counted against the shares available for issuance under the 2004 Plan. In the event that shares are delivered in respect of a dividend equivalent right, share appreciation right, or other award, only the actual number of shares delivered with respect to the award shall be counted against the share limits of the 2004 Plan. Shares that are subject to or underlie awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the 2004 Plan will again be available for subsequent awards under the 2004 Plan. Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award under the 2004 Plan, as well as any shares exchanged by a participant or withheld by the Company to satisfy the tax withholding obligations related to any award under the 2004 Plan, will be available for subsequent awards under the 2004 Plan. In addition, the 2004 Plan generally provides that shares issued in connection with awards that are granted by or become obligations of the company through the assumption of awards (or in substitution for awards) in connection with an acquisition of another company will not count against the shares available for issuance under the 2004 Plan.

 

Types of Awards.  The 2004 Plan authorizes stock options, share appreciation rights, restricted shares, share bonuses and other forms of awards granted or denominated in the Company’s common shares or units of the Company’s common shares, as well as cash bonus awards. The 2004 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be paid or settled in cash.

 

A stock option is the right to purchase the Company’s common shares at a future date at a specified price per share (the “exercise price”). The per share exercise price of an option generally may not be less than the fair market value of a common share of the Company on the date of grant. The maximum term of an option is ten years from the date of grant. An option may either be an incentive stock option or a nonqualified stock option. Incentive stock option benefits are taxed differently from nonqualified stock options, as described under “U.S. Federal Income Tax Consequences of Awards Under the 2004 Plan” below. Incentive stock options are also subject to more restrictive terms and are limited in amount by the U.S. Internal Revenue Code and the 2004 Plan. Incentive stock options may only be granted to employees of the Company or a subsidiary.

 

A share appreciation right is the right to receive payment of an amount equal to the excess of the fair market value of a common share of the Company on the date of exercise of the share appreciation right over the base price of the share appreciation right. The base price will be established by the Administrator at the time of grant of the share appreciation right and generally cannot be less than the fair market value of a common share of the Company on the date of grant. Share appreciation rights may be granted in connection with other awards or independently. The maximum term of a share appreciation right is ten years from the date of grant.

 

The per share exercise price of an option or the per share base price of a share appreciation right may, however, be less than the fair market value of a common share of the Company on the date of grant in the case of (1) awards granted retroactively in tandem with or as a substitution for another award, or (2) if the option or share appreciation right will be counted against the plan’s limit on full-value awards (that is, the limit on the number of shares that can be issued under the 2004 Plan in respect of awards other than options and share appreciation rights).

 

The other types of awards that may be granted under the 2004 Plan include, without limitation, share bonuses, restricted shares, performance shares, share units, dividend equivalents, or similar rights to purchase or acquire shares, and cash awards granted consistent with Section 5.2 of the 2004 Plan as described below.

 

Subject to limited exceptions set forth in Section 5.1.5 of the 2004 Plan, the 2004 Plan generally imposes a minimum one-year vesting requirement on any full-value awards that are subject to a performance-based vesting condition and generally requires that any other full-value awards not vest more rapidly than in monthly installments

over a three-year period. For these purposes, “full-value awards” include all awards under the 2004 Plan other than (1) a delivery of shares in respect of compensation earned but deferred, or (2) a stock option or stock appreciation right with an exercise or base price that is not less than the fair market value of the underlying shares on the date the award is granted.

 

Performance-Based Awards.  The Administrator may grant awards that are intended to be performance-based awards within the meaning of Section 162(m) of the U.S. Internal Revenue Code (“Performance-Based Awards”). Performance-Based Awards are in addition to any of the other types of awards that may be granted under the 2004 Plan (including options and share appreciation rights that may also qualify as performance-based awards for Section 162(m) purposes). Performance-Based Awards may be in the form of restricted shares, performance shares, share units, other rights, or cash bonus opportunities.

 

The vesting or payment of Performance-Based Awards (other than options or share appreciation rights) will depend on the absolute or relative performance of the Company on a consolidated, subsidiary, segment, division, or business unit basis. The Administrator will establish the criterion or criteria and target(s) on which performance will be measured. The Administrator must establish criteria and targets in advance of applicable deadlines under the U.S. Internal Revenue Code and while the attainment of the performance targets remains substantially uncertain. The criteria that the Administrator may use for this purpose will include one or more of the following: earnings per share, cash flow (which means cash and cash equivalents derived from either net cash flow from operations or net cash flow from operations, financing and investing activities), total shareholder return, gross revenue, revenue growth, operating income (before or after taxes), net earnings (before or after interest, taxes, depreciation and/or amortization), return on equity or on assets or on net investment, cost containment or reduction, or any combination thereof. These terms are used as applied under generally accepted accounting principles or in the financial reporting of the Company or its subsidiaries. The performance measurement period with respect to an award may range from three months to ten years. Performance targets will be adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the targets were set unless the Administrator provides otherwise at the time of establishing the targets.

 

Performance-Based Awards may be paid in shares or in cash (in either case, subject to the limits described under the heading “Authorized Shares; Limits on Awards” above). Before any Performance-Based Award (other than an option or share appreciation right) is paid, the Administrator must certify that the performance target or targets have been satisfied. The Administrator has discretion to determine the performance target or targets and any other restrictions or other limitations of Performance-Based Awards and may reserve discretion to reduce payments below maximum award limits.

 

Deferrals.  The Administrator may provide for the deferred payment of awards, and may determine the other terms applicable to deferrals. The Administrator may provide that deferred settlements include the payment or crediting of interest or other earnings on the deferred amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.

 

Acceleration of Awards; Possible Early Termination of Awards.  Generally, and subject to limited exceptions set forth in the 2004 Plan, if any person acquires more than 30% of the outstanding common shares or combined voting power of the Company, if certain changes in a majority of our board of directors occur over a period of not longer than two years, if shareholders prior to a transaction do not continue to own more than 50% of the voting securities of the Company (or a successor or a parent) following a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of our subsidiaries, a sale or other disposition of all or substantially all of the Company’s assets or the acquisition of assets or stock of another entity by us or any of our subsidiaries, or if the Company is dissolved or liquidated, then awards then-outstanding under the 2004 Plan may become fully vested or paid, as applicable, and may terminate or be terminated in such circumstances. The Administrator also has the discretion to establish other change in control provisions with respect to awards granted under the 2004 Plan. For example, the Administrator could provide for the acceleration of vesting or payment of an award in connection with a change in control event that is not described above and provide that any such acceleration shall be automatic upon the occurrence of any such event.

