EXHIBIT 10.17
FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of April 25, 1996 (the
"Effective Date") between Liquid Audio, Inc. (the "Company"), a California
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corporation, and Xxxxxx X. Xxxxxx ("Purchaser").
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1. PURCHASE OF SHARES. On the Effective Date and subject to the terms and
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conditions of this Agreement, Purchaser hereby purchases from the Company, and
Company hereby sells to Purchaser, an aggregate of 250,000 shares of the
Company's common stock (the "Shares") at an aggregate purchase price of
$1,250.00 (the "Purchase Price") or $.005 per Share (the "Purchase Price Per
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Share"). As used in this Agreement, the term "Shares" refers to the Shares
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purchased under this Agreement and includes all securities received (a) in
replacement of the Shares, (b) as a result of stock dividends or stock splits in
respect of the Shares, and (c) in replacement of the Shares in a
recapitalization, merger, reorganization or the like.
2. CONSIDERATION; CLOSING.
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(A) CONSIDERATION PROVIDED BY PURCHASER. The consideration hereby
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provided by Purchaser, in exchange for the Shares and in the amount of the full
Purchase Price, consists of (A) Purchaser's assignment to the Company of
business, financial, marketing, development and other information, documents and
works, and certain technology and related rights owned by Purchaser, such
assignment to be effected by delivery to the Company of an Assignment Agreement
in the form of Exhibit 1 (the "Assignment Agreement"), duly executed by
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Purchaser, and (B) the value of past services rendered by Purchaser to the
Company. Purchaser also hereby delivers to the Company: (i) two (2) copies of a
blank Stock Power and Assignment Separate from Stock Certificate in the form of
Exhibit 2 attached hereto (the "Stock Powers"), both executed by Purchaser (and
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Purchaser's spouse, if any), and (ii) if Purchaser is married, a Consent of
Spouse in the form of Exhibit 3 attached hereto (the "Spouse Consent") duly
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executed by Purchaser's spouse.
(B) DELIVERIES BY THE COMPANY. Upon its receipt of all the documents
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to be executed and delivered by Purchaser to the Company under Section 2(a), the
Company will issue a duly executed stock certificate evidencing the Shares in
the name of Purchaser as set forth in Section 19, or if not so set forth, as
specified above, with such certificate to be placed in escrow as provided in
Section 8 until expiration or termination of both the Company's Repurchase
Option and Right of First Refusal described in Sections 5 and 6, respectively.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
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warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
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the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the Securities Act of 1933, as amended (the "1933 Act").
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Purchaser has no present intention of selling or otherwise
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.
(B) ACCESS TO INFORMATION. Purchaser has had access to all
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information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is a founder of the Company and
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is fully aware of: (i) the highly speculative nature of the investment in the
Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the
Shares and the restrictions on transferability of the Shares (e.g., that
Purchaser may not be able to sell or dispose of the Shares or use them as
collateral for loans); (iv) the qualifications and backgrounds of the management
of the Company; and (v) the tax consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal
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or business relationship with the Company and/or certain of its officers and/or
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented with
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or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
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acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law.
(G) RESTRICTIONS ON TRANSFER. Purchaser understands that Purchaser
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may not transfer any Shares unless such Shares are registered under the 1933 Act
or qualified under the Law or unless, in the opinion of counsel to the Company,
exemptions from such registration and qualification requirements are available.
Purchaser understands that only the Company may file a registration statement
with the SEC or the California Commissioner of Corporations and that the Company
is under no obligation to do so with respect to the Shares. Purchaser has also
been advised that exemptions from registration and qualification may not be
available or may not permit Purchaser to transfer all or any of the Shares in
the amounts or at the times proposed by Purchaser.
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(H) RULE 144. In addition, Purchaser has been advised that SEC Rule
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144 promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the Shares
and, in any event, requires that the Shares be held for a minimum of two years,
and in certain cases three years, after they have been purchased and paid for
(within the meaning of Rule 144), before they may be resold under Rule 144.
4. COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE SECURITIES
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THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. COMPANY'S REPURCHASE OPTION. The Company has the option to repurchase
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all or a portion of the Unvested Shares (as defined below) on the terms and
conditions set forth in this Section (the "Repurchase Option") if Purchaser
ceases to be employed by the Company (as defined herein) for any reason, or no
reason, including without limitation Purchaser's death, disability, voluntary
resignation or termination by the Company with or without cause.
(A) DEFINITION OF "EMPLOYED BY THE COMPANY": "TERMINATION DATE". For
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purposes of this Agreement, Purchaser will be considered to be "employed by the
Company" if the Board of Directors of the Company determines that Purchaser is
rendering substantial services as an officer, director, employee, consultant or
independent contractor to the Company or to any parent, subsidiary or affiliate
of the Company. In case of any dispute as to whether Purchaser is employed by
the Company, the Board of Directors of the Company will have discretion to
determine whether Purchaser has ceased to be employed by the Company or any
parent, subsidiary or affiliate of the Company and the effective date on which
Purchaser's employment terminated (the "Termination Date").
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(B) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares (as
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defined in this Section) are "Unvested Shares". On the Effective Date 6.25% of
the Shares will be Vested Shares, and 93.75% of the Shares will be Unvested
Shares. If Purchaser has been continuously employed by the Company at all times
from the Effective Date until the first full month has elapsed following the
Effective Date (the "First Monthly Vesting Date"), then on the First Monthly
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Vesting Date 2.083% of the Shares will become Vested Shares; and thereafter, for
so long (and only for so long) as Purchaser remains continuously employed by the
Company at all times after the First Monthly Vesting Date, an additional 2.083%
of the Shares will become Vested Shares upon the expiration of each full month
elapsed after the First Monthly Vesting Date.
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(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
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Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the common stock of the
Company occurring after the Effective Date.
(D) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any time
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within thirty (30) days after the Termination Date, the Company may elect to
repurchase any or all of the Unvested Shares by giving Purchaser written notice
of exercise of the Repurchase Option. The Company and/or its assignee(s) will
then have the option to repurchase from Purchaser (or from Purchaser's personal
representative as the case may be) any or all of the Unvested Shares at the
Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock
dividend, stock split, reverse stock split or recapitalization of the common
stock of the Company occurring after the Effective Date).
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
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purchase Unvested Shares upon exercise of the Repurchase Option will be payable,
at the option of the Company or its assignee(s), by check or by cancellation of
all or a portion of any outstanding indebtedness of Purchaser to the Company (or
to such assignee) or by any combination thereof. The repurchase price will be
paid without interest within sixty (60) days after the Termination Date.
(F) TERMINATION UPON CERTAIN CORPORATE TRANSACTIONS. In the event of
(i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transactions in which there is no substantial change in the shareholders
of the Company), (ii) a dissolution or liquidation of the Company, or (iii) the
sale of substantially all of the assets of the Company, the Company's Repurchase
Option shall immediately terminate.
(G) VESTING UPON INVOLUNTARY TERMINATION. In the event that the
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Company terminates the employment of Purchaser without cause (as defined below)
and without Purchaser's consent, then on the Termination Date the lesser of (A)
an additional number of Unvested Shares equal to 25% of the Shares, or (B) the
remaining Unvested Shares, shall immediately become Vested Shares hereunder. For
the purposes of this Section 5, "cause" shall mean (i) Purchaser's intentional
misconduct which could reasonably be expected to have a material adverse effect
on the business and affairs of the Company, (ii) Purchaser's neglect of his
duties or failure to act which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (iii) Purchaser's
commission of an act constituting common law fraud, or a felony or criminal act,
against the Company or any subsidiary or affiliate thereof, (iv) Purchaser's
abuse of alcohol or other drugs or controlled substances, or conviction of a
crime involving moral turpitude or (v) Purchaser's material breach of any of the
agreements contained herein or the Assignment Agreement.
(H) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will
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be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any parent, subsidiary or affiliate of the Company) to
terminate Purchaser's employment at any time for any reason or no reason, with
or without cause.
