Exhibit 10.18


 


August
13, 2007


 


Mr. Steve
McArthur


c/o
Classmates Online, Inc.


2001
Lind Avenue SW, Suite 500


Renton,
WA 98055


 


Dear
Steve,


 


This letter sets forth the terms and conditions of
your employment with Classmates Online, Inc. (the “Company”), effective as
of August 20, 2007 (the “Effective Date”).


 


1.                                       Position.  You will serve as President of the
Company and shall have such duties and responsibilities consistent with your
position or such other duties and responsibilities as may from time to time be
determined by the board of directors of the Company or any committee thereof,
or such board of directors or committee of any affiliated entity to which the
authority of the board of directors of the Company has been delegated or
assigned (the “Board of Directors”) or the Chief Executive Officer of
Classmates Media Corporation, a Delaware corporation (“Classmates Media
Corporation”) to the extent such authority has been delegated or assigned to
such Chief Executive Officer.  You will
report to me as the Chief Executive Officer of Classmates Media Corporation, or
to such other senior executive officer as may be designated by the Board of
Directors or the Chief Executive Officer of Classmates Media Corporation.  You agree to devote your full-time attention,
skill and efforts to the performance of your duties for the Company.


 


2.                                       Salary and Benefits. 
You will be paid a salary at the annual rate of $500,000, payable in
semi-monthly installments in accordance with the Company’s standard payroll
practices, subject to any increases as determined by the Board of Directors
from time to time.  You will be eligible
to participate in the employee benefits plans, including a 401(k) plan, that
are provided to similarly situated executives of the Company or that have been
made available to you by the Board of Directors or any affiliate of the
Company. You will be entitled to a minimum of 4 weeks of paid vacation each
year, or such greater amount as determined in accordance with the standard
vacation policy applicable to similarly situated executives of the Company.


 


3.                                       Bonus.  You will also be eligible to receive an annual cash
bonus of up to 100% of your annual base salary for each fiscal year (the “Annual
Bonus”), less withholding required by law, based on performance criteria
established by the Board of Directors. 
Your Annual Bonus will be increased to include any increases in your
annual bonus as approved by the Board of Directors.  You will be entitled to a guaranteed bonus
payment for the 2007 fiscal year in the amount of $210,000, less withholding
required by law, payable no later than


 


1

















 


March 15, 2008.  Except as otherwise determined by the Board
of Directors or set forth herein, your bonus awards will be paid only if you
are employed by and in good standing with the Company at the time of bonus
payments.


 


4.                                       Restricted Stock Units. 
Contingent on the effectiveness of an initial public offering of
securities of Classmates Media Corporation or securities issued by an entity
that is a direct or indirect parent of the Company (Classmates Media
Corporation or such entity being the “IPO entity,” and such initial public
offering being the “CMC IPO”) prior to April 30, 2008 and subject to the
appropriate action taken by the board of directors the IPO entity, on the
effective date of such CMC IPO, you will be awarded restricted stock units
covering that number of shares of common stock of the IPO entity equal to
$5,500,000 (the “CMC Restricted Stock Units”) based on the initial offering
price of such share of common stock in such initial public offering.  For purposes of this agreement, all
references to common stock of the IPO entity shall be deemed to refer to Class A
common stock of CMC.  In the event that
the CMC IPO does not become effective prior to April 30, 2008, subject to
the appropriate action taken by the board of directors of United Online, Inc.
(“United Online”), on the earlier of (i) April 30, 2008 or (ii) immediately
prior to the date of a Change in Control (as defined in Appendix A attached
hereto), you will be awarded restricted stock units covering that number of
shares of common stock of United Online equal to $5,500,000 divided by (i), if
a Change in Control of United Online occurs prior to or on December 31, 2007,
the average of the closing selling prices of a share of United Online common
stock during the 10 trading day period ending immediately prior to the
announcement of such Change in Control or (ii), if either (x) a Change in
Control of United Online occurs after December 31, 2007 but prior to April 30,
2008 or (y) no Change in Control of United Online occurs prior to April 30,
2008, the average of the closing selling prices of a share of United Online
common stock during the month of December 2007, such closing selling
prices as reported by the National Association of Securities Dealers on the
Nasdaq Stock Market (the “UOL Restricted Stock Units”). The CMC Restricted
Stock Units and the UOL Restricted Stock Units (collectively, referred to as
the “Restricted Stock Units”) will vest according to the following schedule subject
to your continued employment with the Company: 
twenty percent (20%) of the Restricted Stock Units will vest on August 15,
2008, August 15, 2009 and August 15, 2010, respectively, and the
remaining forty percent (40%) of the Restricted Stock Units will vest on August 15,
2011.  Except as otherwise set forth
herein, in all other respects, the Restricted Stock Units will be subject to
the terms and conditions set forth in the applicable stock plan and the
restricted stock unit agreement.