 

Transfer Restrictions.  Subject to certain exceptions contained in Section 5.7 of the 2004 Plan, awards under the 2004 Plan generally are not transferable by the recipient other than by will or the laws of descent and distribution

and are generally exercisable, during the recipient’s lifetime, only by the recipient. Any amounts payable or shares issuable pursuant to an award generally will be paid only to the recipient or the recipient’s beneficiary or representative. The Administrator has discretion, however, to establish written conditions and procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable federal and state securities laws.

 

Adjustments.  As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2004 Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the shareholders.

 

No Limit on Other Authority.  The 2004 Plan does not limit the authority of our board of directors or any committee to grant awards or authorize any other compensation, with or without reference to our common shares, under any other plan or authority.

 

Termination of or Changes to the 2004 Plan.  Our board of directors may amend or terminate the 2004 Plan at any time and in any manner. Shareholder approval for an amendment will be required only to the extent then required by applicable law or any applicable listing agency or required under Sections 162, 422 or 424 of the U.S. Internal Revenue Code to preserve the intended tax consequences of the 2004 Plan. For example, shareholder approval will be required for any amendment that proposes to increase the maximum number of shares that may be delivered with respect to awards granted under the 2004 Plan, such as the amendment proposed in this proxy statement. (Adjustments as a result of stock splits or similar events will not, however, be considered an amendment requiring shareholder approval.) Unless terminated earlier by our board of directors, the authority to grant new awards under the 2004 Plan will terminate on June 27, 2014. Outstanding awards, as well as the Administrator’s authority with respect thereto, generally will continue following the expiration or termination of the 2004 Plan. Generally speaking, outstanding awards may be amended by the Administrator (except for a repricing), but the consent of the award holder is required if the amendment (or any plan amendment) materially and adversely affects the holder.

 

U.S. Federal Income Tax Consequences of Awards under the 2004 Plan

 

The U.S. federal income tax consequences of the 2004 Plan under current federal law, which is subject to change, are summarized in the following discussion of the general tax principles applicable to the 2004 Plan. This summary is not intended to be exhaustive and, among other considerations, does not describe state, local, or international tax consequences.

 

With respect to nonqualified stock options, the company is generally entitled to deduct and the participant recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. With respect to incentive stock options, the company is generally not entitled to a deduction nor does the participant recognize income at the time of exercise, although the participant may be subject to the U.S. federal alternative minimum tax.

 

The current federal income tax consequences of other awards authorized under the 2004 Plan generally follow certain basic patterns: share appreciation rights are taxed and deductible in substantially the same manner as nonqualified stock options; nontransferable restricted shares subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value over the price paid (if any) only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); bonuses, cash and stock-based performance awards, dividend equivalents, stock units, and other types of awards are generally subject to tax at the time of payment; and compensation otherwise effectively deferred is taxed when paid. In each of the foregoing cases, the company will generally have a corresponding deduction at the time the participant recognizes income.

 

If an award is accelerated under the 2004 Plan in connection with a “change in control” (as this term is used under the U.S. Internal Revenue Code), the company may not be permitted to deduct the portion of the

compensation attributable to the acceleration (“parachute payments”) if it exceeds certain threshold limits under the U.S. Internal Revenue Code (and certain related excise taxes may be triggered). Furthermore, the aggregate compensation in excess of $1,000,000 attributable to awards that are not “performance-based” within the meaning of Section 162(m) of the U.S. Internal Revenue Code may not be permitted to be deducted by the company in certain circumstances.

 

New Plan Benefits under the 2004 Performance Incentive Plan

 

The Compensation Committee has approved certain award grants under the 2004 Plan because insufficient shares remained available under the 2004 Plan for the grants. Each of these grants is set forth in the following table and is subject to shareholder approval of the 2004 Plan amendment.

 

2004 Performance Incentive Plan
Awards Subject to Shareholder Approval of 2004 Plan Proposal

 

 

 

 

Except for the grants described in the table above, the Company has not approved any other awards that are conditioned upon shareholder approval of the proposed 2004 Plan amendment. The Company is not currently considering any other specific award grants under the 2004 Plan. If the additional shares that would be available if shareholders approve the proposed 2004 Plan amendment had been available in fiscal 2007, the Company expects that its award grants for fiscal 2007 would not have been substantially different from those actually made in that year under the 2004 Plan.

 

The closing market price for the Company’s common shares as of July 13, 2007 was $11.39 per share.

AGGREGATE PAST GRANTS UNDER THE 2004 PLAN

 

As of July 13, 2007, awards covering 6,375,165 common shares had been granted under the 2004 Plan. The following table shows information regarding the distribution of those awards among the persons and groups identified below as of that date.

 

 

 

 

Messrs. Feltheimer and Burns and each of the non-executive directors identified above is a nominee for re-election as a director at the 2007 annual meeting.

 

Vote Required and Board of Directors Recommendation

 

The affirmative vote of a majority of the common shares present at the Annual Meeting or represented by proxy is required for approval of the proposed amendment to the 2004 Plan. For purposes of this proposal, broker non-votes and abstentions will have the effect of a vote AGAINST the approval of the amendment to increase the shares reserved for issuance.

 

Unless such authority is withheld, the proxies given pursuant to this solicitation will be voted FOR the approval of the amendment to the 2004 Plan. Our board of directors recommends approval of the amendment.

 

The Company currently maintains two equity compensation plans: the 2004 Plan and the Equity Incentive Plan, each of which has been approved by the Company’s shareholders.

 

The following table sets forth, for each of the Company’s equity compensation plans, the number of common shares subject to outstanding options and rights, the weighted-average exercise price of outstanding options, and the number of shares remaining available for future award grants as of March 31, 2007.

