1
EXHIBIT 1
2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated May 31, 2001, is
entered into between ARTISTdirect, Inc., a Delaware corporation ("Company") and
Xxxxxxxxx X. Field ("Employee"), and shall be effective upon the date that all
of the conditions set forth in that certain side letter agreement of even date
(the "Side Letter") among Company, ARTISTdirect Recordings, Inc. ("ADR"),
Employee, Radar Records Holdings, LLC, a Delaware limited liability company
("FieldCo"), and ARTISTdirect Records, L.L.C. (the "Label") shall have been
satisfied (the "Effective Date").
RECITALS
WHEREAS, Company desires to employ Employee to serve Company and its
subsidiaries, and Employee desires to be so employed by Company, on the terms
and subject to the conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment and Duties. Subject to the other terms and conditions set
forth herein, Company hereby employs Employee, and Employee agrees to be
employed by Company, as Chairman and Chief Executive Officer. Employee shall be
Company's most senior executive. Employee shall report solely and directly to
Company's Board of Directors (the "Board"). During the Term, Employee shall
faithfully perform to the best of his ability all services and acts as both (a)
are consistent with his title and position and (b) may reasonably be assigned to
him by the Board.
2. Devotion.
(a) During the Term, Employee shall devote his business time, skill and
energies exclusively to the business of Company and its subsidiaries from time
to time (the "Subsidiaries"), which shall include Sno-Core, LLC, notwithstanding
that Company has less than a fifty percent (50%) interest therein.
(b) It is hereby acknowledged that, concurrently with the execution of
this Agreement, Employee and the Label, which is a Subsidiary, are entering into
an employment agreement whereby, subject to the satisfaction of the conditions
set forth in the Side Letter, Employee shall become the Chief Executive Officer
of the Label (the "Label Employment Agreement") and that, subject to the Side
Letter, FieldCo, which is an affiliate of Employee, is being issued units of
membership interest in the Label. In light of the foregoing, it is specifically
acknowledged and agreed that the performance of Employee's services to the Label
pursuant to the Label Employment Agreement shall not be deemed to be a breach of
this Agreement so long as the performance by Employee of his duties hereunder
are not materially and adversely affected thereby. In addition, provided such
activities do not unreasonably interfere with the performance by Employee of his
duties hereunder, Employee shall be entitled to devote not more than twenty
percent (20%) of his total business time, measured upon a yearly basis, to the
motion picture and television activities of Radar Pictures, LLC and service on
the board of directors of each of the following companies: Huge Click,
Interland, Load Media, Omnipod, Strategic Data Corporation and E-Vox (such
activities and service, collectively, the "Permitted Outside Activities").
Employee shall
1
3
be entitled to retain for his own account the proceeds earned by Employee from
the Permitted Outside Activities.
3. Limitation on Authority. Employee shall not make or give on behalf of
Company and/or ADR, any approval, vote, consent, decision or determination
concerning the Label that the Operating Agreement of the Label explicitly
reserves to ADR, the Founding Members or a Majority in Interest, but rather,
Employee shall refer each such approval, vote, consent, decision or
determination to the Board, in order that the Board may make or give such
approval, vote, consent, decision or determination on behalf of Company and/or
ADR. Furthermore, Employee shall abstain from voting in any such decision or
determination of the Board; provided, however, that Employee need not abstain
from giving his consent as a director in any unanimous written consent of the
Board.
4. Principal Place of Employment. During the Term, Employee's place of
employment shall be at the principal offices of Company in the Los Angeles area;
provided, however, it is agreed that Employee will be expected to travel from
time to time at Company's expense in accordance with the provisions of Section
7(c) below.
5. Term. The term of Employee's employment shall commence on the Effective
Date and continue for five years (the "Term"), unless terminated sooner as
provided in Section 8 below.
6. Compensation. For all services to be rendered by Employee hereunder
(other than to the Label), Employee shall be paid by Company the amounts set
forth in this Section 6. Except as specifically provided in the Label Employment
Agreement, Employee shall not be entitled to additional compensation for
performing any services consistent with his duties hereunder for any Subsidiary.
(a) Base Salary. Company shall pay Employee a base salary at the annual
rate of Five Hundred Thousand Dollars ($500,000), payable in accordance with
Company's standard payment schedule for employees.
(b) Participation in Executive Bonus Pool. Employee shall be entitled to
participate in Company's executive performance bonus pool, the details of which
participation and plan shall be determined by the Compensation Committee of the
Board.
(c) Stock Options. Pursuant to Notices of Grant of Stock Option
substantially in the forms attached hereto as Exhibits 1, 2 and 3, Company shall
issue Employee three options to acquire shares of common stock in Company.
Amounts payable to Employee pursuant to this Section 6 shall be subject to
required withholdings and reviewed for any increases annually by the
Compensation Committee of the Board, provided that any increases shall be in the
sole discretion thereof.