 


In the event that the CMC IPO does not become
effective prior to April 30, 2008 and a Change in Control of Classmates
Media Corporation (as defined in Paragraph B of Appendix A attached hereto)
occurs prior to April 30, 2008, subject to the appropriate action taken by
the board of directors of United Online, immediately prior to or in connection
with the closing of such Change in Control, you will be awarded $5,500,000 in
the form of the consideration received by United Online in connection with such
Change of Control with the value of securities or other property to be received
determined as of the date of the closing of such


 


2

















 


transaction,
provided that, if agreed to by United Online, the acquiring entity may
substitute $5,500,000 in cash or securities, or a combination thereof, of the
acquiring entity valued at $5,500,000 as of the date of closing of such
transaction.  The consideration received
in such transaction, whether cash, securities or otherwise, will be subject to
the same vesting schedule and treatment upon terminations of employment as
applicable to the Restricted Stock Units, which are set forth in this Section 4.


 


Upon the
termination of your employment by the Company “without cause” or by you for “good
reason” (each such term as defined below) prior to the fourth anniversary of
the Effective Date and in connection with or within twenty four (24) months
after a Change in Control (as defined in Appendix A attached hereto), and
subject to your execution (without revocation) of a general waiver and release
of all claims against the Company, its affiliates and successors, in a form
satisfactory to the Company (a “Release”), the vesting of your outstanding
Restricted Stock Units will be fully accelerated upon the expiration of all
applicable review and revocation periods applicable to the Release as
statutorily required by law, and in no event later than the later of (i) the
15th day of the
third month following the end of your taxable year in which such termination of
employment occurs or (ii) the 15th day
of the third month following the end of the Company’s taxable year in which
such termination of employment occurs.


 


Upon the termination of your employment by the
Company “without cause” or by you for “good reason” (each such term as defined
below) prior to the fourth anniversary of the Effective Date, and prior to and
not in connection with, or more than twenty four (24) months after a Change in
Control (as defined in Appendix A attached hereto), and subject to your
execution (without revocation) of a Release, the vesting of your outstanding
Restricted Stock Units will be accelerated by the additional number of shares
in which you would have been vested at the time of such termination if you had
completed an additional twelve (12) months of service, calculated as if such
units vest on a monthly basis.  Such
acceleration will occur upon the expiration of all applicable review and
revocation periods applicable to the Release as statutorily required by law,
and in no event later than the later of (i) the 15th day of the third month following the end of
your taxable year in which such termination of employment occurs or (ii) the
15th day of the third month following
the end of the Company’s taxable year in which such termination of employment
occurs.


 


Upon the termination of your employment as a result
of death or Disability (as defined below), the vesting of your outstanding
Restricted Stock Units will be accelerated by the additional number of shares
in which you would have been vested at the time of such termination if you had
completed an additional twelve (12) months of service (calculated as if such
units vest on a monthly basis); provided however, that in no event will the
number of shares which vest on such an accelerated basis exceed the number of
shares unvested immediately prior to the date of such termination.  For purposes of this letter, “Disability”
means your inability to engage in any substantial gainful activity necessary to
perform your duties hereunder by reason of any


 


3

















 


medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than twelve (12) months.


