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EMPLOYMENT
AGREEMENT
EMPLOYMENT
AGREEMENT, dated as of July 14, 2008 (this
“Agreement”), by and between NEW MOTION, INC., a
Delaware corporation (the “Company”), and ANDREW
ZAREF (“Executive”).
WITNESSETH:
WHEREAS,
the Company desires to employ Executive on the terms and
subject to the conditions hereinafter set forth, and Executive
desires so to be employed.
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as
follows:
1.
Offices and Duties .
During the Term (as hereinafter defined), Executive shall serve as
the Chief Financial Officer of the Company and shall have such
duties and responsibilities that are commensurate with such
position and such other duties and responsibilities as are from
time to time assigned to the Executive by the Company’s Chief
Executive Officer and the Company’s board of directors. The
Company’s board of directors may elect or designate Executive
to serve in a similar capacity for a subsidiary or affiliate of the
Company as the Company’s board of directors from time to time
may reasonably deem necessary, proper or advisable and as the
Executive shall accept. Executive hereby agrees that throughout the
Term he shall faithfully, diligently and to the best of his
ability, in furtherance of the business of the Company, perform the
duties assigned to him or incidental to the offices assumed by him
pursuant to this Section. Executive shall devote all of his
business time and attention to the business and affairs of the
Company and the performance of Executive’s duties and
responsibilities hereunder; provided, however, Executive may serve
as an advisor or director to other organizations as long as such
activities are disclosed to and approved by the Company’s
Chief Executive Officer or board of directors (which approval will
not be unreasonably withheld) and do not interfere or conflict with
his duties or obligations to the Company. Executive shall at all
times be subject to the supervision, direction and control of the
Company’s Chief Executive Officer and board of directors, and
observe and comply with such rules, regulations, policies and
practices as the Company’s board of directors may from time
to time establish. Executive shall report to the Company’s
Chief Executive Officer. The Executive represents and warrants to
the Company that the Executive has the legal right to enter into
this Agreement and to perform all of the obligations on the
Executive’s part to be performed hereunder in accordance with
its terms and that the Executive is not a party to any agreement or
understanding, written or oral, which could prevent the Executive
from entering into this Agreement or performing all of the
Executive’s obligations hereunder.
2.
Term .
The employment of Executive hereunder shall commence on the date
hereof (the “Commencement Date”) and continue for a
term ending on the third (3
rd )
anniversary of the last day of the calendar month in which such
Commencement Date occurs, subject to earlier termination upon the
terms and conditions provided elsewhere herein (the
“Term”). As used herein, “Termination Date”
means the last day of the Term. Subject to the provisions of
Section 14 hereof, the Executive shall be an “at-will”
employee of the Company such that the Company may terminate the
Executive’s employment with the Company and the Term upon
advance written notice at any time and for any reason (or no
reason).
3.
Compensation .
(a)
As
compensation for Executive’s services hereunder, the
Company shall pay to Executive during the Term an annual
salary (the “Base Salary”), which shall be equal
to Four Hundred Thousand Dollars ($400,000.00),
payable
in accordance with the ordinary payroll practices of the
Company .
The Base Salary shall be subject to increase at the end of
each year of the Term at the sole and complete discretion of
the Company’s board of directors; provided, however,
that such increase shall be in an amount no less than five
percent (5%).
(b)
As
additional compensation for Executive’s services
hereunder, Executive shall receive an automobile allowance of
One Thousand Dollars ($1,000) per month inclusive of
insurance, gas and maintenance on Executive’s
vehicle.
