Exhibit 10.3
AMENDED & RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment
Agreement (this “ Agreement ”) is entered into
as of June 9, 2008 between The Orchard Enterprises, Inc., a
Delaware corporation (“The Orchard”), and Nathan Fong,
a resident of 208 Melbourne Road, Great Neck, New York 11021 (the
“ Executive ”), and amends and restates the
prior Employment Agreement between the parties dated as of
February 20, 2008 (the “Effective Date”).
Recitals
A. The Orchard desires to
continue to employ the Executive in the position of Chief Financial
Officer for The Orchard.
B. The Executive desires to be
employed by The Orchard as its Chief Financial Officer.
C. The Orchard and the Executive
desire to amend and restate the terms of the prior employment
agreement to allow for Executive’s 2008 incentive bonus to be
payable as determined under The Orchard’s management
incentive bonus plan.
Agreement
In consideration of the promises and
the terms and conditions set forth in this Agreement, the parties
agree as follows:
1. Position and
Duties . During the term of this Agreement, The Orchard
will employ Executive, and Executive will serve The Orchard as its
Chief Financial Officer, or such other position as assigned by the
CEO. As such, Executive shall have such responsibilities, duties
and authority as reasonably accorded to and expected of this
position. Subject to the terms of Sections 7.5 and 8.4 hereof,
additional or different duties, titles or positions may from time
to time be assigned to or taken from Executive by the CEO of The
Orchard. Executive will report directly to the CEO. The Orchard
will not materially change Executive’s role as a critical
executive in the finance function as relates to activities
including but not limited to managing finance function staff;
managing quarterly, annual and other relevant financial reporting
to the SEC; overseeing pro forma financial projections; and the
like; although it is understood that The Orchard may assign and
re-assign different roles to its financial executives including
Executive, as well as vary titles, specific duties, reporting
lines, and the like.
2. Performance of
Duties . Executive will be based at and perform his duties
under this Agreement primarily at the New York, NY offices of The
Orchard. Executive hereby represents and warrants that he is free
to enter into and fully perform this Agreement and the agreements
referred to herein without breach of any agreement or contract to
which he is a party or by which he is bound. Executive hereby
further represents and warrants that he has provided The Orchard
with copies of any employment, confidentiality, non-competition or
non-solicitation agreements currently binding upon him.
3. Exclusive
Service . Executive shall devote his full time and efforts
(from a business perspective) exclusively to this employment and
apply all his skills, effort and experience to the performance of
his duties and advancing The Orchard’s interests.
Executive
- 1 -
shall
not be engaged in any other business activity pursued for salary,
fees, profit, gain or other pecuniary advantage if such activity
interferes with Executive’s duties and responsibilities
hereunder. Executive will not engage in any professional consulting
activity nor serve on any corporate boards except with the prior
written approval of The Orchard’s CEO, and Executive will
otherwise refrain from engaging in any activities inconsistent or
in conflict with the performance of his duties hereunder. However,
the foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in a passive form or
manner that will not require his services in the operation or
affairs of the companies or enterprises in which such investments
are made or from engaging in charitable, civic or community
activities that do not interfere with his duties to The
Orchard.
4. Compliance
with Policies . The Orchard has established policies,
procedures and practices, and Executive will comply with and be
bound by all such policies, procedures and practices from time to
time in effect during Executive’s employment to the extent
The Orchard has informed Executive thereof. Executive will be
employed in a position of leadership within The Orchard and will be
expected to faithfully adhere to, execute and fulfill all corporate
policies established by The Orchard, now and in the future, in
addition to establishing systems for monitoring compliance with
such policies by other officers, employees and directors,
particularly The Orchard’s Code of Business Conduct.
5. Confidential
or Proprietary Information and Inventions .
5.1 Company Information . Executive agrees at
all times during the term of his employment and thereafter, to hold
in strictest confidence and not to use, except for the benefit of
The Orchard, or to disclose to any person, firm or corporation
(except within the scope of his employment) without written
authorization of the CEO of The Orchard, any Confidential
Information of The Orchard. Executive understands that “
Confidential Information ” means any The Orchard
financial or operating information, contents of music libraries,
data bases, technical data, trade secrets or know-how, including,
but not limited to, research, product plans, products and
processes, services, customer lists, channel partner lists, target
acquisition lists and customers, channel partners and target
acquisitions (including, but not limited to, customers, channel
partners and target acquisitions of The Orchard on whom Executive
called or with whom Executive became acquainted during the term of
his employment), market data, software, inventions, music
processing techniques, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing,
financial reports or other business information disclosed to
Executive by The Orchard or prepared by Executive during his
employment by The Orchard, either directly or indirectly, in
writing, orally, by drawings, or by observation of documents,
technology or equipment. The Orchard and Executive acknowledge that
Confidential Information does not include any of the foregoing
items which have become publicly known and made generally available
through no wrongful act of Executive’s or of others who were
under confidentiality obligations as to the item or items
involved.