 


5.                                       Policies; Procedures;
Proprietary Information and Inventions Agreement.  As an
employee of the Company, you will be expected to abide by all of the policies
and procedures applicable to similarly situated executives of the Company,
including, without limitation the terms of: the Proprietary Information and
Inventions Agreement between you and United Online (or any successor thereto or
affiliate thereof), a copy of which is attached hereto as Appendix B and is
incorporated herein by reference; the Insider Trading Policy; the Code of
Ethics; and the Employee Handbook, and you agree to execute the foregoing upon
commencement of your employment.


 


6.                                       At Will Employment. 
Notwithstanding anything to the contrary contained herein, your
employment with the Company will be “at will” and will not be for any specified
term, meaning that either you or the Company will be entitled to terminate your
employment at any time and for any reason, with or without cause.  Any contrary representations that may have
been made to you are superseded by the terms set forth in this paragraph.  This is the full and complete agreement
between you and the Company on this subject. 
Although your job duties, title, compensation and benefits, as well as
the personnel policies and procedures applicable to you, may change from time
to time, the “at will” nature of your employment may only be changed in an
express written agreement signed by you and the Chief Executive Officer of the
Company and approved by the Board of Directors.


 


7.                                       Termination of
Employment


 


a.                                       Termination by You.  If you terminate your employment with the Company for
any reason other than for “good reason” as defined below, all obligations of the
Company as set forth in this letter will cease, other than the obligation to
pay you any accrued base salary for services rendered through the date of
termination, to pay you for any accrued but unused vacation days as of the date
of termination, and to fulfill its obligations in accordance with the terms of
the applicable stock plan or restricted stock unit agreement.  If you terminate your employment with the
Company for “good reason,” as defined below, in addition to the foregoing, the
Company will pay you the Separation Payment (as defined below) subject to the
conditions set forth in Section 7(b) below.  However, and notwithstanding the termination
of your employment by you, you will continue to be obligated to comply with the
terms of the Proprietary Information and Inventions Agreement and the
restrictive covenants set forth in Section 9 below.


 


b.                                       Termination by the
Company.  If your employment is terminated by the Company “without
cause” as defined below, and subject to your execution (without revocation) of
a Release (as defined in Paragraph 4), the Company will pay you a separation
payment (the


 


4

















 


“Separation Payment”)
equal to the sum of (i) twenty four (24) months of your then current
annual base salary, (ii) your Annual Bonus and (iii) your Annual
Bonus, prorated through your termination date. 
For purposes of Section 7(b)(ii) and Section 7(b)(iii) above,
“Annual Bonus” shall mean the lesser of 100% of your then current annual base
salary or the Annual Bonus paid to you for the preceding fiscal year.  Payment of this Separation Payment will be
contingent on your signing (without revocation) the Release.  This Separation Payment will be payable
monthly on a pro rata basis over twenty four (24) months after such termination
with the first such payment commencing upon the expiration of all applicable
review and revocation periods applicable to the Release as statutorily required
by law.  Upon termination of your
employment by the Company “without cause,” other than the obligations set forth
in the first sentence of Section 7(a) above and the acceleration of
vesting provided in Section 4 above, the Company will have no further
obligation to you except pursuant to this paragraph.


 


If your employment is terminated by the Company “with
cause” as defined below, the Company will have no further obligation to you
under the terms of this letter, other than the obligations set forth in the
first sentence of Section 7(a) above. 
However, and notwithstanding the termination of your employment by the
Company “with cause” or “without cause,” or by you for “good reason,” you will
continue to be obligated to comply with the terms of the Proprietary
Information and Inventions Agreement and the restrictive covenants set forth in
Section 9 below.


 


You have the right decline to receive a portion of
the benefits set forth under Sections 4 and 7 in the event that you determine
that the provision of such benefits to you would result in a “parachute payment”
as such term is defined in Section 280(G)(b)(2) of the Internal
Revenue Code of 1986.