(c)
Executive
may also receive an annual bonus in an amount not to exceed
Executive’s Base Salary for each calendar year during
the Term if the Company’s business operations meet or
exceed certain financial performance standards to be
determined by the Company’s board of directors in
accordance with this Section, and as part of an annual
incentive plan to be submitted for approval by the
stockholders of the Company. Any annual bonus payable to
Executive for the calendar year ending December 31, 2008 shall
be calculated by multiplying the total amount of the annual
bonus by a fraction, the numerator of which is the number of
days served by Executive during 2008, and the denominator
shall be three hundred sixty five (365) days. No later than
the end of the first calendar quarter of each calendar year,
the Company’s board of directors (or the compensation
committed thereof) shall adopt and approve: (i) financial
goals (the “Goals”) for the Company with respect
to such calendar year (which Goals shall be consistent for all
executive officers); and (ii) the bonus targets and other
performance standards (collectively, the “Bonus
Matrix”) to be used to determine Executive’s
annual bonus for such calendar year. The Company shall deliver
the Goals and the Bonus Matrix to Executive promptly after
their adoption and approval by the board of directors (or the
compensation committed thereof). The Goals and the Bonus
Matrix for the calendar year ending December 31, 2008 are set
forth on the 2008 Bonus Schedule attached hereto as Exhibit A.
Any amounts payable under this Section shall be calculated
using the results reported in the Company’s audited
financial statements for the applicable fiscal year and shall
be payable the later of (A) ninety (90) days after the end of
the applicable fiscal year or (B) completion of the
Company’s audited financial statements for such year.
Until approval of this Agreement by the Company’s
stockholders, in no event shall the amount payable to
Executive under this Section in any fiscal year of the Company
exceed an amount, which, when added to all other compensation
(as such term is used in Section 162(m) of the Code) paid to
Executive in such fiscal year results in the total of such
compensation for such fiscal year to exceed One Million
Dollars ($1,000,000).
(d)
As
additional compensation for Executive’s services to be
provided hereunder, and as an inducement for Executive to
accept employment with the Company, the Company shall pay
Executive One Hundred Thousand Dollars ($100,000) upon
execution of this Agreement by Executive and the Company (the
“Signing Bonus”). In the event that
Executive’s employment with the Company is terminated
“for cause” in accordance with Section 11 or
voluntarily by Executive in accordance with Section 13, on or
prior to the Termination Date, Executive shall refund to
Company an amount equal to: (i) $60,000, multiplied by a ratio
equal to (A) the sum of the number of days between the
Termination Date and the third anniversary of the Commencement
Date and (B) 1,095 (which is the product of 3 x
365).
(e)
The
Company shall use its commercially reasonable efforts to
procure medical, hospitalization, dental, life and disability
insurance for the benefit of executive and his wife and
children, and the Company shall pay all premiums and any other
costs or expenses incurred to maintain such policies in effect
during the Term, or as provided under Section 14, all
consistent with the Company’s established practices and
policies. As an alternative to procuring such policies, the
Company may authorize Executive to procure such policies, and
the Company shall reimburse Executive for the reasonable costs
incurred by him in connection with the procurement of such
policies.
(f)
In
addition to his Base Salary and other compensation provided
herein, during the Term Executive shall be entitled to
participate, to the extent he is eligible under the terms and
conditions thereof, in any stock, stock option or other equity
participation plan and any profit-sharing, pension,
retirement, insurance, medical service or other employee
benefit plan generally available to the executive officers of
the Company, and to receive any other benefits or perquisites
generally available to the executive officers of the Company
pursuant to any employment policy or practice, which may be in
effect from time to time during the Term. The Company shall be
under no obligation hereunder to institute or to continue any
such employee benefit plan or employment policy or
practice.
(g)
During
the Term, Executive shall not be entitled to additional
compensation for serving in any office of the Company (or any
subsidiary thereof) to which he is elected or
appointed.
4.
Stock Options .
(a)
On
the Commencement Date, the Company shall grant to Executive an
option (the “Option”) to acquire Two Hundred
Thousand (200,000) shares of the Company’s common stock,
par value $.001 per share (the “Common Stock”),
subject to the terms and conditions of the Stock Option
Agreement substantially in the form annexed to this Agreement
as
Exhibit B (the
“Stock Option Agreement”). The Company agrees to
register the shares of Common Stock underlying the Option on its
next regularly filed Form S-8, but in no event later than six (6)
months following the Commencement Date. As a condition to receiving
the Option, Executive shall execute and deliver to the Company the
Stock Option Agreement. As provided in the Stock Option Agreement,
the Option shall be exercisable at the fair market value of the
Company’s common stock on the date of grant at any time
during the ten (10) year period following the Commencement Date.
