10. Commitments and Contingencies

AudioEye, Inc Licensing Agreement

On June 30, 2014, the Company entered into Licensing Agreements with AudioEye, Inc. which gives the Company certain rights to market, sell, distribute and incorporate into its services the proprietary software product known as Audio Internet within the United States to its current and future customers. Audio Internet is a technology that utilizes patented architecture to deliver a fully accessible audio equivalent of a visual website or mobile website in a compliant format that can be navigated, utilized, interacted with and transacted from without the use of a monitor or mouse.

The first licensing agreement (“First Agreement”) allows the Company to sell the products to customers in the private sector, corporate and enterprise online jobs posting and e-recruiting markets. The First Agreement specifically excludes sales to SAP AG and Monster Worldwide, Inc. The First Agreement gives the Company exclusive rights to sell within the United States for the first twelve months and on a non-exclusive basis thereafter. The Company paid AudioEye, Inc. a license fee of $225,000 for the license and agreed to pay a royalty fee of 12% of revenue generated from the sales and/or licensing of the Audio Internet product. The $225,000 license fee has been recorded as prepaid license fee in the accompanying consolidated balance sheet at December 31, 2014 and is being amortized over the term of the First Agreement.

The second licensing agreement (“Second Agreement”) allows the Company to sell the products to customers that are Federal, State or local governmental entities (excluding SAP AG and Monster Worldwide, Inc.) within the United States on an exclusive basis for the first twelve months and a non-exclusive basis thereafter. The Company paid AudioEye, Inc. a license fee of $225,000 for the license and agreed to pay a royalty fee of 12% of revenue generated from the sales and/or licensing of the Audio Internet product. The $225,000 license fee has been recorded as prepaid license fee in the accompanying consolidated balance sheet at December 31, 2014 and is being amortized over the term of the Second Agreement.

In addition the Company entered into a two year Sales Representation Agreement with AudioEye, Inc. which designates the Company as the exclusive agent of the product within the markets for twelve months and a non-exclusive agent thereafter. AudioEye, Inc. paid the Company a non-refundable service fee of $450,000 for marketing and sales services and agreed to pay a commission of 25% of gross service and support fees billed to the end users by AudioEye, Inc. The $450,000 payment from AudioEye, Inc. has been recorded as customer deposits in the accompanying consolidated balance sheet at December 31, 2014 and is being amortized over the term of the Sales Representation Agreement. 

Employment Agreements

On the Closing Date, the Company entered into new employment agreements with James Kirsch, the Company's Chairman and Chief Executive Officer, David Mecklenburger, the Company's Chief Financial Officer and Secretary, Matthew Proman, Star Jones and Christopher Wesser (each such agreement, an “Employment Agreement,” and collectively, the “Employment Agreements”). Messrs. Kirsch, Mecklenburger, Proman and Wesser, and Ms. Jones, are collectively referred to as the “Executives.”

The Employment Agreement with Mr. Kirsch provides that he will receive an annual base salary of $275,000 and the Employment Agreement with Mr. Mecklenburger provides that he will receive an annual base salary of $200,000. Mr. Proman will serve as the Company's Executive Vice President and Chief Operating Officer and receive an annual base salary of $275,000. Ms. Jones will serve as the Company's President, Chief Development Officer, and National Spokesperson and receive an annual base salary of $300,000. Mr. Wesser will serve as the Company's Executive Vice President and General Counsel and receive an annual base salary of $250,000.

Each Employment Agreement provides the Executive with an initial term of three years that automatically renews for successive one year terms unless either party provides advance written notice of its intention to terminate the Employment Agreement. Mr. Kirsch's and Mr. Mecklenburger's base salaries will be automatically increased annually by the greater of 3% of their then current base salary or the annual percentage increase in the Consumer Price Index. If Mr. Kirsch's role changes such that he is no longer the Chief Executive Officer, his three year term will automatically be renewed and continue for another three years after the date of the change in role. Should such a change in role occur, his base salary cannot be reduced below his then current base salary immediately prior to the change in role

The Employment Agreements provide that each Executive will be eligible for an annual bonus and have his or her salary reviewed each year by the Board of Directors. In addition, the Executives will be reimbursed for all reasonable business expenses incurred in the ordinary course of business and taking into consideration each such Executive's unique responsibilities within the Company. The Employment Agreements also generally permit the Executives to participate in all benefits plans and programs offered by the Company.

Under the terms of the Employment Agreements, each Executive is subject to a non-competition, non-interference and non-raiding restrictive covenant during their employment and 18 months following Executive's last day of employment with the Company. In the event that an Executive's employment is terminated without “Cause” or the Executive resigns for “Good Reason” (as those terms are defined by the Employment Agreements), the post-employment restrictive covenant period may not extend past the severance period (as described below). The Employment Agreements also contain customary confidentiality, work product and return of Company property covenants.

