EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is made effective as of October 1,
2013 (the “Effective Date”), by and among Mandalay Digital Group, Inc., a
Delaware corporation (the “Employer”), and Peter A. Adderton (the “Executive”).
In consideration of the mutual covenants contained in this Agreement, the
Employer and the Executive agree as follows:

 

1.          Employment. The Employer agrees to employ the Executive, and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.

 

2.          Capacity. The Executive currently serves on the Board of Directors
of the Employer (the “Board of Directors”) and shall serve the Employer as Chief
Executive Officer. Subject to the discretion of the Nominating Committee of the
Board of Directors, Executive shall serve as a member of the Board of Directors
without additional compensation, subject to stockholder approval at the
Employer’s annual meeting of stockholders. At the end of the Term (as defined
below), Executive shall offer to resign from the Boards of Directors and any
similar body at a subsidiary of the Employer. As Chief Executive Officer, the
Executive shall be responsible for the general supervision, management and
control of the Employer’s business, subject to the direction of the Board of
Directors. The Executive shall report directly to the Board of Directors. It is
agreed that the Board has previously determined that any CFO hired will report
directly to, and will actively interact with, the Board of Directors and that
such arrangement is acceptable to the Executive and does not constitute “Good
Reason” hereunder. At the reasonable request of the Board of Directors, the
Executive shall provide services to subsidiaries and affiliates of the Employer,
without additional compensation becoming payable. At any time after the first
anniversary of the Effective Date during the Term, at the request of the Board
of Directors, the Executive’s capacity shall change to being the Chief
Innovation Officer rather than the Chief Executive Officer (a “Change in
Capacity”). As Chief Innovation Officer, the Executive shall be responsible for
assisting the Chief Executive Officer in developing, setting, monitoring and
implementing product development efforts, strategic initiatives, marketing
approaches, joint ventures, acquisitions and other related matters, subject to
the direction of the Board of Directors and the Chief Executive Officer. As
Chief Innovation Officer, the Executive shall report directly to the Chief
Executive Officer. After a Change in Capacity, Executive shall (in addition to
his duties as Chief Innovation Officer) continue to support the Employer in
finding and transitioning any new Chief Executive Officer that the Employer may
retain without additional compensation becoming payable for such assistance.
Executive represents he is and at all times during the Term will be legally
present and entitled to work in the United States.

 

3.          Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement shall be two (2) years, i.e., twenty-four (24)
calendar months, from the Effective Date (the “Term”).

 

4.          Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:

 

 

 

 

(a)          Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive an annual salary (the “Salary”)
at the annual rate of Five Hundred Thousand Dollars ($500,000). The Executive’s
Salary shall be payable in periodic installments in accordance with the
Employer’s usual practice for its employees, but in no event less than monthly
over the year in which the Salary is earned.

 

(b)          Bonuses.

 

(i)          Signing Bonus. The Executive shall be entitled to a bonus of Five
Hundred Thousand Dollars ($500,000.00) payable (A) 50% within five (5) days of
signing this Agreement and (B) the remaining 50% as follows: $125,000.00 on
December 31, 2013 and $125,000.00 on March 31, 2014.

 

(ii)         Annual Bonus. While he is Chief Executive Officer, the Executive
shall be entitled to be paid an annual incentive bonus in cash in an amount of
up to 150% of the Executive’s Salary based upon satisfaction of
performance-related milestones, as specified on Schedule A subsections (1) or
(2) as applicable. While he is Chief Innovation Officer, the Executive shall be
entitled to be paid an annual incentive bonus in cash in an amount of up to 100%
of the Executive’s Salary based upon satisfaction of performance-related
milestones, as specified on Schedule A subsection (3). All bonus amounts under
this subsection shall (a) be paid within thirty (30) days after the revenue and
EBITDA criteria are determined for the applicable yearly period in the manner
described in Schedule A, and (b) be conditioned on Executive being employed
throughout the entire yearly period with respect to which the bonus is
determined.

 

(c)          Regular Benefits.

 

(i)          The Executive shall also be entitled to participate in any
qualified retirement plans, deferred compensation plans, stock option and
incentive plans, stock purchase plans, group and executive medical insurance
plans (i.e., coverage for the Executive and family), life insurance plans,
disability income plans, retirement plans, vacation plans, expense reimbursement
plans and other benefit plans which the Employer may from time to time have in
effect for any, all or most of its senior executives (collectively “Employer
Benefit Plans”). Such participation shall be subject to the terms of applicable
plan documents, generally applicable policies of the Employer, applicable law
and the discretion of the Board of Directors, the Compensation Committee or any
administrative or other committee provided for in or contemplated by any such
plan. Nothing contained in this Agreement shall be construed to create any
obligation on the part of the Employer to establish any such plans or to
maintain the effectiveness of any such plans which may be in effect from time to
time.

 

(ii)         Notwithstanding the Executive’s right to participate in Employer
Benefit Plans, the Executive may elect to purchase separate medical insurance
and related benefits for himself and his family, and the Employer shall
reimburse the Executive for all of the Executive’s out-of-pocket costs in
connection with obtaining and maintaining such insurance and related benefits
but not for any incremental cost to the Employer over and above what it would
cost the Employer to provide Executive and his family medical insuance and
related benefits under the Employer’s standard insurance plans.