 

 

 

 

Our board of directors held a total of six meetings in fiscal 2007 and took a number of actions by unanimous written consent. Each director attended at least 75% of the aggregate number of meetings of our board of directors and meetings of committees on which he or she served in fiscal 2007. All directors are invited but not required to attend each annual general meeting of shareholders. All of our then current directors attended our 2006 annual

general meeting of shareholders in person. Harald Ludwig, our Co-Chairman, presides at the regularly scheduled executive sessions of the non-management directors.

 

Our board of directors has a standing Audit Committee, Compensation Committee, Nominating & Corporate Governance Committee and Strategic Advisory Committee.

 

Audit Committee

 

Messrs. Paterson (Chair), Koffman and Tobin are the current members of our Audit Committee. This committee held five meetings during fiscal 2007. The duties and responsibilities of our Audit Committee include (a) recommending to the shareholders the appointment of our auditors and any termination of our auditors, (b) reviewing the plan and scope of audits, (c) reviewing our significant accounting policies and internal controls and (d) having general responsibility for all audit related matters. Our Audit Committee is governed by a written charter approved by our board of directors. The full text of the charter was attached as Appendix A to our 2005 proxy statement and is also available on the Company’s website at www.lionsgate.com and in print to any shareholder who requests it.

 

Our board of directors believes that each member of our Audit Committee qualifies as an independent director under NYSE listing standards and the enhanced independence standards applicable to audit committees pursuant to Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that Mr. Paterson is a financial expert under NYSE listing standards and applicable U.S. Securities and Exchange Commission rules and applicable Canadian securities laws, regulations, policies and instruments.

 

Compensation Committee

 

The Compensation Committee of the board of directors is comprised of Messrs. Evrensel (Chair), Simm and Simmons. The Compensation Committee held ten meetings during fiscal 2007. The Board has determined that each member of the Compensation Committee is independent under the rules of the New York Stock Exchange. The Compensation Committee operates pursuant to a written charter, which is posted in the Investors/Governance section of the Company’s website at www.lionsgate.com, or which may be obtained in print without charge by any stockholder upon request to the Corporate Secretary of the Company. The Board amended and restated the Compensation Committee’s charter on May 30, 2007.

 

Pursuant to its charter, the Compensation Committee’s responsibilities include the following:

 

 

The Compensation Committee may form subcommittees and delegate to its subcommittees such power and authority as it deems appropriate, but no subcommittee will have final decision-making authority on behalf of the board of directors unless the board of directors so authorizes. The Compensation Committee has no current intention to delegate any of its authority to any subcommittee. Our executive officers, including the Named Executive Officers (as identified below), do not have any role in determining the form or amount of compensation paid to our Named Executive Officers and our other senior executive officers. However, our CEO does make recommendations to the Compensation Committee with respect to compensation paid to the other executive officers.

 

Pursuant to its charter, the Compensation Committee is authorized to retain such independent compensation consultants and other outside experts or advisors as it believes to be necessary or appropriate to carry out its duties.

For fiscal 2007, the Compensation Committee retained the firm of Mercer Human Resource Consulting (“Mercer”) as independent compensation consultants to assist it in determining the compensation levels for our senior executive officers. The Compensation Committee made its compensation decisions during fiscal 2007, including decisions with respect to its Named Executive Officers’ compensation, after consultation with Mercer. Mercer advised the Compensation Committee with respect to trends in executive compensation, determination of pay programs, assessment of competitive pay levels and mix (e.g., proportion of fixed pay to incentive pay, proportion of annual cash pay to long-term incentive pay), and setting compensation levels. Mercer also reviewed and identified our appropriate peer group companies for fiscal 2007, helped the Compensation Committee to obtain and evaluate current executive compensation data for these peer group companies and provided the Compensation Committee with a shareholder value analysis and competitive pay assessment of these companies. In addition, the Company participates in a compensation survey of the entertainment industry provided by Towers Perrin that provides group compensation data on the Company’s principal competitors. All compensation decisions were made solely by the Compensation Committee or the board of directors.

 

Nominating & Corporate Governance Committee

 

Messrs. Koffman (Chair), Simm and Simmons are the current members of our Nominating & Corporate Governance Committee, which held three meetings during fiscal 2007. The Nominating & Corporate Governance Committee is responsible for developing our corporate governance system, reviewing proposed new members of our board of directors, including those recommended by our shareholders, evaluating the independence of current and prospective directors, and reviewing the suitability of each member of our board of directors for continued service. The Nominating & Corporate Governance Committee operates pursuant to a written charter adopted by our board of directors. The full text of the charter is available on the Company’s website at www.lionsgate.com and in print to any shareholder who requests it. For instructions on how shareholders may submit recommendations for director nominees to our Nominating & Corporate Governance Committee, see “Shareholder Communications” below. Our board of directors believes that each member of the committee qualifies as an independent director as defined under NYSE listing standards. Our board of directors is currently considering whether or not to establish, but has not yet established, any special qualifications or any minimum criteria for director nominees. Presently, in considering candidates for our board of directors, the Nominating & Corporate Governance Committee will consider the entirety of each candidate’s credentials. In particular, the committee’s charter requires assessment of the following issues: relevant experience, intelligence, independence, commitment, compatibility with the Chief Executive Officer and the culture of our board of directors, prominence, diversity, age, understanding of the Company’s business, and other factors deemed relevant.

 

Strategic Advisory Committee

 

Messrs. Ludwig (Chair), Amin, Paterson and Tobin are the current members of our Strategic Advisory Committee. This committee held eight meetings during fiscal 2007. Our Strategic Advisory Committee is responsible for reviewing the Company’s strategic plan annually, meeting with management on a periodic basis to review operations against the plan, as well as overseeing preliminary negotiations regarding strategic transactions and, when applicable, acting as a pricing and approval committee on certain transactions.

 

Shareholders and interested parties who would like to communicate with our board may do so by writing to any or all non-employee directors, care of our Corporate Secretary, at either of our principal executive offices. The complete text of our Policy on Shareholder Communications is available on the Company’s website at www.lionsgate.com. Our Corporate Secretary will log in all shareholder and interested party correspondence and forward to the director addressee(s) all communications that, in his or her judgment, are appropriate for consideration by the directors. Any director may review the correspondence log and request copies of any correspondence. Examples of communications that would be considered inappropriate for consideration by the directors include, but are not limited to, commercial solicitations, trivial, obscene, or profane items, administrative matters, ordinary business matters, or personal grievances. Correspondence that is not appropriate for board review will be handled by our Corporate Secretary. All appropriate matters pertaining to accounting or internal controls will be brought promptly to the attention of our Audit Committee Chair.