The Employment Agreements provide each Executive with severance pay in the event that such Executive is terminated without “Cause” or resigns for “Good Reason.” Upon such a termination of employment, such Executive is entitled to continue to receive such Executive's monthly salary at his or her then current rate for the greater of six months or the number of remaining whole months in such Executive's term (whether the initial term or an extension). Finally, the Employment Agreements between the Company and each of Ms. Jones and Mr. Wesser also provide that such Executives will become immediately fully vested in any unvested shares of restricted stock granted in connection with the Merger upon their termination without “Cause” or their resignation for “Good Reason.”

Aggregate potential severance compensation amounted to approximately $3.0 million at December 31, 2014.

Lease Obligations - The Company leases office space, office furniture and equipment under operating lease agreements.

The Company leases approximately 4,600 square feet of space for its headquarters in Chicago, Illinois under a lease that expires on June 30, 2015. The Company is in the process of renewing this lease. The Company also leases approximately 1,900 square feet of office space in Minnetonka, Minnesota under a lease that expires September 30, 2015.

NAPW leases approximately 20,000 square feet of office space in Garden City, New York, under a lease that expires February 28, 2019 which is used by NAPW membership coordinators and executive and administrative staff. The Company previously also leased approximately 15,000 square feet of office space in Jericho, New York. In November 2014, the Company entered into an agreement to sublease this space for the duration of the lease. The sublease will become effective in January 2015.

The Company also leases approximately 10,000 square feet of office space in Los Angeles, California for use as an NAPW sales and marketing office under the terms of a lease that expires December 1, 2018.

Noble Voice leases approximately 16,000 square feet of office space in Darien, Illinois which serves as its headquarters and sales center. The lease expires August 31, 2017. The Company also has a sales office in Detroit, Michigan under the terms of a sublease that expires August 31, 2015.

Rent expense, recorded on a straight-line basis, amounting to $618,551 and $76,000 for the years ended December 31, 2014 and 2013, respectively, is included in general and administrative expense in the statements of comprehensive loss. Included in rent expense for the years ended December 31, 2014 and 2013 is $0 and $27,000 of sublease income, respectively.

Legal Proceedings

NAPW, Inc., the Company's wholly-owned subsidiary and successor by merger to Old NAPW, is a defendant in the related cases of Constantino v. NAPW, Inc., No. 0000074/2013 (Sup. Ct., Nassau Co.), filed on January 3, 2013 in the County Court for Nassau County, New York, and DeLisi, et al. v. NAPW, Inc., No. 2:13-CV-05322 (E.D.N.Y.), filed on September 25, 2013 in federal court for the Eastern District of New York. These cases involve allegations made by four former employees of same sex sexual harassment by a female sales manager over a period of several years. Upon learning of these allegations, which came only after the employees involved were terminated for cause, Old NAPW engaged an independent investigator that conducted an investigation and returned a conclusion that the allegations were unfounded. Both cases are in the advanced stages of discovery. In February of 2015 the defendants, in conjunction with their insurance carrier, made an offer of judgment to the federal plaintiffs.  In March of 2015 two of the federal plaintiffs accepted the offers of judgment and are now removed from the case, leaving two federal plaintiffs. At this time, the Company does not have an estimate of the likelihood or the amount of any potential exposure. The outcome of these lawsuits is uncertain. The Company believes that the claims asserted in each suit are without merit and intends to defend itself vigorously against the claims.

Noble Voice LLC, a wholly-owned subsidiary of the Company acquired in connection with the Global Outreach Ventures acquisition, is party to litigation captioned as Expand, Inc. v. Noble Voice LLC et al., CASE NO.: 2014-CA-9366 A (Orange County, FL Circuit Court) pursuant to which Expand, Inc., d/b/a SoftRock, Inc. (“SoftRock”) filed a complaint against Noble Voice LLC and certain other defendants (the “Noble Voice Defendants”) on or about September 10, 2014 alleging the existence of a purported conspiracy by Noble Voice and the other defendants to breach the individual Noble Voice Defendants' Non-Compete Agreements and separate Confidentiality Agreements, misappropriation of trade secrets by some but not all Noble Voice Defendants, tortious interference and seeking injunctive relief. On March 2, 2015 the defendants filed their motion to dismiss all claims.  That motion, which if granted would dispose of the claims against defendants, is pending. The outcome of this lawsuit is uncertain, however, we believe that the claims asserted are without merit and we intend to defend against the claims vigorously.

General Legal Matters

From time to time, the Company is involved in legal matters arising in the ordinary course of business.  While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.