 

 

 

 

(d)          Reimbursement of Business Expenses. The Employer shall reimburse
the Executive for all reasonable expenses incurred by the Executive in
performing services during the Term, in accordance with the Employer’s policies
and procedures for its senior executive officers, as in effect from time to
time, including, but not limited to, business class air travel (or, if
unavailable, first class), meals and entertainment, fuel costs for
transportation, wireless mobile communications, and personal computer equipment.

 

(e)          Stock Option Grant. On the Effective Date, the Employer shall grant
the Executive 500,000 options to purchase common stock of the Employer at an
exercise price equal to the closing price of the Employer’s common stock on the
Nasdaq Capital Market on the Effective Date (or if the Effective Date is not a
trading day, on the next trading day after the Effective Date) under a
shareholder-approved equity incentive plan, subject to the terms and conditions
specified in the Employer’s standard stock option agreement, which shall vest as
follows: (i) 250,000 options shall vest on the one year anniversary of the
Effective Date; (ii) 250,000 options shall vest on the two year anniversary of
the Effective Date; and (iii) all unvested options shall vest immediately upon
the sale of all or substantially all of the assets of the Employer, upon the
merger or reorganization of the Employer following which the equityholders of
the Employer immediately prior to the consummation of such merger or
reorganization collectively own less than 50% of the voting power of the
resulting entity, or upon the sale of equity securities of the Employer
representing 50% or more of the voting power of the Employer or 50% or more of
the economic interest in the Employer in a single transaction or in a series of
related transactions (i.e., a “Change of Control”). All shares shall be subject
to a one (1) year lock-up following the exercise of such options. The Employer
has received informal guidance from Nasdaq that no shareholder approval is
required for the option grant contemplated hereby and to make a related change
to the annual per person cap under the amended and restated 2011 equity
incentive plan; provided, however, the Employer (acting through the Compensation
Committee) reserves the right to seek formal guidance within forty-five days of
the Effective Date as to such matters, and if Nasdaq indicates that shareholder
approval is in fact required, then the Executive and the Employer agree to take
all reasonable actions to restructure the grant (including, if necessary,
subjecting it to shareholder approval as a condition to the option being
exercisable, with the Employer using best efforts to obtain such shareholder
approval) in order to fully comply with Nasdaq shareholder approval
requirements.

 

(f)          Exclusivity of Salary and Benefits. The Executive shall not be
entitled to any payments or benefits other than those provided under this
Agreement.

 

5.          Extent of Service. During the Executive’s employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors (or the Chief Executive Officer, if and when the Executive
shall be the Chief Innovation Officer), devote the Executive’s full business
time, best efforts and business judgment, skill and knowledge to the advancement
of the Employer’s interests and to the discharge of the Executive’s duties and
responsibilities under this Agreement. The Executive shall not engage in any
other business activity, except as may be approved by the Board of Directors;
provided, however, that nothing in this Agreement shall be construed as
preventing the Executive from:

 

 

 

 

(a)          investing the Executive’s personal assets in any non-competitive
business enterprise, company or other entity in such form or manner as shall not
require any material personal time commitment on the Executive’s part in
connection with the operations or affairs of such other enterprise, company or
other entity in which such investments are made;

 

(b)          engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive’s ability to fulfill the Executive’s
duties and responsibilities under this Agreement; or

 

(c)          serving as an executive officer of Boost Tel Pty. Ltd., a company
organized under the laws of Australia, provided that his personal services in
such capacity do not require any material time commitment on the Executive’s
part in connection with the operation or affairs of such companies and, in any
event, such role shall not impair the Executive’s ability to fulfill his duties
and responsibilities under this Agreement.

 

6.          Termination. Notwithstanding the provisions of Section 3, the
Executive’s employment under this Agreement shall terminate under the following
circumstances set forth in this Section 6. For purposes of this Agreement, the
date of the Executive’s termination (the “Termination Date”) shall mean the date
of the Executive’s “separation from service” as such term is defined under
Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”).

 

(a)          Termination by the Employer for Cause. The Executive’s employment
under this Agreement may be terminated for Cause without further liability on
the part of the Employer effective immediately upon approval of the Board of
Directors and written notice to the Executive. Only the following shall
constitute “Cause” for such termination:

 

(i)          any act committed by the Executive against the Employer or any of
its affiliates which involves fraud, willful misconduct, gross negligence or
insubordination; or

 

(ii)         the commission by the Executive of, or indictment for (A) a felony
or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud.

 

(b)          Termination by the Employer Without Cause. Subject to the payment
of Termination Benefits pursuant to Section 7(b), the Executive’s employment
under this Agreement may be terminated by the Employer without Cause upon not
less than fifteen (15) days’ prior written notice to the Executive.

 

(c)          Death. The Executive’s employment with the Employer shall terminate
automatically upon his death.

