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Cinedigm Reaches Agreement With Activist Shareholders (EXCLUSIVE)

Cinedigm Corp. will appoint four new directors to its board after reaching a settlement agreement this week that ends a protracted standoff with a group of activist investors.

The digital distribution company was heavily criticized by its largest shareholder, Ronald Chez, and by another investor, Sabra Capital, about the performance of the stock. In a series of sharply worded communiques, they pushed for a $15 million share buy-back, tighter cost control and more board representation.

Cinedigm’s stock closed Thursday at 64 cents, down 3%, and it declined another penny on Friday to 63 cents. It was trading at $2.33 a year ago. Last month, Nasdaq said it would delist Cinedigm in December unless the stock hit $1 for 10 days.

The new independent directors include Blair Westlake, Andrew Schuon, Patrick O’Brien and Zvi Rhine of Sabra Capital. The board will expand its size from 8 to 12 directors.

Chairman and CEO Chris McGurk noted that the new directors are the results of a plan announced in May to strengthen the board to better support the content distribution business and over-the-top digital network business.

“Since then, our nominating committee has been working hard to interview the candidates,” he said. “Today, we are pleased to announce that our search led us to Blair, Andrew, Zvi and Patrick. Collectively, they bring important entertainment experience, financial expertise and significant industry relationships to our board, and we are certain they will help guide Cinedigm as we continue to grow the company and build shareholder value.”

As part of the agreement, Chez has been named a strategic adviser to the company, and will weigh in on the company’s financing and capital structure, as well as strategic transactions such as potential acquisitions.

“We have appreciated his thoughts and ideas thus far and look forward to working with him in a more formal capacity,” said McGurk.

Board representation has been a sticking point in the talks, Rhine told Variety. He expressed frustration about the length of time it took to get a deal, but said he still believed in the company’s strategy of investing in over-the-top digital networks such as its documentary focused Docurama and the faith-based Dove Channel.

“It seemed as if the company wouldn’t move as expeditiously as we would like,” said Rhine. “There was a lack of urgency for one reason or another, but ultimately we got to the end goal, and that’s the most important thing.”

Chez, who is co-chairman of Merriman Holdings, owns more than 8% of the company’s shares. He said he was happy that his concerns had been addressed.

“We are pleased,” he said. “We want to get the focus away from any of this activity, so we can take advantage of the opportunities in front of us and concentrate on running the business.”

Westlake is currently a principal at MediaSquareup and was previously corporate vice president of Microsoft’s Media & Entertainment Group.

Schuon is the co-founder of Revolt Media TV, a music-oriented digital cable television network that is owned by Sean “Diddy” Combs, and is founder of Elevated Networks.

Rhine is a principal at Sabra Capital Partners and was previously vice president at The Hilco Organization.

O’Brien is a board member at Merriman Holdings.

Westlake and Schuon are Cinedigm’s own appointees.

In addition, Cinedigm has engaged advisory firm Korn Ferry to find a new chairman of its board. As part of the agreement, Chez and Rhine have agreed to support all nominees recommended by Cinedigm’s board at the company’s next two annual meetings.

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