Shareholder recommendations for director nominees are welcome and should be sent to our General Counsel at 2700 Colorado Avenue, Suite 200, Santa Monica, California 90404, who will forward such recommendations to our Nominating & Corporate Governance Committee. Our Nominating & Corporate Governance Committee will evaluate candidates recommended by shareholders in the same manner as candidates recommended by other sources, using criteria, if any, developed by the committee and approved by our board of directors from time to time.

 

Our policy on shareholder and interested party communications may be amended at any time with the consent of our Nominating & Corporate Governance Committee.

 

We have (1) a Code of Business Conduct and Ethics that applies to all our directors, officers and employees, and (2) a Code of Ethics for Senior Financial Officers that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Each of these codes is available on the Company’s website at www.lionsgate.com and in print to any shareholder who requests it. The Company will disclose on its website when there have been waivers of, or amendments to, either code that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or persons performing similar functions.

 

None of the directors or executive officers of the Company, and none of the associates or affiliates of any of the foregoing, is currently indebted to the Company or was indebted to the Company at any time since the beginning of the Company’s most recently completed fiscal year.

 

It is the policy of our board of directors that a majority of directors be independent of the Company and of the Company’s management. For a director to be deemed “independent,” our board of directors shall affirmatively determine that the director has no material relationship with the Company or its affiliates or any member of the senior management of the Company or his or her affiliates. In making this determination, our board of directors shall apply, at a minimum and in addition to any other standards for independence established under applicable statutes and regulations, the following standards, which are available on the Company’s website at www.lionsgate.com and which it may amend or supplement from time to time:

 

 

 

Pursuant to our Corporate Governance Guidelines, our board of directors undertook its annual review of director independence beginning in May 2007. During this review, our board of directors considered transactions and relationships between each director or any member of his immediate family and the Company and its subsidiaries and affiliates, including those reported under the heading “Certain Relationships and Related Transactions” below. Our board of directors also examined transactions and relationships between directors or their affiliates and members of the Company’s senior management or their affiliates. As provided in our Corporate Governance Guidelines, the purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. Our Nominating & Corporate Governance Committee, with assistance from counsel, regularly reviews our Corporate Governance Guidelines to ensure their compliance with Canadian law and SEC and NYSE regulations. The full text of our Corporate Governance Guidelines is available on the Company’s website at www.lionsgate.com and in print to any shareholder who requests them.

 

As a result of this review, our board of directors affirmatively determined that each of Messrs. Bacal, Evrensel, Koffman, Ludwig, Paterson, Simm, Simmons and Tobin are independent of the Company and its management under our Standards for Director Independence, Canadian standards, the NYSE listing standards.

 

The following table presents information regarding the compensation paid during fiscal 2007 to members of our board of directors who are not also our employees (referred to herein as “Non-Employee Directors”). The compensation paid to Mr. Feltheimer and Mr. Burns, each of whom is also employed by us, is presented below in the Summary Compensation Table and the related explanatory tables.

 

 

 

 

 

 

Director Compensation

 

Our Non-Employee Directors are entitled to receive an annual retainer of $20,000 (which will be increased to $40,000 effective August 8, 2007) and an additional retainer of $10,000 (which will be increased to $15,000 effective August 8, 2007) if such director acts as chairman of our Audit Committee or $7,500 (which will be increased to $10,000 effective August 8, 2007) if such director acts as chairman of our Compensation Committee or Nominating & Corporate Governance Committee. Effective September 12, 2006, the non-employee Co-Chairman of our board of directors is entitled to receive an additional annual retainer of $30,000. In addition, each Non-Employee Director is entitled to receive a fee of $1,000 (which will be increased to $1,400 effective August 8, 2007) for each meeting of the board of directors or any committee thereof that the director attends in person or by telephone, and to be reimbursed for reasonable fees and expenses incurred in connection with their service as directors. The retainers and fees for the Non-Employee Directors are paid, at the director’s election, either 50% in cash and 50% in the form of our common shares or 100% in the form of our common shares, except that the additional annual retainer for our non-employee Co-Chairman is paid 50% in cash and 50% in the form of our common shares. Retainers are generally paid in two installments each year, with the number of shares to be delivered in payment of any retainer to be determined by dividing the dollar amount of the retainer to be paid in the form of common shares by the closing price of our common shares on the payment date.

Our Non-Employee Directors are also granted 12,500 restricted share units upon first being elected or appointed to our board of directors. The restricted share units vest in annual installments over three years following the date of grant and are paid upon vesting in an equivalent number of our common shares. We require that our Non-Employee Directors hold a minimum number of our common shares. On June 11, 2007, we increased this requirement from 7,500 shares to 10,000 shares.

 

The following is a list of our executive officers followed by their biographical information (other than Messrs. Feltheimer and Burns, whose biographical information appears on page 7).

 

 

 

 

Steven Beeks.  Mr. Beeks has been our Chief Operating Officer since April 2007, President since July 2006 and President of Lions Gate Entertainment Inc., our wholly owned subsidiary, since December 2003. From January 1998 until December 2003, Mr. Beeks served as President of Artisan Home Entertainment.

 

James Keegan.  Mr. Keegan has been our Principal Accounting Officer since April 2005, our Chief Financial Officer since September 2002 and our Chief Administrative Officer since April 2002. From September 1998 to April 2002, Mr. Keegan was the Chief Financial Officer of Artisan Entertainment. From April 1989 to March 1990, he was Controller of Trimark Holdings, Inc. and from March 1990 to August 1998, he was the Chief Financial Officer of Trimark Holdings, Inc.

 

Wayne Levin.  Mr. Levin has been our Executive Vice President, Corporate Operations since February 2004. Previously, Mr. Levin had been our Executive Vice President, Legal and Business Affairs since November 2000. Mr. Levin has been our General Counsel since November 2000. He worked for Trimark Holdings, Inc. from September 1996 to November 2000, first as Director of Legal and Business Affairs from 1996 to 1998 and then as General Counsel and Vice President from 1998 to 2000.