 

 

 

 

(d)          Disability. If the Executive shall become Disabled so as to be
unable to perform the essential functions of the Executive’s then existing
position or positions under this Agreement with or without reasonable
accommodation, the Board of Directors may remove the Executive from any
responsibilities and/or reassign the Executive to another position with the
Employer for the remainder of the Term or during the period of such Disability.
Notwithstanding any such removal or reassignment, the Executive shall continue
to receive the Executive’s full Salary (less any disability pay or sick pay
benefits to which the Executive may be entitled under the Employer’s policies)
and benefits under Section 4 of this Agreement (except to the extent that the
Executive may be ineligible for one or more such benefits under applicable plan
terms) for a period of time equal to twelve (12) months payable at the same time
as such amounts would otherwise have been paid to the Executive had he continued
in his current capacity. If the Executive is unable to perform substantial
services of any kind for the Employer during this period, such period shall be
considered a paid leave of absence and the Executive shall have the contractual
right to return to employment at any time during such period. If the Executive’s
Disability continues beyond such twelve (12) month period, the Executive’s
employment may be terminated by the Employer by reason of Disability at any time
thereafter. For purposes hereof, the term “Disabled” or “Disability” shall mean
a written determination that the Executive, as certified by at least two (2)
duly licensed and qualified physicians, one (1) approved by the Board of
Directors of the Employer and one (1) physician approved by the Executive (the
“Examining Physicians”), or, in the event of the Executive’s total physical or
mental disability, the Executive’s legal representative, that the Executive
suffers from a physical or mental impairment that renders the Executive unable
to perform the Executive’s regular personal duties under this Agreement and that
such impairment can reasonably be expected to continue for a period of six (6)
consecutive months or for shorter periods aggregating one hundred eighty (180)
days in any twelve (12) month period; provided, however, that the Executive’s
primary care physician may not serve as one of the Examining Physicians without
the consent of the Employer and the Executive (or the Executive’s legal
representation). The Executive shall cooperate with any reasonable request of a
physician to submit to a physical examination for purposes of such
certification. Nothing in this Section 6(d) shall be construed to waive the
Executive’s rights, if any, under existing law including, without limitation,
the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the
Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

 

(e)          Termination by the Executive for Good Reason. Subject to the
payment of Termination Benefits pursuant to Section 7(b), the Executive’s
employment under this Agreement may be terminated by the Executive for Good
Reason. For purposes of this Agreement, “Good Reason” shall be present where
Executive gives notice to the Board of Directors of his voluntary resignation
within thirty (30) days after the occurrence of any of the following, without
Executive’s written consent: (i) the failure of the Employer to pay or cause to
be paid Executive’s Salary or Annual Bonus, when due under the terms and
conditions hereunder hereunder, subject to a fifteen (15) day cure period by the
Employer following notice by the Executive; or (ii) material diminution in
Executive’s position, duties, authority or responsibility, without Cause,
subject to a thirty (30) day cure period by the Employer following notice by the
Executive (except that a Change in Capacity is not, without limitation, such a
diminution).

 

7.          Compensation Upon Termination.

 

(a)          Termination Generally. If the Executive’s employment with the
Employer is terminated for any reason during or upon expiration of the Term, the
Employer shall pay or provide to the Executive (or to his authorized
representative or estate) (i) any earned but unpaid Salary payable on the
Termination Date, (ii) accrued bonuses for a previously completed yearly
measurement period (for avoidance of doubt, no pro-rata bonus is payable under
this clause, only a bonus for a previously completed yearly measurement period)
earned but not yet paid, payable at the same time such amounts would otherwise
have been paid to the Executive, (iii) any unpaid expense reimbursements,
payable in accordance with the Employer’s reimbursement policies, (iv) any
accrued but unused vacation, payable on the Termination Date, and (v) any vested
benefits the Executive may have under any of the Employer Benefit Plans, payable
as specified in the applicable plan documents (collectively, the “Accrued
Compensation”).

 

 

 

 

(b)          Termination by the Employer Without Cause or by the Executive for
Good Reason. In the event of termination of the Executive’s employment with the
Employer pursuant to Section 6(b) or 6(e) above prior to the expiration of the
Term, and subject to the Executive’s execution and delivery of a release of any
and all legal claims in a form satisfactory to the Employer within forty-five
(45) days of the Termination Date (the “Release Period”), the Employer shall
provide to the Executive, in addition to the Accrued Compensation, the following
termination benefits (“Termination Benefits”) effective as of the final day of
the Release Period:

 

(i)          continuation of the Executive’s Salary at the rate and in
accordance with the Employer’s payroll practices then in effect pursuant to
Section 4(a); and

 

(ii)         continuation of any executive health and group health plan benefits
to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq.
(commonly known as “COBRA”), subject to payment of premiums by the Employer to
the extent that the Employer was covering such premiums as of the Termination
Date (if permitted by law without violation of applicable discrimination rules,
or, if not, the equivalent after-tax value payable as additional severance at
the same time such premiums are otherwise payable); and

 

(iii)        a pro-rata annual bonus through the Termination Date, as reasonably
determined by the Compensation Committee applying the applicable standards in
Schedule A; and

 

(iv)        acceleration of vesting of the options granted under this Agreement
on a pro-rata basis as if the vesting schedule had been monthly rather than
annual, advanced to the next month.