 


c.                                       Definitions.


 


For purposes of this letter, “good reason” means:


 


	
  (i)

  	
   

  	
  a reduction in your base salary without your prior written consent;

  
	
  (ii)

  	
   

  	
  a material reduction in your position, duties or responsibilities in
  a manner inconsistent with the terms of this agreement, without your prior
  written consent; or

  
	
  (iii)

  	
   

  	
  any material un-waived breach by the Company of the terms of this
  letter;

  
	
  (iv)

  	
   

  	
  provided however, that with respect to any of (i) –
  (iii) above, you shall provide written notice to the Company of the
  existence of the good reason condition within ninety (90) days of its initial
  existence and the Company shall have 30 days to cure such condition.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  For purposes of this letter, “with cause” means your commission of
  any one or more of the following acts:

  
	
   

  	
   

  	
   

  
	
  (i)

  	
   

  	
  willfully damaging of the property, business, business relationships,
  reputation or goodwill of the Company or its parent or any subsidiary
  thereof;

  
	
  (ii)

  	
   

  	
  commission of a felony or a misdemeanor involving moral turpitude;

  
	
  (iii)

  	
   

  	
  theft, dishonesty, fraud or embezzlement;

  



 


5

















 


	
  (iv)

  	
   

  	
  willfully violating any rules or regulations of any governmental
  or regulatory body that is or is reasonably expected to be injurious to the
  Company or its parent or any subsidiary thereof;

  
	
  (v)

  	
   

  	
  the use of alcohol, narcotics or other controlled substances to the
  extent that it prevents you from efficiently performing services for the
  Company or its parent or any subsidiary thereof;

  
	
  (vi)

  	
   

  	
  willfully injuring any other employee of the Company or its parent or
  any subsidiary thereof;

  
	
  (vii)

  	
   

  	
  willfully injuring any person in the course of performance of
  services for the Company or its parent or any subsidiary thereof;

  
	
  (viii)

  	
   

  	
  disclosing to a competitor or other unauthorized persons confidential
  or proprietary information or secrets of the Company or its parent or any
  subsidiary thereof;

  
	
  (ix)

  	
   

  	
  solicitation of business on behalf of a competitor or a potential
  competitor of the Company or its parent or any subsidiary thereof;

  
	
  (x)

  	
   

  	
  harassment of any other employee of the Company or its parent or any
  subsidiary thereof or the commission of any act which otherwise creates an
  offensive work environment for other employees of the Company or its parent
  or any subsidiary thereof;

  
	
  (xi)

  	
   

  	
  failure for any reason within five (5) days after receipt by you
  of written notice thereof from the Company, to correct, cease or otherwise
  alter any insubordination, failure to comply with instructions, inattention
  to or neglect of the duties to be performed by you or other act or omission
  to act that in the opinion of the Company does or may adversely affect the
  business or operations of the Company or its parent or any subsidiary
  thereof;

  
	
  (xii)

  	
   

  	
  breach of any material term of this letter; or

  
	
  (xiii)

  	
   

  	
  any other act or omission that is determined to constitute “cause” in
  the good faith discretion of the Board of Directors.

  



 


For purposes of this letter, “without cause” means
any reason not within the scope of the definition of the term “with cause.”


 


d.                                       Code Section 409A
Deferral Period.  Notwithstanding any provision to the contrary
in this letter, no payment or distribution under this letter which constitutes
an item of deferred compensation under Section 409A of the Internal
Revenue Code (the “Code”) and becomes payable by reason of your termination of
employment with the Company will be made to you prior to the earlier of (i) the
expiration of the six (6)-month period measured from the date of your “separation
from service” (as such term is defined in Treasury Regulations issued under
Code Section 409A) or (ii) the date of your death, if you are deemed
at the time of such separation from service to be a “key employee” within the
meaning of that term under Code Section 416(i) and such delayed
commencement is otherwise required in order to avoid a prohibited distribution
under Code Section 409A(a)(2).  Upon
the expiration of the applicable Code Section 409A(a)(2) deferral period,
all payments and benefits deferred pursuant to this


 


6

















 


Section 7(d) (whether
they would have otherwise been payable in a single sum or in installments in
the absence of such deferral) shall be paid or reimbursed to you in a lump sum,
and any remaining payments due under this letter will be paid in accordance
with the normal payment dates specified for them herein.