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6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
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transferred by Purchaser without the Company's prior written consent. Before any
Vested Shares held by Purchaser or any transferee of such Shares (either being
sometimes referred to herein as the "Holder") may be sold or otherwise
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transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) will have a right of first refusal to
purchase the Shares to be sold or transferred (the "Offered Shares") on the
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terms and conditions set forth in this Section (the "Right of First Refusal").
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(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
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deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
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(iii) the number of Offered Shares to be transferred to each Proposed
Transferee; (iv) the bona fide cash price or other consideration for which the
Holder proposes to transfer the Offered Shares (the "Offered Price"); and (v)
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that the Holder will offer to sell the Offered Shares to the Company and/or
its assignee(s) at the Offered Price as provided in this Section.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
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(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
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purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will be
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payable, at the option of the Company and/or its assignee(s) (as applicable), by
check or by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares proposed
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in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
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Holder may sell or otherwise transfer such Offered Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated within 120 days after the date of the Notice, and
provided further, that: (i) any such sale or other transfer is effected in
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compliance with all applicable securities laws; and (ii) the Proposed Transferee
agrees in writing that the provisions of this Section will continue to apply to
the Offered Shares in the hands of such Proposed Transferee. If the Offered
Shares described in the Notice are not transferred to the Proposed
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Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
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this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights or the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company. As used herein, the term "immediate
family" will mean Purchaser's spouse, lineal descendant or antecedent, father,
mother, brother or sister, adopted child or grandchild, or the spouse of any
child, adopted child, grandchild or adopted grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal
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will terminate as to all Shares on the effective date of the first sale of
common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON VESTED SHARES. Purchaser may xxxxx x xxxx or
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security interest in, or pledge, hypothecate or encumber Vested Shares only if
each party to whom such lien or security interest is granted, or to whom such
pledge, hypothecation or other encumbrance is made, agrees in a writing
satisfactory to the Company that: (i) such lien, security interest, pledge,
hypothecation or encumbrance will not apply to such Vested Shares after they are
acquired by the Company and/or its assignees) under this Section; and (ii) the
provisions of this Section will continue to apply to such Vested Shares in the
hands of such party and any transferee of such party. Purchaser may not xxxxx x
xxxx or security interest in, or pledge, hypothecate or encumber, any Unvested
Shares.
7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
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Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option
or Right of First Refusal. Upon an exercise of the Repurchase Option or the
Right of First Refusal, Purchaser will have no further rights as a holder of the
Shares so purchased upon such exercise, except the right to receive payment for
the Shares so purchased in accordance with the provisions of this Agreement, and
Purchaser will promptly surrender the
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stock certificate(s) evidencing the Shares so purchased to the Company for
transfer or cancellation.
8. ESCROW. As security for Purchaser's faithful performance of this
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Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
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hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal.
9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
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been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
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Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of the Shares and their fair market value on the date of purchase, there will be
a recognition of taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in
connection with Purchaser's purchase of the Shares and the filing of the
election under Section 83(b) and similar tax provisions. A form of Election
under Section 83(b) is attached hereto as Exhibit 4 for reference. PURCHASER
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HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES
RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING
TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED
SHARES.
10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
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(A) LEGENDS. Purchaser understands and agrees that the Company will
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place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
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ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS
OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS. PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, RIGHT OF REPURCHASE AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
ASSIGNEE(S) AS SET FORTH IN A FOUNDER'S RESTRICTED STOCK PURCHASE
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE
RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
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ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
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transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
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11. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
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registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the
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Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
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this Agreement, including its rights to repurchase Shares under the Repurchase
Option and the Right of First Refusal. This Agreement will be binding upon and
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement will be binding
upon Purchaser and Purchaser's heirs, executors, administrators, successors and
assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
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construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
15. NOTICES. Any notice required or permitted hereunder will be given in
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writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
16. FURTHER INSTRUMENTS. The parties agree to execute such further
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instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
17. HEADINGS. The captions and headings of this Agreement are included for
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ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of this
Agreement.
18. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
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constitutes the entire agreement and understanding of the parties with respect
to the subject
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matter of this Agreement, and supersedes all prior understandings and
agreements, whether oral or written, between the parties hereto with respect to
the specific subject matter hereof.