 

The Termination Benefits set forth in subsections 7(b)(i) and (ii) and above
shall continue effective for the remainder of the Term (the “Termination
Benefits Period”); provided, however, that in the event that the Executive
commences any employment during the Termination Benefits Period, the benefits
provided under Section 7(b)(ii) shall cease effective as of the date Executive
qualifies for group health plan benefits in his new employment. The Employer’s
liability for Salary continuation pursuant to Section 7(b)(i) shall not be
reduced by the amount of any severance pay paid to the Executive pursuant to any
severance pay plan or stay bonus plan of the Employer. Notwithstanding the
foregoing, nothing in this Section 7(b) shall be construed to affect the
Executive’s right to receive COBRA continuation entirely at the Executive’s own
cost to the extent that the Executive may continue to be entitled to COBRA
continuation after Employer-paid premiums cease. The Executive shall be
obligated to give prompt notice of the date of commencement of any employment
during the Termination Benefits Period and shall respond promptly to any
reasonable inquiries concerning any employment in which the Executive engages
during the Termination Benefits Period.

 

 

 

 

The Employer acknowledges and agrees that under certain circumstances involving
the termination of the Executive’s employment and/or a Change of Control
transaction involving the Employer, the Executive shall be entitled to
accelerated vesting on his options to purchase shares of capital stock of the
Employer, all to the extent provided in that certain Stock Option Agreement
referred to in Section 4(e) hereof.

 

Any Section 409A payments which are subject to execution of a waiver and release
which may be executed and/or revoked in a calendar year following the calendar
year in which the payment event (such as termination of employment) occurs shall
commence payment only in the calendar year in which the Release Period ends as
necessary to comply with Section 409A.

 

(c)          Termination by Reason of Cause, Death, Disability, Voluntary
Termination or Expiration of Term. If the Executive’s employment is terminated
for any reason other than by the Employer without Cause under Section 6(b) or by
the Executive for Good Reason under Section 6(e), including by reason of the
Employer’s election not to extend the Term, the Employer shall have no further
obligation to the Executive other than payment of his Accrued Compensation.

 

8.            Confidential Information, Nonsolicitation and Cooperation.

 

(a)          Confidential Information. As used in this Agreement, “Confidential
Information” means proprietary information of the Employer which is of value to
the Employer in the course of conducting its business and the disclosure of
which could result in a competitive or other disadvantage to the Employer.
Confidential Information includes, without limitation, financial information,
reports, and forecasts; inventions, improvements and other intellectual
property; trade secrets; know-how; designs, processes or formulae; software;
market or sales information or plans; customer lists; and business plans,
prospects and opportunities (such as possible acquisitions or dispositions of
businesses or facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes information
developed by the Executive in the course of the Executive’s employment by the
Employer, as well as other information to which the Executive may have access in
connection with the Executive’s employment. Confidential Information also
includes the confidential information of others with which the Employer has a
business relationship. Notwithstanding the foregoing, Confidential Information
does not include (i) information in the public domain, unless due to breach of
the Executive’s duties under Section 8(b), or (ii) information obtained in good
faith by the Executive from a third party who was lawfully in possession of such
information and not subject to an obligation of confidentiality owed to the
Employer.

 

(b)          Duty of Confidentiality. The Executive understands and agrees that
the Executive’s employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive’s employment with the
Employer and after termination, the Executive will keep in confidence and trust
all such Confidential Information, and will not use or disclose any such
Confidential Information without the written consent of the Employer, except (i)
as may be necessary in the ordinary course of performing the Executive’s duties
to the Employer or (ii) as may be required in response to a valid order by a
court or other governmental body or as otherwise required by law (provided that
if the Executive is so required to disclose the Confidential Information, the
Executive shall (i) immediately notify the Employer of such required disclosure
sufficiently in advance of the intended disclosure to permit the Employer to
seek a protective order or take other appropriate action, (ii) cooperate in any
effort by the Employer to obtain a protective order or other reasonable
assurance that confidential treatment will be afforded the Confidential
Information).

 

 

 

 

(c)          Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Employer or are
produced by the Executive in connection with the Executive’s employment will be
and remain the sole property of the Employer. The Executive will return to the
Employer all such materials and property as and when requested by the Employer.
In any event, the Executive will return all such materials and property
immediately upon termination of the Executive’s employment for any reason. The
Executive will not retain with the Executive any such material or property or
any copies thereof after such termination.

 

(d)          Nonsolicitation. During the Term and for one (1) year thereafter,
the Executive (i) will refrain from directly or indirectly employing, attempting
to employ, recruiting or otherwise soliciting, inducing or influencing any
person to leave employment with the Employer (other than subordinate employees
whose employment was terminated in the course of the Executive’s employment with
the Employer); and (ii) will refrain from soliciting or encouraging any customer
or supplier to terminate or otherwise modify adversely its business relationship
with the Employer. The Executive understands that the restrictions set forth in
this Section 8(d) are intended to protect the Employer’s interest in its
Confidential Information and established employee, customer and supplier
relationships and goodwill, and agrees that such restrictions are reasonable and
appropriate for this purpose.