Additionally, as provided in the Stock Option Agreement, the Option
shall be subject to the following vesting schedule:
(i)
the
Option shall first vest, with respect Sixty Six Thousand Six
Hundred Sixty Six (66,666) shares of Common Stock, on the
first (1
st )
anniversary of the Commencement Date;
(ii)
thereafter,
the Option shall next vest, with respect to Five Thousand Five
Hundred Fifty Five (5,555) shares of Common Stock, on the last
day of the calendar month immediately following the first
(1
st )
anniversary of the Commencement Date (such vesting date, the
“Second Vesting Date”); and
(iii)
thereafter,
the Option shall next vest, with respect to the remaining One
Hundred Twenty Seven Thousand Seven Hundred Seventy Nine
(127,779) shares of Common Stock underlying the Option, in
twenty two (22) equal installments of Five Thousand Five
Hundred Fifty Five (5,555) shares and one final installment of
Five Thousand Five Hundred Sixty Nine (5,569) shares, each on
the last day of each calendar month during the period of
twenty three (23) consecutive months commencing after the
Second Vesting Date;
provided
that all Options to acquire shares of the Company’s
common stock shall immediately and automatically vest upon a
Change of Control (as hereinafter defined).
(b)
As
provided in the Stock Option Agreement, other than as a result
of termination of Executive’s employment resulting from
a Change of Control and except (as provided in Section
14(c)(iii) hereof) in the event of a termination of the
Executive’s employment by the Company without
“cause” (as such term is used in Section 11
hereof) and except in the event of a termination of the
Executive’s employment by Executive for “good
reason” (as contemplated under Section 12 hereof), any
portion of the Option that remains unvested at the time of
termination of Executive’s employment (and/or upon
termination or expiration of the Term) (the “Unvested
Portion”) shall be extinguished and cancelled and
Executive shall have no rights or benefits whatsoever with
respect to the Unvested Portion. Executive represents and
warrants that he is acquiring the Option and the shares of
Common Stock issuable upon exercise thereof for investment
purposes only, and not with a view to distribution thereof.
Executive is aware that the Option and such shares may not be
registered under the federal or any state securities laws and
that, in addition to the other restrictions, the Option and
such shares issuable upon exercise thereof will not be able to
be transferred unless an exemption from registration is
available or the option or such shares become
registered.
5.
Restricted Stock Units .
(a)
Within
ninety (90) days following the Commencement Date, the Company
shall grant to Executive Restricted Stock Units for Two
Hundred Thousand (200,000) shares of Common Stock (the
“RSUs”), pursuant to the terms of a Restricted
Stock Unit Agreement in a form acceptable to the Company (the
“RSU Agreement”). Executive shall execute and
deliver to the Company the RSU Agreement as a condition to the
Company’s obligation to grant the RSUs. The RSUs shall
be subject to vesting as provided in the RSU Agreement, in
accordance with and subject to the following vesting
schedule:
(i)
the
first One Hundred Thousand (100,000) RSUs shall vest after the
closing of trading on the date that the average per share
trading price of the Common Stock during any period of ten
(10) consecutive trading days (following the Commencement
Date) equals or exceeds Fifteen Dollars ($15);
and
(ii)
the
remaining One Hundred Thousand (100,000) RSUs shall vest after
the closing of trading on the date that the average per share
trading price of the Common Stock during any period of ten
(10) consecutive trading days equals or exceeds Twenty Dollars
($20);
provided
that all RSUs shall immediately and automatically vest upon a
Change of Control (as hereinafter defined).