19. TITLE TO SHARES. The exact spelling of the name(s) under which
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Purchaser will take title to the Shares is:
___________________________________________________
___________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[X] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the
following trust (including date):___________________________________
____________________________________________________________________
____________________________________________________________________
[ ] Other; please specify: _____________________________________________
____________________________________________________________________
Purchaser's social security number is:________________________________________
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
LIQUID AUDIO, INC. PURCHASER
By: /s/ Xxxxxx Xxxxx /s/ Xxxxxx X. Xxxxxx
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Xxxxxx Xxxxx, CFO Xxxxxx X. Xxxxxx
Address: 0000 Xxxxxxxx Address: c/o 0000 Xxxxxxxx
Xxxxxxx Xxxx, XX 00000 Xxxxxxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
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LIST OF EXHIBITS
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Exhibit 1: Assignment Agreement
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
Exhibit 3: Spousal Consent
Exhibit 4: Election Under Section 83(b) of the Internal Revenue Code
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ASSIGNMENT AGREEMENT
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This Assignment Agreement (this "Agreement") is made and entered into
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effective as of April 25, 1996 by and between Liquid Audio, Inc., a California
corporation (the "Company"), and Xxxxxx X. Xxxxxx ("Assignor").
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R E C I T A L S
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A. Assignor is the owner of the Assigned Rights (as defined below), and
Assignor desires to assign and transfer to the Company all of Assignor's right,
title and interest in and to the Assigned Rights and other related rights in
partial exchange for the Company's issuance to Assignor of 250,000 shares of the
Company's Common Stock.
B. The parties are entering into this Agreement pursuant to that certain
Founder's Restricted Stock Purchase Agreement by and between the Company and
Assignor dated of even date herewith (the "Stock Purchase Agreement").
------------------------
NOW THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms will have the
-------------------
meanings set forth below:
1.1 Assigned Rights. The term "Assigned Rights" means all business,
--------------- ---------------
financial, marketing, development and other information, documents and works
created by me prior to the date hereof (a) using equipment, supplies, facilities
or trade secrets or other proprietary rights of the Company, (b) resulting from
work performed by me for the Company or (c) relating to the Company's business
or current or anticipated research and development, and shall include, but not
be limited to, those specifications, technology, algorithms, flow charts,
computer program source code and object code, trade secrets and know-how created
by me for encoding and decoding of audio content in digital form for storage and
retrieval (such as on a CD-ROM) and for transmission over data networks,
including but not limited to the item more fully described in Annex A attached
-------
hereto.
1.2 Derivative. The term "Derivative" means: (a) any derivative work
---------- ----------
of the Assigned Rights (as defined in Section 101 of the U.S. Copyright Act);
(b) all improvements, modifications, alterations, adaptations, enhancements and
new versions of the Assigned Rights ("Assigned Rights Derivatives"); and (c) all
Assigned Rights, inventions, products or other items that, directly or
indirectly, incorporate, or are derived from, any part of the Assigned Rights or
any Assigned Rights Derivative.
1.3 Intellectual Property Rights. The term "Intellectual Property
---------------------------- ---------------------
Rights" means, collectively, all worldwide patents, patent applications
------
(including but not limited to those United States patent application listed on
Annex A attached hereto), patent rights, copyrights,
copyright registrations, moral rights, trade names, trademarks, service marks
and registrations and applications therefor, trade secrets, know-how, mask work
rights, rights in trade dress and packaging, goodwill and all other intellectual
property rights and proprietary rights relating in any way to the Assigned
Rights, any Derivative or any Embodiment, whether arising under the laws of the
United States of America or the laws of any other state, country or
jurisdiction.
1.4 Embodiment. The term "Embodiment" means all documentation,
---------- ----------
drafts, papers, designs, schematics, diagrams, models, prototypes, source and
object code (in any form or format and for all hardware platforms), computer-
stored data, diskettes, manuscripts and other items describing all or any part
of the Assigned Rights, any Derivative, any Intellectual Property Rights or any
information related thereto or in which all of any part of the Assigned Rights,
any Derivative, any Intellectual Property Right or such information is set
forth, embodied, recorded or stored.