 

(e)          Third-Party Agreements and Rights. The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any previous
employer or other party which restricts in any way the Executive’s use or
disclosure of information or the Executive’s engagement in any business. The
Executive represents to the Employer that the Executive’s execution of this
Agreement, the Executive’s employment with the Employer and the performance of
the Executive’s proposed duties for the Employer will not violate any
obligations the Executive may have to any such previous employer or other party.
In the Executive’s work for the Employer, the Executive will not disclose or
make use of any information in violation of any agreements with or rights of any
such previous employer or other party, and the Executive will not bring to the
premises of the Employer any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.

 

 

 

 

(f)           Litigation and Regulatory Cooperation. During and after the
Executive’s employment, the Executive shall cooperate reasonably with requests
from the Employer, or the Employer’s legal counsel, in the defense or
prosecution of any claims or actions now in existence or which may be brought in
the future against or on behalf of the Employer which relate to events or
occurrences that transpired while the Executive was employed by the Employer.
The Executive’s cooperation in connection with such claims or actions shall
include, but not be limited to, being available to meet with counsel to prepare
for discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive’s employment, the
Executive also shall cooperate fully with the Employer in connection with any
investigation or review of any federal, state or local regulatory authority as
any such investigation or review relates to events or occurrences that
transpired while the Executive was employed by the Employer. The Employer shall
reimburse the Executive for any reasonable out-of-pocket expenses incurred in
connection with the Executive’s performance of obligations pursuant to this
Section 8(f), and if the Executive spends more than ten (10) hours in any
calendar month in performance of these obligations, the Employer shall pay the
Executive $500 per hour for each part of an hour over ten (10) hours in such
calendar month.

 

(g)          Intellectual Property. Except as provided under Section 2870 of the
California Labor Code (a copy of which is attached as Schedule B), the Employer
shall be the sole owner of all the products and proceeds of Executive’s services
hereunder and under the Prior Agreement, including, without limitation, all
materials, ideas, concepts, formats, suggestions, developments, and other
intellectual properties that Executive may acquire, obtain, develop or create in
connection with his services hereunder and during the Term and under the Prior
Agreement, free and clear of any claims by Executive (or anyone claiming under
Executive) of any kind or character whatsoever (other than Executive’s rights
and benefits hereunder). Executive shall, at the request of the Employer,
execute such assignments, certificates or other instruments as the Employer may
from time to time deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce or defend the Employer’s right, title and interest in
and to any such products and proceeds of Executive’s services hereunder.

 

(h)          Injunction. The Executive agrees that it would be difficult to
measure any damages caused to the Employer which might result from any breach by
the Executive of the promises set forth in this Section 8, and that in any event
money damages may be an inadequate remedy for any such breach. Accordingly,
subject to Section 9 of this Agreement, the Executive agrees that if the
Executive breaches, or proposes to breach, any portion of this Agreement, the
Employer shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Employer and without
the need to post a bond or other security.

 

 

 

 

9.          Arbitration of Disputes. In the event of any dispute or controversy
arising out of, or relating to, this Agreement, the parties hereto agree to
submit such dispute or controversy to binding arbitration pursuant to either the
JAMS Streamlined (for claims under $250,000.00) or the JAMS Comprehensive (for
claims over $250,000.00) Arbitration Rules and Procedures, except as modified
herein, including the Optional Appeal Procedure. A sole neutral arbitrator shall
be selected from the list (the “List”) of arbitrators supplied by J.A.M.S.
(“JAMS”) Los Angeles County, California office, or any successor entity, or if
it no longer exists, from a List supplied by the ADR Services, Inc., in Los
Angeles, California (“ADR”) following written request by any party hereto. If
the parties hereto after notification of the other party(-ies) to such dispute
cannot agree upon an arbitrator within thirty (30) days following receipt of the
List by all parties to such arbitration, then either party may request, in
writing, that JAMS or ADR, as appropriate, appoint an arbitrator within ten (10)
days following receipt of such request (the “Arbitrator”). The arbitration shall
take place in Los Angeles County, California, at a place and time mutually
agreeable to the parties or, if no such agreement is reached within ten (10)
days following notice from the Arbitrator, at a place and time determined by the
Arbitrator. Such arbitration shall be conducted in accordance with the
Streamlined Arbitration Rules and Procedures of JAMS then in effect, and Section
1280 et seq. of the California Code of Civil Procedure, or if applicable, the
Commercial Arbitration Rules of ADR then in effect. The preceding choice of
venue is intended by the parties to be mandatory and not permissive in nature,
thereby precluding the possibility of litigation between the parties with
respect to or arising out of this Agreement in any jurisdiction other than that
specified in this Section. Each party hereby waives any right it may have to
assert the doctrine of forum non conveniens or similar doctrine or to object to
venue with respect to any proceeding brought in accordance with this Section,
and stipulates that the Arbitrator shall have in personam jurisdiction and venue
over each of them for the purpose of litigating any dispute, controversy, or
proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement. The decision of the
Arbitrator shall be final and binding on all the parties to the arbitration,
shall be non-appealable and may be enforced by a court of competent
jurisdiction. The prevailing party shall be entitled to recover from the
non-prevailing party reasonable attorney’s fees, as well as its costs and
expenses. The Arbitrator may grant any remedy appropriate including, without
limitation, injunctive relief or specific performance. Notwithstanding any of
the foregoing, the Employer may seek a temporary restraining order or a
preliminary injunction as contemplated in Section 8(h) herein.