5.2 Third Party Information . Executive
recognizes that The Orchard has received and in the future will
receive from third parties (including, but not limited to, vendors,
customers, channel partners and acquisition targets) their
confidential or proprietary information subject to a duty on The
Orchard part to maintain the confidentiality of such information
and to use it only for certain limited purposes. Executive agrees
to hold all such confidential or proprietary information in the
strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out his
work for DMGI consistent with The Orchard agreement with such third
party.
5.3 No Prior Inventions . Executive represents
that, as of the Effective Date of this Agreement, other than
musical composition and sound recording copyrights, he has no
inventions, original works of authorship, developments,
improvements or
- 2 -
trade
secrets which were made by him prior to his employment with The
Orchard, which relate to The Orchard’s business, operations,
digitization processes, music library or research and
development.
5.4 Future Inventions . The Orchard shall own
all right, title and interest (including patent rights, copyrights,
trade secret rights, mask work rights, sui generis database
rights and all other intellectual and industrial property rights of
any sort) to any and all inventions (whether or not patentable),
works of authorship, mask works, designs, know-how, ideas and
information made or conceived or reduced to practice, in the whole
or in part, by Executive during the term of his employment with The
Orchard to and only to the fullest extent allowed by applicable
law; provided , however , the foregoing shall only
apply to any of the foregoing that are directly related to the
business of The Orchard (collectively referred to herein as “
Inventions ”). Executive agrees that he will promptly
make full written disclosure to The Orchard, will hold in trust for
the sole right and benefit of The Orchard, and hereby assign to The
Orchard or its designee, all his right, title, and interest in and
to any and all Inventions. To the extent allowed by law, this
section includes all right of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to
as “moral rights” or the like. To the extent Executive
retains any such moral rights under applicable law, Executive
hereby ratifies and consents to any action that may be taken with
respect to such moral rights by or authorized by The Orchard and
agrees not to assert any moral rights with respect thereto.
Executive will confirm any such ratifications, consents and
agreements from time to time as requested by The Orchard.
5.5 Maintenance of Records . Executive agrees
to keep and maintain adequate and current written records of all
Inventions made by him (solely or jointly with others) during the
term of his employment with The Orchard. The records will be in the
form of notes, sketches, drawings and any other format that may be
specified by The Orchard. The records will be available to and
remain the sole property of The Orchard at all times.
5.6 Patent and Copyright Registrations .
Executive agrees to assist The Orchard, or its designee, at The
Orchard’s expense, in every proper way to secure The
Orchard’s rights in any Inventions and any copyrights,
patents, mask work rights or other intellectual property rights
relating thereto in any and all countries, including the disclosure
to The Orchard of all pertinent information and data with respect
thereto, the execution of all applications, specifications, oaths,
assignments and all other instruments which The Orchard shall
reasonably deem necessary in order to apply for and obtain such
rights and in order to assign and convey to The Orchard, its
successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights,
patents, mask work rights or other intellectual property rights
relating thereto. Executive further agrees that his obligation to
execute or cause to be executed, when it is in his power to do so,
any such instrument or papers shall continue after the termination
of this Agreement. If Executive is unable because of his mental or
physical incapacity or for any other reason to secure his signature
to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or
original works of authorship assigned to The Orchard as above, then
Executive hereby irrevocably designates and appoints The Orchard
and its duly authorized officers and agents as his agent and
attorney in fact, to act for and in his behalf and stead to execute
and file any such applications and to do all other lawfully
permitted acts to further the processing and issuance of letters
patent or copyright registrations thereon with the same legal force
and effect as if executed by Executive.
6. Compensation
and Benefits .