1.5 Assigned Assets. The term "Assigned Assets" refers to the
--------------- ---------------
Assigned Rights, all Derivatives, all Intellectual Property Rights and all
Embodiments, collectively.
2. ASSIGNMENT. In partial consideration of the issuance by the Company to
----------
Assignor of 250,000 shares of the Company's Common Stock pursuant to the Stock
Purchase Agreement, receipt of which is hereby acknowledged, Assignor hereby
forever sells, assigns, transfers, releases and conveys to the Company, and its
successors and assigns, Assignor's entire right, title and interest in and to
each and all of the Assigned Assets.
3. DELIVERY. Assignor agrees to deliver all Embodiments of all Assigned
--------
Assets to the Company at a location designated by the Company no later than May
31, 1996.
4. ASSIGNOR WARRANTIES. Assignor represents and warrants to the Company
-------------------
that Assignor is the sole owner, inventor and/or author of, and that Assignor
owns, and can grant exclusive right, title and interest in and to, each of the
Assigned Assets and that none of the Assigned Assets are subject to any dispute,
claim, prior license or other agreement, assignment, lien or rights of any third
party, or any other rights that might interfere with the Company's use, or
exercise of ownership of, any Assigned Assets. Assignor further represents and
warrants to the Company that the Assigned Assets are free of any claim of any
prior employer of Assignor or any school, university or other institution
Assignor attended, and that Assignor is not aware of any claims by any third
party to any rights of any kind in or to any of the Assigned Assets.
5. FURTHER ASSURANCES. Assignor further agrees, promptly upon request of
------------------
the Company, or any of its successors or assigns, to execute and deliver,
without further compensation of any kind, any power of attorney, assignment,
application for copyright, patent or other intellectual property right
protection, or any other papers which may be necessary or desirable to fully
secure to the Company, its successors and assigns, all right, title and interest
in and to each of the Assigned Assets, and to cooperate and assist in the
prosecution of any opposition proceedings involving said rights and any
adjudication of the same. Further, Assignor agrees never to assert any claims,
rights or moral rights in or to any of the Assigned Assets.
-2-
6. INDEMNITY. Assignor will indemnify and hold the Company harmless from
---------
and against any loss, damages or expense (including without limitation
reasonable attorneys' fees) incurred by the Company in connection with any
claim, suit or other proceeding in which a third party asserts any claim to any
right, title, license or other interest in or to any Assigned Asset, any claim
that any Assigned Asset infringes any patent, copyright, trade secret or other
intellectual property right of such third party, or that, if true, would be
inconsistent with any representation made by Assignor in Section 4 above.
7. COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in any
---------------------------
number of counterparts, each of which will constitute an original, and all of
which will together constitute this one Agreement. This Agreement will be
governed exclusively by the internal laws of the State of California.
8. ENTIRE AGREEMENT. This Agreement and the Stock Purchase Agreement
----------------
constitute the entire understanding and agreement between Assignor and the
Company regarding the subject matter of such agreements, and supersede any and
all other agreements or understandings of the parties regarding such subject
matter.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date and year first above written.
LIQUID AUDIO, INC. ASSIGNOR
By: /s/ Xxxxxx Xxxxx /s/ Xxxxxx X. Xxxxxx
------------------------------ ----------------------------
Xxxxxx Xxxxx, CFO Xxxxxx X. Xxxxxx
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ANNEX A
FURTHER DESCRIPTION OF ASSIGNED RIGHTS
--------------------------------------
1. U.S. Patent Application No. 08/546,438 filed October 20, 1995,
entitled "Method and Apparatus for User Controlled Modulation and Mixing of
Digitally Stored Compressed Data". Joint inventors: Xxxxxx X. Xxxxxx and A.
Xxxxxx Xxxxxxx.
CONSENT OF SPOUSE
-----------------
I, the undersigned, am the spouse of Xxxxxx X. Xxxxxx ("Purchaser"). I have
---------
read and hereby consent to and approve all the terms and conditions of: the
Founder's Restricted Stock Purchase Agreement (the "Agreement") dated April __,
---------
1996 between Purchaser and Liquid Audio, Inc., a California corporation (the
"Company"), pursuant to which Purchaser has purchased 250,000 shares of the
-------
Company's common stock (the "Shares") and Assignment Agreement ("Assignment
------ ----------
Agreement") executed by Purchaser in connection with the Agreement.