 

10.         Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter,
including that certain Employment Agreement between Employer and Executive dated
as of December 28, 2011 (the “Prior Agreement”), which expired on December 28,
2012; provided, however, that this Agreement does not affect any rights
Executive has under the Prior Agreement to special bonuses based on enterprise
value to the extent set forth in Section 4(f) of the Prior Agreement or to any
and all awards or grants of stock, warrants or options that have been previously
granted to Executive, including, without limitation, the vesting, value and
transferability of them, including, without limitation, those set forth in
Section 4(e) of the Prior Agreement, the Restricted Stock Agreement between
Employer and Executive dated as of December 28, 2011 (the “Restricted Stock
Agreement”) or in any other agreement between Employer and Executive; provided,
however the parties agree that no bonus under Section 4(b)(ii) of the Prior
Agreement became, was, is or will be due or payable to Executive and that
Executive waives and releases all claims thereto and will not bring any claims
therefor.

 

11.         Assignment; Successors and Assigns, etc. Neither the Employer nor
the Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the other
party; but the Employer may assign its rights under this Agreement without the
consent of the Executive, in the event that the Employer shall effect a
reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity, in which event the Employer will obtain a written confirmation
of the assumption of the Employer’s obligation hereunder for the benefit of the
Executive. This Agreement shall inure to the benefit of and be binding upon the
Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.

 

 

 

 

12.         Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.

 

13.         Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.

 

14.         Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the Executive’s last residential address the Executive has filed in
writing with the Employer or, in the case of the Employer, at its main offices,
attention of the Chairman of the Board, and shall be effective on the date of
delivery in person or by courier or three (3) days after the date mailed.

 

15.         Third Party Beneficiary; Amendment. The Executive and the Employer
acknowledge and agree that no third party shall have any rights or benefits
under this Agreement, except for the parties specifically named as released
parties in Section 21. This Agreement may be amended or modified only by a
written instrument signed by the Executive and the Employer.

 

16.         Governing Law. This contract has been entered into in the State of
California and shall be construed under and be governed in all respects by the
laws of the State of California, without giving effect to the conflict of laws
principles of such state; provided, however, that Section 19 shall be governed
by the laws of the State of Delaware.

 

17.         Counterparts. This Agreement may be executed in any number of
original, facsimile or other electronic counterparts, each of which when so
executed and delivered shall be taken to be an original; but such counterparts
shall together constitute one and the same document.

 

18.         No Prior Agreements. The Executive hereby represents and warrants to
the Employer and that the execution of this Agreement by the Executive, the
Executive’s employment by the Employer, and the performance of the Executive’s
duties hereunder will not violate or constitute a breach of any agreement,
including any non-competition agreement, invention or confidentiality agreement,
with a former employer, client or any other person or entity. Further, the
Executive agrees to indemnify the Employer for any loss, including, but not
limited to, reasonable attorneys’ fees and expenses, that the Employer may incur
based upon or arising out of the Executive’s breach of this Section.

 

 

 

19.         Indemnification. The Employer shall indemnify the Executive against
and hold the Executive harmless from any costs, liabilities, losses and
exposures for the Executive’s services as an employee, officer and director of
the Employer (or any successor in interest thereof), whether before or after the
Effective Date, to the maximum extent permitted under the Delaware General
Corporate Law. If the Executive is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by the Employer against the Executive), by
reason of the fact that the Executive is or was performing services to the
Employer under this Agreement or while acting as an executive officer of the
Employer, the Employer shall indemnify the Executive against all expenses
(including reasonable attorneys’ fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by the Executive in connection
therewith, to the maximum extent permitted under the Delaware General
Corporation Law. If the Executive is made a party to any third-party action,
complaint, suit or proceeding, the Executive shall given prompt notice thereof
to the Employer, and the Employer shall have the right to assume and control the
defense of such action, complaint, suit or proceeding; provided, however, that
if legal counsel selected by the Employer shall have a conflict of interest that
prevents such counsel from representing the Executive, the Executive may engage
separate counsel and the Employer shall reimburse all reasonable attorneys’ fees
and reasonable expenses of such separate counsel. Notwithstanding the foregoing,
the Employer shall not have, and the Executive acknowledges and agrees that the
Employer does not have, any obligation to indemnify the Executive under this
Section or under its certificate of incorporation or bylaws, with respect to (a)
any breach of representation, warranty or covenant committed by the Executive
under this Agreement, or (b) any action or inaction by the Executive where the
Executive failed to act in good faith and in a manner the Executive reasonably
believed to be in, or not opposed to, the best interests of the Employer, or
with respect to any criminal action or proceeding, the Executive had reasonable
cause to believe that his conduct was unlawful.

 

20.         Directors’ and Officers’ Insurance. As soon as reasonably
practicable following the Effective Date, the Employer shall use commercially
reasonable efforts to obtain (if it does not already have) directors’ and
officers’ insurance from a reputable insurance company with such coverage
amounts and policy terms as is customary for public companies with market
valuations similar to the Employer, as determined by the Employer in its sole
discretion.