 

Our officers are appointed and, subject to employment agreements, serve at the discretion of our board of directors.

 

This section describes the material elements of compensation awarded to, earned by or paid to the individuals who served as our principal executive officer or our principal financial officer during fiscal 2007, and our three other most highly compensated executive officers. These individuals are listed in the “Summary Compensation Table” below and are referred to as the “Named Executive Officers” in this Proxy Statement.

 

Our executive compensation programs are determined and approved by our Compensation Committee. None of the Named Executive Officers are members of the Compensation Committee or otherwise had any role in determining the compensation of other Named Executive Officers, although the Compensation Committee does consider the recommendations of our CEO in setting compensation levels for our other executive officers.

 

Executive Compensation Program Objectives and Overview

 

Our executive compensation program is designed to retain and motivate the senior executive talent required to ensure our success. The program also aims to support the creation of shareholder value and ensure that pay is consistent with performance.

Our Compensation Committee’s general philosophy is that bonus and equity compensation should fluctuate with the Company’s success in achieving financial and other goals, and that the Company should continue to use long-term compensation such as stock options, share appreciation rights and restricted share units to align shareholders’ and executives’ interests.

 

The Compensation Committee also reviews compensation levels to ensure they are reasonable after consideration of the executive compensation programs of similar companies.

 

Our current executive compensation program is based on three components, which are designed to be consistent with our compensation philosophy: (1) base salary; (2) annual incentive bonuses; and (3) long-term stock awards, including stock options and awards of restricted stock units that are subject to time-based and performance-based vesting requirements. We also provide certain perquisites and personal benefits to our Named Executive Officers pursuant to their employment agreements and severance benefits if the Named Executive Officer’s employment terminates under certain circumstances.

 

In structuring executive compensation packages, the Compensation Committee considers how each component promotes retention and/or motivates performance by the executive. Base salaries, perquisites and personal benefits, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives. These are the elements of our executive compensation program where the value of the benefit in any given year is not dependent on performance (although base salary amounts and benefits determined by reference to base salary may increase from year to year depending on performance, among other things). We believe that in order to attract and retain top executives, we need to provide them with predictable compensation levels that reward their continued service. Annual incentive bonuses are primarily intended to motivate our Named Executive Officers to achieve specific strategies and operating objectives, although we believe they also help us to attract and retain top executives. Our long-term equity incentives are primarily intended to align Named Executive Officers’ long-term interests with shareholders’ long-term interests, although we believe they also play a role in helping us to attract and retain top executives. Annual bonuses and long-term equity awards are the elements of our executive compensation program that are designed to reward performance and thus the creation of shareholder value.

 

The Compensation Committee believes that performance-based compensation such as annual bonuses and long-term equity incentives play a significant role in aligning management’s interests with those of our shareholders. For this reason, these forms of compensation constitute a substantial portion of each of our Named Executive Officers’ compensation. The Compensation Committee’s philosophy has been to set the base salary levels of our Named Executive Officers at or slightly below the median salary level paid to similarly situated executives at our peer companies, with the majority of the executive’s compensation being delivered in the form of incentive compensation tied directly to shareholder value creation. In general, the Named Executive Officers’ compensation arrangements are intended to result in approximately 75% of each executive’s total direct compensation being incentive compensation, with base salary constituting the balance of their fiscal 2007 total direct compensation. Our compensation packages are designed to promote teamwork, initiative and resourcefulness by key employees whose performance and responsibilities directly affect our results of operations.

 

The Compensation Committee’s practice has been to retain independent compensation consultants to help identify appropriate peer group companies and to obtain and evaluate current executive compensation data for these companies. As noted above, for fiscal 2007, the Compensation Committee retained Mercer for this purpose. Based on Mercer’s recommendations, the Compensation Committee selected Activision, Alliance Atlantis, Atari, Dreamworks Animation, Electronic Arts, Image Entertainment, IMAX, Marvel Entertainment, Navarre, Pixar, Playboy Enterprises, Take-Two Interactive Software, THQ, Warner Music Group and World Wrestling Entertainment as our peer group companies for fiscal 2007. In addition, the Compensation Committee reviewed certain compensation data from the entertainment industry survey provided by Towers Perrin as described above.

 

We view our current executive compensation program as one in which the individual components combine together to create a total compensation package for each Named Executive Officer that we believe achieves our compensation objectives and has a targeted value at approximately the 35^th percentile of our peer group companies identified above. The Compensation Committee believes that this level is appropriate as the Company is smaller than most of the peer companies, ranking at approximately the 41^st percentile in terms of market capitalization and market value among these companies. Because the Compensation Committee generally determines the target value

of our current executive compensation program based on an assessment of the compensation paid by our peer group companies, we do not generally factor in amounts realized from prior compensation paid to the Named Executive Officers.

 

Current Executive Compensation Program Elements

 

Base Salaries

 

The base salaries of our Named Executive Officers, including periodic increases, are set forth in their respective employment agreements, each of which was approved by the Compensation Committee. In general, the Compensation Committee targets base salary levels between the 35^th and 45^th percentiles among our peer group companies identified in the annual review described above. As noted above, the Compensation Committee believes that a significant portion of executive officers’ compensation should be in the form of incentive compensation that helps to align the interests of our executives with those of our stockholders. Accordingly, our executive officers’ salary levels are set at or below the median level of our peer companies so that a greater percentage of our executives’ compensation may be delivered in the form of incentive compensation opportunities.

 

The Company has entered into employment agreements with each of the Named Executive Officers that provide for the executive’s base salary levels for the term of the agreement. In establishing the salary levels of the Named Executive Officers and the Company’s other executive officers, the Compensation Committee assesses the executive’s past performance and expected future contributions to the Company, the executive’s salary and responsibilities relative to the other executive officers, and the salaries of similarly situated executives with our peer companies. The Compensation Committee believes that the base salary levels of the Named Executive Officers and the other executive officers generally are reasonable in view of competitive practices, the Company’s performance and the contribution of those officers to that performance.