---------
In consideration of the Company granting my spouse the right to purchase
the Shares under the Agreement, I hereby agree to be irrevocably bound by all
the terms and conditions of the Agreement (including but not limited to the
Company's Repurchase Option, the Right of First Refusal and the market standoff
agreements contained therein) and the Assignment Agreement and further agree
that any community property interest I may have in the Shares and all property
assigned by Purchaser to the Company under the Assignment Agreement will be
similarly bound by the Agreement and the Assignment Agreement.
I hereby appoint Purchaser as my attorney-in-fact, to act in my name, place
and xxxxx with respect to any amendment of the Agreement and the Assignment
Agreement and with respect to the making and filing of an election under
Internal Revenue Code Section 83(b) in connection with the purchase of the
Shares.
Dated: ___________, 1996
/s/ Xxxxxxx X. Xxxxxxx
--------------------------------
Signature of Spouse [Sign Here]
XXXXXXX X XXXXXXX
--------------------------------
Name of Spouse [Please Print]
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code. to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: Xxxxxx X. Xxxxxx
TAXPAYER'S ADDRESS: 0000 Xxxxxxx Xxx
-----------------------------
Xxxxxxx Xxxx, XX 00000
-----------------------------
SOCIAL SECURITY NUMBER: ###-##-####
-----------------------------
2. The property with respect to which the election is made is described as
follows: 250,000 shares of Common Stock of Liquid Audio, Inc., a California
corporation (the "Company"), which is Taxpayer's employer or the
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was April 25, 1996 and this
election is made for calendar year 1996.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $0.005 per
share at the time of transfer.
6. The amount paid for such shares was $0.005 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE IRS.
Dated: April 25, 1996 /s/ Xxxxxx X. Xxxxxx
--------------------------
Taxpayer's Signature
AMENDMENT TO
FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT
This Amendment is made and entered into as of May 31, 1996 between Liquid Audio,
Inc., a California corporation (the "Company") and Xxxxxx X. Xxxxxx ("Founder")
RECITALS
WHEREAS, the Company and Founder are parties to that certain Founder's
Restricted Stock Purchase Agreement dated as of April 25, 1996 (the "Founder's
Agreement");
WHEREAS, the Company and the investors listed in the Schedule of Purchasers
(the "Investors") of that certain Series A Preferred Stock Purchase Agreement of
even date herewith (the "Stock Purchase Agreement") are entering into the Stock
Purchase Agreement; and
WHEREAS, in order to induce the Investors to enter into the Stock Purchase
Agreement, the Company and Founder desire to enter into this Amendment, to amend
certain provisions of the Founder's Agreement pertaining to vesting of shares
purchased by Founder pursuant to the Founder's Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company and Founder hereby agree as follows:
1. The Company and Founder hereby consent to and do hereby amend the
Founder's Agreement as follows:
A. Section 5(b) of the Founder's Agreement is amended by deleting it
in its entirety and replacing it as follows:
"(b) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares (as
--------------------------
defined in this Section) are "Unvested Shares." On the Effective Date, 6.25% of
the Shares will be Vested Shares and 93.75% of the Shares will be Unvested
Shares. If Purchaser has been continuously employed by the Company at all times
from the Effective Date until January 30, 1997 (the "First Vesting Date"), then
on the First Vesting Date an additional 18.75% of the Shares will become Vested
Shares; and thereafter for so long (and only so long) as Purchaser remains
continuously employed by the Company at all times after the First Vesting Date,
an additional 2.0833% of the Shares will become Vested Shares upon the
expiration of each full month elapsed after the First Vesting Date."
B. Sections 5(f) and 5(g) of the Founder's Agreement are amended by
deleting them in their entirety.
2. Except as amended by this Amendment, the Founder's Agreement will
continue in full force and effect.
3. This Amendment shall be considered a part of and construed in
conjunction with the Founder's Agreement.