7. Employee Benefits; Reimbursement for Expenses.
(a) Employee shall be entitled to participate in such Company
retirement, profit sharing and pension plans and life and other insurance
programs, as well as other benefit programs (other than employee bonus plans),
which are available to the other most senior executives of Company, subject to
Company's policies with respect to all of such benefits or insurance programs or
plans, and the terms thereof, which policies and terms may include limitations
on the eligibility of a Company employee to participate simultaneously in both
2
4
Company benefit plans and Subsidiary benefit plans; provided, however, that
notwithstanding anything herein to the contrary, Company shall not be obligated
to institute or maintain any particular benefit or insurance program or plan or
aspect thereof.
(b) Employee shall be entitled to not less than four (4) weeks' vacation
during each year of the Term hereof to be scheduled at mutually agreeable times
and accrued and taken in accordance with Company policy. For the avoidance of
doubt, any vacation to be taken by Employee pursuant to this Agreement shall be
taken simultaneously with any vacation to be taken by Employee pursuant to the
Label Employment Agreement.
(c) Company agrees to reimburse Employee for such reasonable and
necessary out-of-pocket expenses incurred by Employee during the Term in the
performing of services for Company, including but not limited to for
business-related travel (first class), hotel, meals, telephone calls and
entertainment. If Employee shall travel in respect of both any Permitted Outside
Activity and Company business, Employee shall only seek and be entitled to those
expenses reasonably allocable to his pursuit of Company business. As a condition
to the reimbursement of such expenses by Company to Employee, Employee shall
provide Company with copies of invoices, receipts or other satisfactory
documentation in sufficient detail to allow Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible. The obligations of Company to make the reimbursements
specified hereunder for approved expenses accrued prior to the effective date of
termination of this Agreement shall survive any termination of the Term.
8. Termination.
(a) Company may terminate Employee's employment hereunder after the
occurrence and during the continuance of any Disability of Employee, upon thirty
(30) days' prior written notice to Employee. For purposes of this Agreement,
"Disability" means Employee's incapacity to perform substantially all of his
then current duties as required hereunder for one hundred eighty (180) days or
more within any period of three hundred sixty-five (365) consecutive days
because of mental or physical condition, illness or injury, consistent with
applicable state and federal law. In the event of any dispute regarding the
existence of Employee's Disability, the matter will be resolved by the
determination of a physician qualified to practice medicine in the State of
California, selected by Employee and reasonably approved by Company, or, failing
such approval, by a majority of three physicians qualified to practice medicine
in the State of California, one to be selected by Company, one to be selected by
Employee and the third to be selected by the two designated physicians. For this
purpose, Employee will submit to appropriate medical examinations.
(b) Company may terminate Employee's employment hereunder for Cause. For
the purposes of this Agreement, "Cause" shall mean Employee shall have (i) been
convicted of, or pleaded nolo contendere to, any felony or any lesser crime
involving fraud, embezzlement, or misappropriation of the property of Company or
any Subsidiary, (ii) engaged in gross negligence or willful misconduct in the
performance of Employee's duties hereunder, (iii) materially breached any of the
provisions of Sections 1, 2 or 3 above, or 0, 00, 00 xx 00 xxxxx, (xx)
misappropriated for his own purpose and benefit any (A) material property of
Company or any Subsidiary or (B) any material opportunity of Company or any
Subsidiary, (v) had his employment with the Label terminated by the Label for
"Cause" (as defined in the Label Employment Agreement) or (vi) terminated his
employment with the Label without "Good Reason" (as defined in the Label
Employment Agreement). Notwithstanding anything to the contrary contained
herein, no event or circumstance described in any of the preceding clauses
3
5
(ii), (iii) or (iv)(B) above shall constitute "Cause" for purposes of this
Agreement unless Company gives Employee written notice delineating the claimed
event or circumstance and setting forth Company's intention to terminate
Employee's employment if such claimed event or circumstance is not duly remedied
within thirty (30) days) following such notice, if susceptible to remedy, and
Employee fails to remedy such event or circumstance within such thirty (30) day
period; provided, however, that if such failure susceptible to remedy cannot be
remedied within such thirty (30) day period, it shall not constitute Cause
hereunder if Employee shall commence such remedy within such thirty (30) day
period and thereafter diligently pursue such remedy and cause its completion
within a reasonable period thereafter. In addition, the first breach by Employee
of either the commitment contained in the second sentence of Section 2(b) above
(regarding Employee's performance of services to the Label under the Label
Employment Agreement) or the commitment contained in the third sentence of
Section 2(b) above (regarding the Permitted Outside Activities) shall not be
grounds for termination for Cause. For the avoidance of doubt, Employee's
resignation from the Board, and his consequential loss of the title of
"Chairman," shall not in and of themselves constitute breaches of this
Agreement.
(c) The employment of Employee hereunder shall be automatically
terminated on the date of Employee's death.