 

21.         [Omitted Intentionally]. 

 

22.         Withholding Obligations. The Employer, or any other entity making a
payment, may withhold and make such deductions from any amounts payable under
this Agreement such federal, state and local taxes as may be required to be
withheld or deducted from time to time pursuant to any applicable law,
governmental regulation and/or order.

 

23.         Section 954 of the Dodd Frank Act. This Agreement and all other
Compensation of Executive are intended to comply with the “clawback obligations”
of Section 954 of the Dodd Frank Act (including the related regulations,
“Section 954”). If the Employer’s financial statements must be restated, to the
extent and only to the extent required by Section 954 (if applicable), the
Employer shall be entitled to recover from Executive, and Executive agrees to
promptly repay, any incentive-based compensation which would not have been
earned under the restated financial statements.

 

 

 

 

24.         Section 409A Compliance. Unless otherwise expressly provided, any
payment of compensation by the Employer to the Executive, whether pursuant to
this Agreement or otherwise, shall be made no later than the fifteenth (15th)
day of the third (3rd) month (i.e., 2½ months) after the later of the end of the
calendar year or the Employer’s fiscal year in which the Executive’s right to
such payment vests (i.e., is not subject to a “substantial risk of forfeiture”
for purposes of Section 409A). Each payment and each installment of any bonus or
severance payments provided for under this Agreement shall be treated as a
separate payment for purposes of application of Section 409A. To the extent any
amounts payable by the Employer to the Executive constitute “nonqualified
deferred compensation” (within the meaning of Section 409A) such payments are
intended to comply with the requirements of Section 409A, and shall be
interpreted in accordance therewith. Neither party individually or in
combination may accelerate, offset or assign any such deferred payment, except
in compliance with Section 409A. No amount shall be paid prior to the earliest
date on which it is permitted to be paid under Section 409A and the Executive
shall have no discretion with respect to the timing of payments except as
permitted under Section 409A. In the event that the Executive is determined to
be a “key employee” (as defined and determined under Section 409A) of the
Employer at a time when its stock is deemed to be publicly traded on an
established securities market, payments determined to be “nonqualified deferred
compensation” payable upon separation from service shall be made no earlier than
(a) the first (1st) day of the seventh (7th) complete calendar month following
such termination of employment, or (b) the Executive’s death, consistent with
the provisions of Section 409A. Any payment delayed by reason of the prior
sentence shall be paid out in a single lump sum at the end of such required
delay period in order to catch up to the original payment schedule. All expense
reimbursement or in-kind benefits subject to Section 409A provided under this
Agreement or, unless otherwise specified in writing, under any Employer program
or policy, shall be subject to the following rules: (i) the amount of expenses
eligible for reimbursement or in-kind benefits provided during one calendar year
may not affect the benefits provided during any other year; (ii) reimbursements
shall be paid no later than the end of the calendar year following the year in
which the Executive incurs such expenses, and the Executive shall take all
actions necessary to claim all such reimbursements on a timely basis to permit
the Employer to make all such reimbursement payments prior to the end of said
period, and (iii) the right to reimbursement or in-kind benefits shall not be
subject to liquidation or exchange for another benefit. The Executive shall be
responsible for the payment of all taxes applicable to payments or benefits
received from the Employer. It is the intent of the Employer that the provisions
of this Agreement and all other plans and programs sponsored by the Employer be
interpreted to comply in all respects with Section 409A; provided, however, the
Employer shall have no liability to the Executive, or any successor or
beneficiary thereof, in the event taxes, penalties or excise taxes may
ultimately be determined to be applicable to any payment or benefit received by
the Executive or any successor or beneficiary thereof.

 

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IN WITNESS WHEREOF, this Agreement has been executed by the Employer and by the
Executive as of the Effective Date.

 

  EMPLOYER       Mandalay Digital Group, Inc., a Delaware corp.       By: /s/
Jeff Karish   Its: Director, Chairman of Compensation Committee of the Board    
  EXECUTIVE       /s/ Peter Adderton   Name: Peter A. Adderton

 

 

 

 

Schedule A

 

1)If Executive is the Chief Executive Officer for the entire Performance Period,
he shall be entitled to an annual bonus with respect to the first year of the
Term as follows:

 

a.Definitions:

 

i.  Performance Period: The completed four quarter period commencing on the
beginning of the third fiscal quarter of 2014 (i.e., starting October 1, 2013)
and ending at the conclusion of the second fiscal quarter of fiscal year 2015
(i.e., Q3 + Q4 of FY2014 and Q1 + Q2 FY2015).

 

ii.  Revenue: Revenue as reported in the applicable quarterly and annual reports
filed by the Employer with the Securities and Exchange Commission.

 

iii.  EBITDA: EBITDA as described under SEC rules and interpretations. For
clarity, EBITDA shall be determined after any accrual for or payments of any
bonuses or compensation, including without limitation amounts due or to be due
under this Agreement, even though management projections are BEFORE such
accruals and payments and have other adjustments that may not normally be part
of EBITDA.