6.1 Base Salary . Beginning on the Effective
Date, The Orchard shall pay Executive a base salary of two hundred
and twenty five thousand dollars ($225,000) per
- 3 -
year,
adjusted as provided herein (the “ Base Salary
”), payable as earned in accordance with The Orchard’s
customary payroll practice. On at least an annual basis, the
Compensation Committee of the Board of Directors will review
Executive’s performance and consider an increase to the then
current Base Salary as it deems warranted by individual and
corporate performance, market conditions and other factors. No
reductions will be made to Executive’s Base Salary unless it
is part of a company-wide expense reduction plan authorized by the
Board of Directors of The Orchard, applying ratably to the base
salaries of all senior executives and to the fees earned by
Directors; provided , however , that in no event may
Executive’s Base Salary be reduced by more than fifteen
percent (15%) at any one time or in the aggregate over any
twenty-four (24) month period without his consent.
6.2 Additional Benefits . Executive will be
eligible to participate in The Orchard’s employee benefit
plans of general application to The Orchard’s senior
executives in effect from time to time, as amended, including
without limitation, those plans covering pension and profit
sharing, executive perquisites, stock purchases, and, beginning as
of March 1, 2008, those plans covering life, health, and
dental insurance in accordance with the rules established for
individual participation in any such plan and applicable law. Once
Executive is eligible for health and dental insurance coverage
hereunder, Executive’s spouse and dependents shall also be
eligible for such coverage in accordance with the terms of The
Orchard’s policies and plans and the contracts with third
party providers. In addition, beginning on the Effective Date,
Executive will receive such other benefits, including holidays and
sick leave, as The Orchard generally provides to its senior
executives.
6.3 Incentive Bonus Plan . For 2008 and all
subsequent years during the Term, subject to the terms of The
Orchard’s management incentive bonus plan, as amended from
time to time (the “ Bonus Plan ”), Executive
will be eligible to earn cash bonuses on an annual basis, payable
as determined under the Bonus Plan, but not until such time as the
Compensation Committee of the Board of Directors of The Orchard
determines the targets, milestones, performance objectives and
measurement criteria to be met each fiscal year and approves the
payment of specific cash bonuses after the end of each fiscal year
based upon the objective calculations and discretionary judgments
as called for in the Bonus Plan. For 2008, Executive’s target
bonus under and subject to the Bonus Plan will be $75,000. Any such
2008 discretionary bonus, if earned, will be payable within two and
one half (2 1 /
2 ) months following the year
in which it vests or is no longer subject to a substantial risk of
forfeiture.
6.4 Expenses . Executive shall prepare and
submit timely expense reports and The Orchard will reimburse
Executive for all reasonable and necessary travel and other
expenses incurred by Executive in connection with The
Orchard’s business, provided that such expenses are in
accordance with The Orchard’s applicable expense reporting
and reimbursement policy and are properly documented and accounted
for in accordance with the requirements of the Internal Revenue
Service.
6.5 Vacation . Executive will be entitled to
paid vacation as set forth in The Orchard’s policies and/or
employee manual (as they may be applicable to The Orchard’s
executive officers and key employees), as approved by the Board of
Directors.
6.6 Equity Incentive Awards . On the Effective
Date, Executive will receive options to purchase 33,333 shares of
The Orchard’s Common Stock (“Common Stock”) and
33,333 restricted shares of Common Stock, with such options and
shares being granted and awarded pursuant to and under the terms
and conditions of The Orchard’s Amended and Restated 2005
Stock Plan (the “ Stock Plan ”). Such stock
options and shares of restricted Common Stock shall vest 33.3%
after the first twelve months and then quarterly in eight (8 equal
installments of 8.33%) such that they will be fully vested thirty
six (36) months from the Effective Date; except that in the
event of a Termination Without Cause under Section 7.4
below
- 4 -
or
Termination for Good Reason under Section 7.5 below, the
vesting of the foregoing stock options and shares of restricted
Common Stock shall be accelerated by six (6) months. The stock
options will expire on the seventh anniversary of the Effective
Date.
7. Term and
Termination . This Agreement will commence on the Effective
Date and will continue until the earlier of three (3) years
after the Effective Date or when terminated pursuant to any one of
the following:
7.1 Death . The death of Executive shall
immediately terminate this Agreement.