 


8.                                       Withholding Taxes. 
All forms of compensation referred to in this letter are subject to
reduction to reflect applicable withholding and payroll taxes.


 


9.                                       Restrictive Covenants. 
Until twelve (12) months after termination of your employment with the
Company for any reason, so long as you are receiving the Separation Payment,
you will not, at any place in any county, city or other political subdivision
of the United States in which the Company (or its parent or any subsidiary
thereof) is engaged in business or providing its services:


 


a.                                       directly or indirectly design, develop,
manufacture, market or sell any product or service which is in competition with
the products or services of the Company (or its parent or any subsidiary
thereof); or


 


b.                                      directly or indirectly own any interest in,
control, be employed by or associated with or render advisory, consulting or
other services (including but not limited to services in research) to any
person or entity, or subsidiary, subdivision, division or joint venture of such
entity in connection with the design, development, manufacture, marketing or
sale of a product or service which is in competition with the products or
services of the Company (or its parent or any subsidiary thereof); provided,
however, that nothing in this letter will prohibit you from owning less than
one percent (1%) of the equity interests of any publicly held entity.


 


10.                                 Entire Agreement. 
This letter (including any appendices thereto), together with the
Proprietary Information and Inventions Agreement, any handbooks and policies
applicable to similarly situated executives of the Company in effect from time
to time and the applicable stock option plan and restricted stock unit
agreement, contains all of the terms of your employment with the Company and
supersedes any prior understandings or agreements, whether oral or written,
between you and the Company.  If any
provision of this letter is held by an arbitrator or a court of competent
jurisdiction to conflict with any federal, state or local law, or to be
otherwise invalid or unenforceable, such provision shall be construed in a manner
so as to maximize its enforceability while giving the greatest effect as
possible to the parties’ intent.  To the
extent any provision cannot be construed to be enforceable, such provision will
be deemed to be eliminated from this letter and of no force or effect and the
remainder of this letter will otherwise remain in full force and effect and be
construed as if such portion had not been included in this letter.  This letter is not assignable by you.  This letter may be assigned by the Company to
its parent or any subsidiary or any affiliate thereof or to successors in
interest to the Company or its lines of business.


 


7

















 


11.                                 Amendment and Governing
Law.  This letter may not be amended or modified
except by an express written agreement signed by you and the Chief Executive
Officer of the Company.  The terms of
this letter and the resolution of any disputes will be governed by California
law, and venue for any disputes will be in Los Angeles, California.


 


12.                                 Term.  This
letter will expire on the fourth anniversary of the Effective Date, except
Sections 6, 9, 10, 11, and 12 will survive such expiration.  Following the expiration of this letter, your
employment with the Company will continue to be “at will.”


 


We look forward to continuing our successful
relationship.  You may indicate your
agreement with these terms by signing and dating this letter.


 


If you have any questions, please call the
undersigned.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  CLASSMATES ONLINE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark R. Goldston

  	
   

  
	
   

  	
  Name: Mark R. Goldston

  
	
   

  	
  Title: Chairman & Chief Executive Officer

  
	
   

  
	
  I have read the foregoing and accept the terms set forth in this
  letter:

  
	
   

  
	
  /s/ Steven McArthur

  	
   

  
	
   

  
	
   

  
	
  Dated:

  	
  August 13

  	
  , 2007

  
							



 


8

















 


Appendix A


 


A
Change in Control shall be deemed to have occurred (i) if a Change in
Control of United Online, Inc. occurs as described in Paragraph A below or
(ii) if a Change in Control of Classmates Media Corporation occurs as described
in Paragraph B below.