 

Annual Incentive Bonuses

 

Historically, annual incentive bonuses have been awarded to executive officers based upon multiple performance criteria, including evaluations of personal job performance and performance measured against objective business criteria. As noted above, the Company has entered into employment agreements with each of the Named Executive Officers that specifies how the executive’s bonus will be determined each year. In general, the bonus amounts for these executives are determined based on the Company’s performance relative to preestablished goals for that year.

 

For fiscal 2007, the Compensation Committee determined the bonuses to be awarded to each of the Named Executive Officers in accordance with the terms of their respective employment agreements. The bonus amounts for Messrs. Feltheimer and Burns were determined based on, among other factors, the Compensation Committee’s assessment of the Company’s performance during the fiscal year as measured by its EBITDA, total revenues, earnings, free cash flow, debt reduction, share price and other performance measures. Mr. Beeks’ bonus, pursuant to his employment agreement in effect for fiscal 2007, was determined in part based on the Company’s EBITDA and the performance of the Company’s Home Video Division during the fiscal year and in part discretionary. (For a description of Mr. Beeks’ employment agreement effective for fiscal 2008, see “Description of Employment Agreements — Salary and Bonus Amounts” below.) Mr. Levin’s bonus was determined based in part on the Company’s EBITDA and other performance factors established for the fiscal year and was in part discretionary. Mr. Keegan’s bonus was entirely in the discretion of the Compensation Committee. In each case, the discretionary portion of the bonuses for Messrs. Beeks, Levin and Keegan was determined by the Compensation Committee, taking into account the recommendations of Mr. Feltheimer, based on the performance of the Company and the individual executive during the fiscal year.

 

In addition to their annual incentive bonus awards, Messrs. Feltheimer and Beeks would be entitled to “stock price bonuses” pursuant to their employment agreements if the volume-weighted average of the Company’s median stock price exceeds certain thresholds over a six-month period. We believe that the stock price bonus provides an effective incentive to these executives to enhance Company performance in a way that is directly tied to the creation of value for our shareholders. As provided in his April 2006 employment agreement, Mr. Levin has received certain

bonuses in recognition of his past services to the Company and would be entitled to a bonus if a change in control of the Company were to occur.

 

Long-Term Incentive Equity Awards

 

The Company’s policy is that the long-term compensation of its Named Executive Officers and other executive officers should be directly linked to the value provided to shareholders. Therefore, the Company has historically made annual grants of stock options and restricted stock unit awards to provide further incentives to our executives to increase shareholder value. The Compensation Committee bases its award grants to executives each year on a number of factors, including:

 

 

In addition, the size, frequency and type of long-term incentive grants may be determined on the basis of tax consequences of the grants to the individual and the Company, accounting impact and potential dilution effects.

 

Award grants to our Named Executive Officers are generally made by the Compensation Committee in connection with the executive’s entering into a new employment agreement with the Company. The Company typically does not grant equity-based awards to its executive officers at any other time.

 

Share Options.  The Company makes a portion of its long-term incentive grants to Named Executive Officers in the form of share options with an exercise price that is equal to the closing price of our common shares on the grant date. Thus, the Named Executive Officers will only realize value on their share options if our shareholders realize value on their shares. The share options also function as a retention incentive for our executives as they vest ratably over the four-year period after the date of grant.

 

Time-Based Restricted Share Units.  The Company also grants long-term incentive awards to Named Executive Officers in the form of restricted share units that are subject to time-based or performance-based vesting requirements. Awards of time-based restricted share units vest over a period of several years following the date of grant and, upon vesting, are paid in shares of our common stock. Thus, the units are designed both to link executives’ interests with those of our shareholders as the units’ value is based on the value of our common stock and to provide a long-term retention incentive for the vesting period.

 

Performance-Based Restricted Share Units.  The Company also grants long-term incentive awards to Named Executive Officers in the form of performance-based restricted share units. The performance unit awards cover multiple years, with a percentage of the units subject to the award becoming eligible to vest each year based on the Company’s actual performance during that year relative to a performance goal established by the Compensation Committee. Thus, the performance units are designed both to motivate executives to maximize the Company’s performance each year and to provide a long-term retention incentive for the entire period covered by the award.

 

During fiscal 2007, the Company granted performance-based restricted share unit awards to Messrs. Feltheimer and Burns. Each of these awards covers a four-year performance period. For the first year of the performance period for each award, the Compensation Committee selected the following Company performance criteria to determine the number of restricted share units that would vest with respect to that year: stock price, annual revenue growth, free cash flow, cash management and management of cost of capital, achievement of pre-tax net income targets, return on equity and gross margin, and assessment of deals or acquisitions over time.

 

For more information on the equity-based awards granted to the Named Executive Officers during fiscal 2007, see the “Grants of Plan-Based Awards” table and accompanying narrative below.

Severance and Other Benefits Upon Termination of Employment

 

The Company believes that severance protections, particularly in the context of a change in control transaction, can play a valuable role in attracting and retaining key executive officers. Accordingly, we provide such protections for our Named Executive Officers under their respective employment agreements. The Compensation Committee evaluates the level of severance benefits to provide a Named Executive Officer on a case-by-case basis, and in general, we consider these severance protections an important part of an executive’s compensation and consistent with competitive practices.

 

As described in more detail below under “Potential Payments Upon Termination or Change in Control” below, the Named Executive Officers would be entitled under their employment agreements to severance benefits in the event of a termination of employment by the Company without cause (and, in the case of Mr. Feltheimer, a constructive termination of his employment). The Company has determined that it is appropriate to provide these executives with severance benefits under these circumstances in light of their positions with the Company and as part of their overall compensation package. The severance benefits for these executives are generally determined as if they continued to remain employed by the Company through the remainder of the term covered by their employment agreement.

 

The Company also believes that the occurrence, or potential occurrence, of a change in control transaction will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage certain of our executive officers to remain employed with the Company during an important time when their prospects for continued employment following the transaction are often uncertain, we provide certain Named Executive Officers with enhanced severance benefits if their employment is terminated by the Company without cause or, in certain cases, by the executive in connection with a change in control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the Company without cause, and because we believe that in the context of a change in control, potential acquirors would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances.