4. This Amendment may be executed in counterparts.
COMPANY: FOUNDER:
Liquid Audio, Inc.
a California corporation
By: /s/ Xxxxxx Xxxxx By: /s/ Xxxxxx X. Xxxxxx
------------------------- ---------------------------
Xxxxxx X. Xxxxxx
SECOND AMENDMENT TO
FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT
This Amendment is made and entered into as of August 27, 1997 between Liquid
Audio, Inc., a California corporation (the "Company") and Xxxxxx X. Xxxxxx
("Founder").
RECITALS
WHEREAS, the Company and Founder are parties to that certain Founder's
Restricted Stock Purchase Agreement, dated as of April 25, 1996, as amended May
31, 1996 (the "Founder's Agreement"); and
WHEREAS, the Company and Founder desire to enter into this Amendment, to
amend certain provisions of the Founder's Agreement pertaining to vesting of
shares purchased by Founder pursuant to the Founder's Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company and Founder hereby agree as follows:
1. The Company and Founder hereby consent to and do hereby amend the
Founder's Agreement as follows:
A. Sections 5(f) and 5(g) of the Founder's Agreement are added by
inserting the following:
"(f) PARTIAL VESTING UPON CERTAIN CORPORATE TRANSACTIONS. Upon the
closing of (i) a merger or consolidation in which the Company is not
the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a
different jurisdiction, or other transactions in which there is no
substantial change in the shareholders of the Company or their
relative stock holdings), (ii) a merger in which the Company is the
surviving corporation but after which the shareholders of the Company
immediately prior to such merger (other than any shareholder which
merges with the Company in such merger, or which owns or controls
another corporation which merges with the Company in such merger)
cease to own their shares or other equity interests in the Company,
(iii) the sale of substantially all of the assets of the Company, or
(iv) the sale of more than fifty percent (50%) of the Company's voting
power from one or more of the Company's shareholders to new or
existing shareholders who are not affiliated with the transferring
shareholder(s) (each an "Acquisition"), the lesser of (A) the
-----------
remaining Unvested Shares or (B) an additional number of Unvested
Shares equal to 25% of the Shares, shall immediately become Vested
Shares hereunder. If the Company's securities are not readily
tradeable on an established securities market at the closing of such
Acquisition, the Company shall use reasonable efforts to obtain any
required shareholder approval for such accelerated vesting upon the
closing of such Acquisition.
(g) LIMITATION ON PAYMENTS. In the event that the accelerated vesting
----------------------
provided for in the preceding subsection (f) to Founder (i)
constitutes "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
but for this subsection, would be subject to the excise tax imposed by
Section 4999 of the Code, then Founder's accelerated vesting under the
preceding subsection (f) shall be payable either:
(A) in full, or
(B) as to such lesser amount which would result in no portion of
such accelerated vesting being subject to excise tax under Section
4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by Founder on an after-tax basis,
of the greatest amount of accelerated vesting under the preceding
subsection (f), notwithstanding that all or some portion of such
accelerated vesting may be taxable under Section 4999 of the Code.
Unless the Company and Founder otherwise agree in writing, any
determination required under this subsection shall be made in writing
by independent public accountants agreed to by the Company and Founder
(the "Accountants"), whose determination shall be conclusive and
binding upon Founder and the Company for all purposes. For purposes of
making the calculations required by this subsection, the Accountants
may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999
of the Code. The Company and Founder shall furnish to the Accountants
such information and documents as the Accountants
- 2 -
may reasonably request in order to make a determination under this
subsection. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by
this subsection."
2. Except as amended by this Amendment, the Founder's Agreement will
continue in full force and effect.
3. This Amendment shall be considered a part of and construed in
conjunction with the Founder's Agreement.
4. This Amendment may be executed in counterparts.
COMPANY: FOUNDER:
Liquid Audio, Inc.
a California corporation
By: /s/ Xxxxxx Xxxxx By: /s/ Xxxxxx X. Xxxxxx
------------------------- ---------------------------
Name: Xxxxxx Xxxxx Xxxxxx X. Xxxxxx
Title: SECRETARY
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