 


A.            If CMC IPO Does Not Become
Effective or CMC IPO Becomes Effective and United Online Owns 33 1/3% or More:


 


In
the event a CMC IPO does not become effective, or a CMC IPO becomes effective
and United Online, Inc. owns 33-1/3% or more of the total combined voting
power of all of Classmates Media Corporation’s outstanding securities, “Change
in Control” shall mean a change in ownership or control effected through any of
the following transactions:


 


“Corporation”
shall mean United Online, Inc., a Delaware corporation, and any successor
corporation to all or substantially all of the assets or voting stock of United
Online, Inc. which shall by appropriate action adopt the Corporation’s
2001 Stock Incentive Plan, as amended and restated.


 


“Board”
shall mean the Corporation’s Board of Directors.


 


“1934
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.


 


(i)                                                        a merger or consolidation approved by the
Corporation’s stockholders, unless securities possessing more than fifty
percent (50%) of the total combined voting power of the voting securities of
the successor corporation are immediately thereafter beneficially owned,
directly or indirectly and substantially in the same proportion, by the persons
who beneficially owned the Corporation’s outstanding voting securities
immediately prior to such transaction,


 


(ii)                                                     the sale, transfer or other disposition of
all or substantially all of the Corporation’s assets approved by the
Corporation’s stockholders,


 


(iii)                                                  the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation’s outstanding securities, or


 


(iv)                                                 a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected


 


9

















 


or nominated for election as Board members during
such period by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.


 


B.            Change in Control of
Classmates Media Corporation


 


“Change
in Control” of Classmates Media Corporation shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:


 


“Corporation”
shall mean Classmates Media Corporation, a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of Classmates Media Corporation which shall by appropriate action adopt the
2007 Incentive Compensation Plan of Classmates Media Corporation.


 


“Board”
shall mean the Corporation’s Board of Directors.


 


“1934
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.


 


(i)                                                        a merger, consolidation or reorganization
approved by the Corporation’s stockholders, unless securities
representing more than 33-1/3 percent (33.33%) of the total combined voting
power of the voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly, by the person or persons
who beneficially owned 33-1/3 percent (33.33%) or more of the Corporation’s
outstanding voting securities immediately prior to such transaction,


 


(ii)                                                     any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation’s assets,


 


(iii)                                                  the closing of any transaction or series of
related transactions pursuant to which any person or any group of persons
comprising a “group” within the meaning of Rule 13d-5(b)(1) of the
1934 Act (other than the Corporation or a person that, prior to such
transaction or series of related transactions, directly or indirectly controls,
is controlled by or is under common control with, the Corporation) becomes
directly or indirectly (whether as a result of a single acquisition or by
reason of one or more acquisitions within the twelve (12)-month period ending
with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3
of the 1934 Act) of (A) securities possessing (or convertible into or
exercisable for securities possessing) 33-1/3 percent (33.33%) or more of the
total combined voting power of all of the Corporation’s outstanding securities
(as measured in terms of the power to vote with respect to the election of
Board members) or (B) securities representing 33-1/3 percent (33.33%) or
more of the aggregate market value of all of the Corporation’s outstanding
capital stock,


 


10

















 


measured in each instance immediately after the consummation
of such transaction or series of related transactions and whether such
transaction or transactions involve a direct issuance from the Corporation or
the acquisition of outstanding securities held by one or more of the
Corporation’s existing stockholders; or


 


(iv)                                                 a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or nomination.


 


In no event, however, shall a Change in Control be
deemed to occur as a result of a spin-off distribution by United Online, Inc.
of all or any portion of the Corporation’s outstanding securities held by
United Online, Inc. to its existing stockholders in proportion to their
holdings of United Online, Inc. capital stock.


 


11

















 


Appendix B


 


[Proprietary
Information and Inventions Agreement]


 


[Intentionally Omitted]


 


12