 

We do not believe that Named Executive Officers should be entitled to receive their cash severance benefits merely because a change in control transaction occurs. The payment of cash severance benefits is only triggered by an actual or constructive termination of employment. Under their respective employment agreements, certain of our Named Executive Officers would be entitled to accelerated vesting of their outstanding equity awards automatically on a change in control of the Company.

 

Policy with Respect to Section 162(m)

 

Section 162(m) of the Internal Revenue Code generally disallows public companies a tax deduction for compensation in excess of $1,000,000 paid to their chief executive officers and certain other executive officers unless certain performance and other requirements are met. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program (including the stock options granted to our Named Executive Officers as described above) satisfies the requirements for exemption from the $1,000,000 deduction limitation. However, we reserve the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of our executive compensation program as part of its primary objective of ensuring that compensation paid to our executive officers is reasonable, performance-based and consistent with the goals of the Company and its stockholders.

 

The following Report of the Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate the report by reference in that filing.

 

The Compensation Committee has certain duties and powers as described in its charter. The Compensation Committee is currently composed of the three non-employee directors named at the end of this report, each of whom is independent as defined by the New York Stock Exchange listing standards.

 

The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this proxy statement. Based upon this review and discussion, the Compensation Committee recommended to our board of directors that the Compensation Discussion and Analysis section be included in this proxy statement to be filed with the SEC.

 

Compensation Committee of the Board of Directors

 

Arthur Evrensel (Chair)
Daryl Simm
Hardwick Simmons

 

The Compensation Committee members whose names appear on the Compensation Committee Report above were committee members during all of fiscal 2007. No member of the Compensation Committee is or has been a former or current executive officer of the Company or had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee during the fiscal year ended March 31, 2007.

 

The following table presents information regarding compensation of each of our Named Executive Officers for services rendered during fiscal 2007.

 

 

 

 

Compensation of Named Executive Officers

 

The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to our Named Executive Officers in fiscal 2007. The primary elements of each Named Executive Officer’s total compensation reported in the table are base salary, an annual bonus, and long-term equity incentives consisting of stock options and restricted stock units. Named Executive Officers also earned the other benefits listed in Column (i) of the Summary Compensation Table, as further described in footnote 3 to the table.

 

The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards table, and the accompanying description of the material terms of the stock options and restricted stock unit awards granted in fiscal 2007, provides information regarding the long-term equity incentives awarded to Named Executive Officers in fiscal 2007. The Outstanding Equity Awards at Fiscal Year End and Option Exercises and Stock Vested tables provide further information on the Named Executive Officers’ potential realizable value and actual value realized with respect to their equity awards.

 

Description of Employment Agreements — Salary and Bonus Amounts

 

We have entered into employment agreements with each of our Named Executive Officers. These employment agreements, including the salary and bonus terms of each agreement, are briefly described below. Provisions of these agreements relating to outstanding equity incentive awards and post-termination of employment benefits are discussed below under the applicable sections of this Proxy Statement.

 

Jon Feltheimer.  We entered into an employment agreement with Mr. Feltheimer effective September 20, 2006. The agreement provides that Mr. Feltheimer will serve as our Chief Executive Officer for a term that ends March 31, 2011. Mr. Feltheimer’s annual base salary under the agreement was $850,000 through March 31, 2007 and will be $1,200,000 through the completion of the term. Mr. Feltheimer is entitled to an annual discretionary bonus determined by our Compensation Committee, based on certain criteria set forth in the agreement, with an informal target bonus of 100% of his base salary. In addition, Mr. Feltheimer will be entitled to receive a stock price bonus of $750,000 if the volume-weighted average of our median stock price exceeds $13.00, $16.00 or $19.00 for a period of six consecutive months (for a maximum total bonus of $2,250,000 if all three stock price values are met). The agreement also provides for Mr. Feltheimer to participate in the Company’s usual benefit programs for senior executives.

 

Michael Burns.  We entered into an employment agreement with Mr. Burns effective September 1, 2006. The agreement provides that Mr. Burns will serve as our Vice Chairman for a term that ends September 1, 2010. Mr. Burns’s annual base salary under the agreement is $750,000. Mr. Burns is entitled to an annual discretionary bonus, recommended by our Chief Executive Officer and determined by our Compensation Committee, based on certain criteria set forth in the agreement, with an informal target bonus of 100% of his base salary. In addition, Mr. Burns will be entitled to receive a stock price bonus of $600,000 if the volume-weighted average of our median stock price exceeds $13.00, $16.00 or $19.00 for a period of six consecutive months (for a maximum total bonus of $1,800,000 if all three stock price values are met). The agreement also provides for Mr. Burns to participate in the Company’s usual benefit programs for senior executives.

 

Steven Beeks.  We entered into an employment agreement with Mr. Beeks effective April 1, 2007. The agreement provides that Mr. Beeks will serve as our President and Chief Operating Officer for a term that ends April 1, 2011. Mr. Beeks’s annual base salary under the agreement is $600,000 through March 31, 2008 and will increase thereafter to $750,000 for the remainder of term. Mr. Beeks is entitled to an annual performance bonus at the full discretion of our Chief Executive Officer. In addition, Mr. Beeks is entitled to receive an annual bonus of between 12.5% or 25% of his annual base salary if the Company attains 105% or 115%, respectively, of an EBITDA target established by the Company for the applicable fiscal year. The agreement also provides for Mr. Beeks to participate in the Company’s usual benefit programs for its employees. Mr. Beeks’ employment agreement also contemplates that he will be granted certain stock options and restricted stock units. These grants were not made until after the end of our fiscal year on March 31, 2007 and will be reported in next year’s proxy statement.