7.2 Disability . If, as a result of
Disability, as determined by The Orchard, Executive shall have been
absent from his full-time duties hereunder or unable to materially
fulfill his full-time duties (as determined by The Orchard)
hereunder for three (3) consecutive months, then thirty
(30) days after receiving written notice (which notice may
occur on or after the end of such three (3) month period), The
Orchard may terminate Executive’s employment hereunder
provided Executive is unable to resume his full-time duties at the
conclusion of such notice period. Also, Executive may initiate
termination of his employment under this Section 7.2 if as a
result of Disability his health should become impaired to an extent
that makes the continued performance of his duties hereunder
hazardous to his physical or mental health, provided that Executive
shall have furnished The Orchard with a written statement from a
qualified doctor to such effect and provided, further, that, at The
Orchard’s request made within ten (10) days from the
date of receipt of such written statement, Executive shall submit
on a timely basis to an examination by a qualified doctor selected
by The Orchard who is acceptable to Executive or Executive’s
doctor (such acceptability will not be unreasonably withheld) and
such doctor shall have concurred with the conclusion of
Executive’s doctor. For purposes of this Agreement,
“Disability” means the Executive is unable to engage in
any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period
of not less than twelve (12) months. In order to receive
Disability benefits, Executive must cooperate with The Orchard in
making such Disability determination, including providing such
medical evidence as may reasonably be requested by The Orchard or
submission to a medical examination(s) by a qualified doctor(s)
selected by The Orchard. Executive must comply with any such
requests within ten (10) days.
7.3 For Cause . The Orchard may terminate
Executive’s employment under this Agreement for
“cause,” which shall be defined herein as follows:
(a) Executive’s material breach of this Agreement;
(b) Executive’s negligence or insubordination in the
performance or nonperformance (continuing for ten (10) days
after receipt of written notice from The Orchard of the need to
cure) of any of Executive’s assigned duties and
responsibilities hereunder; (c) Executive’s dishonesty,
fraud, misrepresentation or misconduct with respect to the business
and affairs of The Orchard; (d) Executive’s violation of
a material provision of The Orchard’s Code of Business
Conduct or other written corporate policy;
(e) Executive’s violation of any federal, state or local
law or regulation applicable to The Orchard’s business;
(f) Executive’s conviction of any felony crime;
(g) Executive entering a plea of nolo contendere to a
felony crime or any other crime involving any act of moral
turpitude; (h) Executive’s misuse, misappropriation or
embezzlement of funds or property belonging to The Orchard or any
of its subsidiaries and affiliates; or (i) alcohol abuse or
drug abuse by Executive which adversely affects the performance of
his assigned duties and responsibilities hereunder or compromises
the integrity and reputation of The Orchard, its employees or its
services (any of the foregoing, “ Termination for
Cause ”).
7.4 Without Cause . This Agreement may be
terminated by The Orchard thirty (30) days after the effective
date of a written notice sent to Executive stating that
- 5 -
DMGI is
terminating his employment, without cause, which notice can be
given by The Orchard at any time after the Effective Date at The
Orchard’s sole discretion, for any reason or for no reason
(“ Termination Without Cause ”).
7.5 For Good Reason . Executive may elect to
terminate his employment with The Orchard on the effective date of
a written notice sent to The Orchard from Executive stating that he
is terminating employment for “good reason,” which
shall be defined herein as follows: (a) Executive’s
level of compensation (including Base Salary, fringe benefits and
participation in non-discretionary bonus programs under which
awards are payable pursuant to objective financial or performance
standards) is reduced without his consent; provided, however, that
a reduction of Executive’s compensation in accordance with
Section 6.1 will not constitute “good reason”;
(b) Executive is required to relocate his principal office of
employment with The Orchard outside of New York, NY without his
consent; (c) The Orchard materially changes Executive’s
role as a critical executive in the finance function as referenced
and subject to the terms of the last sentence of Section 1
above; or (d) a breach by The Orchard of any material
provision of this Agreement which remains uncorrected for thirty
(30) days following written notice by Executive of such breach
(“ Termination for Good Reason ”).
7.6 Voluntary . This Agreement may be
terminated by Executive on the effective date of a written notice
sent to The Orchard from Executive stating that Executive is
electing to terminate his employment with The Orchard without
“good reason” as defined in Section 7.5 hereof
(“ Voluntary Termination ”).
8. Effect of
Termination .
8.1 Termination as a Result of Death . In the
event of any termination of this Agreement pursuant to
Section 7.1 hereof, no severance compensation is due to
Executive’s estate; provided , however , that
The Orchard will continue to pay accrued but unpaid salary, accrued
vacation and any other accrued but unpaid benefits and unreimbursed
expenses through the last day of the month in which
Executive’s death occurs.