(b)
As
provided in the RSU Agreement, other than as a result of
termination of Executive’s employment resulting from a
Change of Control, any and all of the RSUs that remain
unvested at the time of termination of Executive’s
employment (and/or upon termination or expiration of the
Term)(the “Unvested RSU Portion”) shall be subject
to forfeiture and Executive’s entire ownership interest
in to the Unvested RSU Portion shall be forfeited,
extinguished and cancelled and Executive shall have no rights
or interest in the Unvested RSU Portion. Subject to the terms
of the RSU Agreement, the Company may issue certificates or
otherwise evidence the Executive’s interest in the RSUs
by using a book entry account. Executive represents and
warrants that he is acquiring the RSUs for investment purposes
only, and not with a view to distribution thereof. Executive
is aware that the RSUs may not be registered under the federal
or any state securities laws and that, in addition to the
other restrictions on the RSUs, the RSUs will not be able to
be transferred unless an exemption from registration is
available or the RSUs become registered.
(c)
If
the Company’s stockholders adopt a restricted share
plan, the RSUs shall be deemed issued in accordance therewith
and subject thereto.
6.
Expense Allowance .
The Company shall pay directly, or advance funds to Executive or
reimburse Executive for, all out-of-pocket expenses reasonably
incurred by him in connection with the performance of his duties
hereunder and the business of the Company, in each case subject to
and in accordance with the Company’s standard policies
(including, without limitation, expense verification policies)
regarding the reimbursement of business expenses, as in effect from
time to time.
7.
Vacation .
Executive shall be entitled to four (4) weeks paid vacation during
each year of his employment hereunder (as pro rated for partial
years), such vacation to be taken at such time or times as shall be
agreed upon by Executive and the Company with due regard to the
needs of the Company. Vacation time shall be cumulative from year
to year, except that Executive shall not be entitled to take more
than five (5) weeks vacation during any period of twelve (12)
consecutive months during the Term; and provided further that at no
time shall Executive be entitled to accrue more than five (5) weeks
of vacation time under this Agreement; and provided further that
the rights of Executive to vacation shall be otherwise subject to
the Company’s policies on vacation as in effect from time to
time.
8.
Key-Man Insurance .
The Company shall have the right from time to time to purchase,
increase, modify or terminate insurance policies on the life of
Executive for the benefit of the Company in such amounts as the
Company may determine in its sole discretion. In connection
therewith, Executive shall, at such time or times and at such place
or places as the Company may reasonably direct, submit himself to
such physical examinations and execute and deliver such documents
as the Company may deem necessary or appropriate.
9.
Non-Competition Agreement .
As a material inducement to the Company for entering into this
Agreement and as a condition to the obligations of the Company
hereunder, Executive is hereby executing and delivering that
certain Non-Competition, Non-Solicitation and Proprietary
Information Agreement dated of even date herewith, by and between
Executive and the Company in the form of
Exhibit C attached
hereto (the “Non-Competition Agreement”). Each of the
Company and Executive hereby agrees and acknowledges that the
rights and obligations of the parties under the Non-Competition
Agreement and the terms and provisions thereof are an integral part
of this Agreement and hereby are incorporated in this Agreement as
if fully set forth herein. Without limiting any other rights that
the Company may have, if Executive breaches any provision of the
Non-Competition Agreement, any right that Executive may have to
receive any compensation or payments from the Company hereunder
shall be forfeited by Executive and extinguished in all
respects.
10.
Termination of Employment .
Executive’s employment and the Term will terminate on the
first of the following to occur:
(a)
Automatically
upon Executive’s death.
(b)
Upon
written notice by the Company to Executive of termination due
to Disability (as defined below). For the purposes of this
Agreement, “Disability” shall mean a condition
that entitles Executive to benefits under an applicable
Company long-term disability plan or, if no such plan exists,
a physical or mental disability which, in the reasonable
judgment of the Company’s board of directors, is likely
to render Executive unable to perform his duties and
obligations under this Agreement for 90 days in any 12-month
period.
(c)
Upon
written notice by the Company to the Executive of a
termination for “cause” under Section 11 of this
Agreement.
(d)
Upon
termination for “good reason” under Section 12 of
this Agreement.
(e)
Upon
written notice by the Company to the Executive of an
involuntary termination without “cause”, other
than for death or Disability.
(f)
Upon
“voluntary termination” by Executive under Section
13 of this Agreement.
11.
Termination for Cause .
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