 

iv.  Adjusted “12 Month Target EBITDA” means the amounts stated as “EBITDA” on
the management projection for Q3 and Q4 of FY 2014 and approved by the Board on
August 19, 2013, increased by the amount of any expense or cost that was
excluded from the management projections but would not have been excluded from
EBITDA as defined herein. As an example, bonus and compensation accrual and
expense is not excluded from EBITDA (i.e., EBITDA is after such items), but the
management projections excluded bonus and compensation accrual and expense
(i.e., the management projection was before such items); in this case, since
bonus and compensation would not have been excluded from EBITDA as defined
herein, such amounts must be added back to the management projections in order
to determine Adjusted “12 Month Target EBITDA.” Similarly, if there are other
non-cash charges that were excluded from the management projections but would
not be excluded from EBITDA as defined herein, such charges must be added back
to determine Adjusted “12 Month Target EBITDA,” having the effect of raising the
target EBITDA the Employer would need to achieve for the applicable bonus amount
to be earned, as described below.

 

b.Amount: Up To 150% of annual Salary.

 

 

 

 

c.Bonus Criteria: There are six (6) bonus criteria, each worth 25% of Salary.
For example, if all six bonus criteria are achieved, the annual bonus for the
applicable year shall be 150% of Salary. If only three (3) bonus criteria are
achieved, the annual bonus for the applicable year shall be 75% of Salary. If
none are achieved, then the annual bonus for the applicable year shall be 0% of
Salary.

 

i.  25% of Salary if the Employer has publicly reported revenues for the
Performance Period at least equal to the “12 Month Target Baseline Revenue”
budgeted amounts for Q3 & Q4 of FY2014 previously approved by the Board on
August 19, 2013 plus the Q1 & Q2 of FY2015 revenues projections to be provided
by management and agreed and approved by the Board; plus

 

ii.  25% of Salary if the Employer has publicly reported revenues for the
Performance Period equal to 125% of the minimum revenue required to achieve the
bonus amount in (i) above; plus

 

iii.  25% of Salary if the Employer has EBITDA for the Performance Period at
least equal to the Adjusted “12 Month Target EBITDA” plus the Q1 & Q2 of FY2015
EBITDA projection to be provided by management and agreed and approved by the
Board; plus

 

iv.  25% of Salary if in addition to achieving the bonus amount in (iii) above,
the Employer’s EBITDA for the Performance Period is $3 million more than the
minimum EBITDA needed to achieve the bonus amount in (iii) above; plus

 

v.  25% of Salary if the Executive achieves the following strategic objectives
as reasonably determined by the Compensation Committee of the Board of
Directors:

 

1)Setting up a structured team acceptable to the Board of Directors of a CEO
(assuming the Board of Directors requests a Change of Capacity), COO, CFO, GC,
and other key executive functions in place;

 

2)Consolidating the corporate geographic control structure; and

 

3)Closing at least five (5) of major carrier relationships generating at least
$1 million in annual run-rate revenues; plus

 

4)25% of Salary in the sole discretion of the Compensation Committee of the
Board.

 

5)If the Employer disposes of or acquires a business or material assets during
the Performance Period, the revenue and EBITDA metrics shall be adjusted by the
Employer and Executive, acting reasonably, to reflect the change in
circumstances.

 

 

 

 

2)If Executive remains Chief Executive Officer for—

 

a.the entire second year of the Term, then with respect to the second year of
the Term he shall be entitled to an annual bonus that is the same bonus
opportunity as for the first year of the Term (i.e., up to 150% of Salary), with
the substantially same structure and same six (6) factors each worth 25% of
Salary, but with revenue and EBITDA milestones for the four fiscal quarters
sequentially following the Performance Period adjusted upward to such levels,
and new strategic objectives, each as determined by the Board of Directors and
Executive within sixty (60) days of commencement of the second year of the Term
as Chief Executive Officer.

 

b.any portion of the second year of the Term but not the entire second year of
the Term and serves the balance of the second year of the Term as Chief
Innovation Officer, then his bonus shall be determined applying the applicable
bonus criteria for the CEO and CIO portion of the second year on a pro-rata
basis, as reasonably determined by the Board of Directors.

 

3)If a Change of Capacity occurs, and Executive is the Chief Innovation Officer
for the remainder of the Term after the Chance of Capacity, he shall be entitled
to an annual bonus with respect to such period as follows:

 

a.Amount: Up To 100% of annual Salary.

 

b.Bonus Criteria: There are two (2) bonus criteria, each worth 50% of Salary.

 

i.  50% of Salary if the Employer achieves Board of Directors-defined
performance targets for publicly reported revenues and EBITDA (as defined above
in this Schedule A) for the four fiscal quarters sequentially following the
Performance Period, such targets to be determined within sixty (60) days of the
Change in Capacity after consultation with the Executive.

 

ii.  50% of Salary if the Executive meets bonus targets specific to the CIO role
determined by the Board of Directors, such targets to be determined within sixty
(60) days of the Change in Capacity after consultation with the Executive.

 

 

 

 

Schedule B

 

CALIFORNIA LABOR CODE SECTION 2870

INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT

 

“(a)          Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:

 

(1)         Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actually or demonstrably anticipated
research or development of the employer; or

 

(2)         Result from any work performed by the employee for the employer.

 

(b)          To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.”