8.2 Termination as a Result of Disability . In
the event of any termination of this Agreement pursuant to
Section 7.2 hereof, The Orchard shall continue to pay
Executive his Base Salary under Section 6.1 hereof at
Executive’s then-current salary and maintain his benefits
under Section 6.2 hereof (i) through the remaining term
of this Agreement which ends on the third anniversary of the
Effective Date, or (ii) for six (6) months, whichever
period is shorter. In the event of a disability termination
pursuant to Section 7.2 hereof, Executive will not be eligible
to receive any ongoing benefits subsequent to the effective date of
termination, other than continued participation in any applicable
The Orchard disability plan, nor will there be any proration of any
potential annual incentive bonus under Section 6.3 hereof for
the fiscal year in which such termination occurs; provided ,
however , that The Orchard will continue to pay accrued but
unpaid salary, accrued vacation and any other accrued but unpaid
benefits and unreimbursed expenses through the last day of the
month in which Executive’s termination occurs.
8.3 Termination for Cause or Voluntary
Termination . In the event of any termination of this
Agreement pursuant to Sections 7.3 or 7.6 hereof, The Orchard
shall pay Executive the compensation and benefits otherwise payable
to Executive under Section 6 hereof through the date of
termination, except that there will be no proration of any
potential annual incentive bonus under Section 6.3 hereof for
the fiscal year in which such termination occurs.
8.4 Termination Without Cause or for Good
Reason . In the event of any termination of this Agreement
pursuant to Sections 7.4 or 7.5 hereof:
- 6 -
(a) The
Orchard shall continue to pay Executive his Base Salary under
Section 6.1 hereof at Executive’s then-current salary
and maintain his benefits under Section 6.2 hereof
(i) through the remaining term of this Agreement which ends on
the third anniversary of the Effective Date, or (ii) for six
(6) months, whichever period is shorter. If such benefits
contemplated under Section 6.2 hereof cannot be maintained
under the provisions and eligibility of the specific plans (see
Section 8.6 below), then The Orchard shall pay during the
post-termination period the cash equivalent of the company’s
cost of benefits under any such company plan;
(b) The
Orchard will pay unreimbursed expenses and accrued vacation through
the date of termination pursuant to Sections 6.4 and 6.5 of
this Agreement;
(c) For
the fiscal year of termination, The Orchard shall pay the pro rata
portion of the annual incentive bonus otherwise due to Executive
pursuant to Section 6.3 hereof, such pro rata bonus amount to
be determined at the sole discretion of the Compensation Committee
of the Board of Directors based upon the targets, milestones,
performance objectives and measurement criteria established for the
fiscal year and The Orchard’s and Executive’s, as the
case may be, actual performance against such targets, milestones,
performance objectives and measurement criteria. Notwithstanding
the forgoing, in the event of termination of this Agreement
pursuant to Section 7.5, this subsection (c) will not be
applicable unless The Orchard determines, in its reasonable
judgment, that the Executive’s termination meets the
requirements for Good Reason as set forth in
Section 7.5.
(d) The
vesting of the Restricted Stock Award Agreement and the Stock
Option Agreement that Executive enters into with The Orchard for
the equity incentive awards set forth in Section 6.6 hereof
shall, in the event of a termination of employment pursuant to
Sections 7.4 or 7.5 hereof, be accelerated by six
(6) months pursuant to the next to last sentence of
Section 6.6. Notwithstanding the forgoing, in the event of
termination of this Agreement pursuant to Section 7.5, this
subsection (d) will not be applicable unless The Orchard
determines, in its reasonable judgment, that the Executive’s
termination meets the requirements for Good Reason as set forth in
Section 7.5.
(e) In
all cases, post-termination payments to Executive will be reduced
for applicable withholding taxes and will be payable on The
Orchard’s normal payroll dates or bonus payment dates during
the periods; provided , however , that if the total
amount of the benefits available to Executive under this
Section 8.4, either alone or together with other payments
which Executive has the right to receive from The Orchard, would
constitute a “parachute payment” as defined in
Section 280G of the Internal Revenue Code of 1986, as amended
(the “ Code ”), then The Orchard shall pay to
Executive at the time of termination an additional amount such that
the net amount retained by Executive, after deduction of the excise
tax imposed by Section 4999 of the Code and any federal, state
and local income tax and excise tax imposed on such additional
amount, shall be equal to the amount payable to the Executive under
this Section 8.4 as originally determined prior to the
deduction of the excise tax. All such amounts payable by The
Orchard shall be paid within thirty (30) days of the
Executive’s separation from service except as provided in
Section 8.4(d). In the event of any termination of this Agreement
pursuant to Sections 7.4 or 7.5, Executive shall have no duty
o
|