 

Wayne Levin.  We entered into an employment agreement with Mr. Levin effective as of April 1, 2006. The agreement provides that Mr. Levin will serve as our General Counsel and Executive Vice President, Corporate

Operations for a term that ends March 31, 2009. We may, at our sole discretion, extend the term for an additional year, commencing April 1, 2009 and ending March 31, 2010. Mr. Levin’s annual base salary under the agreement was $400,000 for the first year of the term, is $500,000 for the second and third years of the term, and will be $600,000 for the fourth year of the term (if we exercise our option to extend the term). Mr. Levin is entitled to an annual performance bonus at the full discretion of our Chief Executive Officer. In addition, Mr. Levin is entitled under his employment agreement to receive (1) an annual bonus of 25% of his base salary based upon certain performance goals established for each fiscal year; (2) an annual bonus of 25% of his base salary based upon our EBITDA relative to a target established for the fiscal year (on terms that are not less favorable with respect to the definition of EBITDA, the EBITDA target and the percentages of base salary payable at various levels of EBITDA performance than those applicable to any other individual entitled to receive an EBITDA-based bonus for that fiscal year); and (3) past-service bonuses of $100,000, payable on April 3, 2006, and $125,000, payable on April 3, 2007. The agreement also provides for Mr. Levin to participate in the Company’s usual benefit programs for its employees.

 

James Keegan.  We entered into an employment agreement with Mr. Keegan effective April 16, 2006. The agreement provides that Mr. Keegan will serve as our Chief Financial Officer for a term that ends April 15, 2008. We may, at our sole discretion, extend the term for an additional year, commencing April 16, 2008, and ending April 15, 2009. Mr. Keegan’s annual base salary under the agreement was $400,000 for the first year of the term, is $425,000 for the second year of the term, and will be $450,000 for the third year of the term (if we exercise our option to extend the term). Mr. Keegan is entitled to annual performance bonuses at the full discretion of our Chief Executive Officer and the approval of our board of directors.

 

The following table presents information regarding the equity incentive awards granted to the Named Executive Officers for fiscal 2007. Each of these awards was granted under our 2004 Plan.

 

 

 

 

 

Description of Plan-Based Awards

 

Each of the equity-based awards reported in the Grants of Plan-Based Awards Table was granted under, and is subject to, the terms of the 2004 Plan. The 2004 Plan is administered by the Compensation Committee. The Compensation Committee has authority to interpret the plan provisions and make all required determinations under the plan. This authority includes making required proportionate adjustments to outstanding awards upon the occurrence of certain corporate events such as reorganizations, mergers and stock splits, and making provision to ensure that any tax withholding obligations incurred in respect of awards are satisfied. Awards granted under the plan are generally only transferable to a beneficiary of a Named Executive Officer upon his death. However, the Compensation Committee may establish procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable securities laws and, with limited exceptions set forth in the plan document, are not made for value.

 

Under the terms of the 2004 Plan, if there is a change in control of the Company, each Named Executive Officer’s outstanding awards granted under the plan will generally become fully vested and, in the case of options, exercisable, unless the Compensation Committee provides for the substitution, assumption, exchange or other continuation of the outstanding awards. Any options that become vested in connection with a change in control generally must be exercised prior to the change in control, or they will be canceled in exchange for the right to receive a cash payment in connection with the change in control transaction.

 

As described below under “Potential Payments Upon Termination or Change in Control,” certain options and restricted stock unit awards granted to the Named Executive Officers during fiscal 2007 are subject to accelerated vesting under the terms of their respective employment agreements in the event of a change in control of the Company and/or the termination of their employment under certain circumstances. The equity awards contemplated by Mr. Beeks’ employment agreement effective as of April 1, 2007 are also subject to accelerated vesting under the terms of that agreement.

 

Options

 

Each option reported in Column (j) of the table above was granted with a per-share exercise price equal to the fair market value of a share of our common stock on the grant date. For these purposes, and in accordance with the terms of the 2004 Plan and our option grant practices, the fair market value is equal to the closing price of a share of our common stock on the applicable grant date.

 

Each option granted to our Named Executive Officers in fiscal 2007 is subject to a four-year vesting schedule. Once vested, each option will generally remain exercisable until its normal expiration date. Each of the options granted to our Named Executive Officers in fiscal 2007 has a term of ten years. However, vested options may terminate earlier in connection with a change in control transaction or a termination of the Named Executive Officer’s employment. Subject to any accelerated vesting that may apply in the circumstances, the unvested portion of the option will immediately terminate upon a termination of the Named Executive Officer’s employment. The Named Executive Officer will generally have six months to exercise the vested portion of the option following a termination of employment. If the Named Executive Officer is terminated by us for cause, the option (whether or not) vested will immediately terminate.

 

The options granted to Named Executive Officers during fiscal 2007 do not include any dividend rights.

Restricted Stock Units

 

Columns (g) and (i) of the table above reports awards of restricted stock units granted to our Named Executive Officers for fiscal 2007. Each restricted stock unit represents a contractual right to receive one share of our common stock. The Named Executive Officer does not have the right to vote or dispose of the restricted stock units, but does have the right to receive cash payments as dividend equivalents based on the amount of dividends (if any) paid by the Company during the term of the award on a number of shares equal to the number of outstanding and unpaid restricted stock units then subject to the award. Such payments are made at the same time the related dividends are paid to the Company’s stockholders generally.

 

Time-Based Units.  Column (i) of the table above reports awards of restricted stock units granted to our Named Executive Officers for fiscal 2007 that are subject to time-based vesting requirements. The stock units granted to Messrs. Feltheimer and Burns are subject to a four-year vesting schedule, while the units granted to Messrs. Beeks, Levin and Keegan are scheduled to vest over a period of between two and three years after the grant date, provided that in each case the officer continues to be employed with the Company through the vesting date. (See the footnotes to the “Outstanding Equity Awards at Fiscal 2007 Year-End” table below for more information on the specific vesting dates of these awards.)

 

Performance-Based Units.  Column (g) of the table above reports award grants to Messrs. Feltheimer and Burns during 2007 that are eligible to vest based on the Company’s performance over a specified period of time relative to certain preestablished goals. Up to one-fourth of the total number of stock units subject to the award are eligible to vest during each of the four performance years covered by the award. In general, the number of stock units that vest each year is determined based on the Company’s performance during the applicable year, but the Compensation Committee has discretion to provide that the units may vest even if the performance goals are not met or that any units that do not vest based on the Company’s performance for a particular year will be eligible to vest based on the Company’s performance in a subsequent year. The performance goals for the first year of each of these awards established by the Compensation Committee are described in the “Compensation Discussion and Analysis” above.

 

The following table presents information regarding the outstanding equity awards held by each of our Named Executive Officers as of March 31, 2007, including the vesting dates for the portions of these awards that had not vested as of that date.