(d) Employee may terminate his employment hereunder forthwith at any
time for Good Reason upon written notice to Company. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following: (i)
a material and substantial reduction in Employee's title, responsibilities,
duties or reporting (although Employee shall cease to hold the title of
"Chairman" if he ceases to be chairman of the Board); (ii) a reassignment of
Employee without Employee's consent to a geographic location in excess of
thirty-five (35) miles from Company's current principal offices; (iii) a
material breach by Company of any of its material obligations to Employee
hereunder; (iv) the failure of Employee to be re-elected to the Board following
the expiration of his initial service thereon, so long as Employee shall not
previously have resigned or been removed from the Board, or such failure is not
due to Employee's suffering from a disability that, if it continues, could
reasonably be expected to constitute a Disability hereunder; (v) Company's
materially altering the nature of its business; or (vi) Employee's termination
of his employment with the Label for "Good Reason" (as defined in the Label
Employment Agreement). Notwithstanding anything to the contrary contained
herein, none of the foregoing events or circumstances (other than clause (vi)
above) shall constitute "Good Reason" for purposes of this Agreement unless
Employee gives Company written notice delineating the claimed event or
circumstance and setting forth Employee's intention to terminate Employee's
employment if such claimed event or circumstance is not duly remedied within
thirty (30) days following such notice, if susceptible to remedy, and Company
fails to remedy such event or circumstance (or cause such remedy) within such
thirty (30) day period; provided, however, that if such failure susceptible to
remedy cannot be remedied within such thirty (30) day period and does not
involve a payment of compensation or a reimbursement of expenses, it shall not
constitute Good Reason hereunder if Company shall commence such remedy within
such thirty (30) day period and thereafter diligently pursue such remedy and
cause its completion within a reasonable period thereafter.
(e) Employee may terminate his employment with Company at any time with
"Justification" upon written notice to Company. For purposes of this Agreement,
"Justification" shall mean: (i) Company shall have committed any act or omission
(over the objection of Employee, if Employee is afforded the opportunity to
participate in the decision whether to commit such act or omission) and Employee
reasonably believes such act or omission constitutes a material violation of any
law or governmental regulation, provided Employee first
4
6
gives Company written notice delineating the claimed event or circumstance and
setting forth Employee's intention to terminate Employee's employment if such
claimed event or circumstance is not duly remedied within thirty (30) days
following such notice, if susceptible to remedy, and Company fails to remedy
such event or circumstance within such thirty (30) day period; ; provided,
however, that if such failure susceptible to remedy cannot be remedied within
such thirty (30) day period, it shall not constitute Justification hereunder if
Company shall commence such remedy within such thirty (30) day period and
thereafter diligently pursue such remedy and cause its completion within a
reasonable period thereafter; or (ii) the commencement of any legal proceeding
in which (A) the Label and/or ADR alleges that FieldCo materially breached the
Label Operating Agreement or (B) the Label and/or FieldCo alleges that ADR
materially breached the Label Operating Agreement; provided, however, that any
termination by Employee of his employment with Company arising from the
commencement of any arbitration proceeding pursuant to Section 7(h) of the Label
Employment Agreement shall be subject to Section 8(f) below.
(f) Employee may terminate his employment with Company forthwith upon
written notice upon the commencement of any arbitration proceeding pursuant to
Section 7(h) of the Label Employment Agreement. Notwithstanding that Employee
terminates his employment with Company pursuant to this Section 8(f), the nature
of the termination of Employee's employment with the Label shall determine the
nature of the termination of Employee's employment with Company. If Employee
terminates his employment pursuant to this Section 8(f), and: (i) Employee's
employment with the Label is terminated by the Label for "Cause" (as defined in
the Label Employment Agreement), then Employee's employment with Company shall
be deemed to have been terminated by Company for Cause pursuant to Section
8(b)(v) above; (ii) Employee remains employed at the Label because the
arbitrator determines that the Label was not entitled to terminate Employee's
employment for "Cause" (as defined in the Label Employment Agreement), then
Employee's employment with Company shall be deemed to have been terminated by
Employee with Justification pursuant to Section 8(e) above; (iii) Employee's
employment with the Label is terminated for "Good Reason" (as defined in the
Label Employment Agreement), then Employee's employment with Company shall be
deemed to have been terminated by Employee for Good Reason pursuant to Section
8(d) above; or (iv) Employee's employment with the Label is terminated by
Employee without "Good Reason" (as defined in the Label Employment Agreement),
then Employee's employment with Company shall be deemed to have been terminated
by Employee other than pursuant to Sections 8(d) or 8(e) above.
(g) If Employee's employment is terminated pursuant to this Section 8, Employee
shall be entitled to, and Company's obligation hereunder shall be limited to,
(i) the payment of any unpaid compensation accrued under Section 6(a) above
through the effective date of such termination; (ii) any unreimbursed expenses
incurred, and other accrued employee benefits (as described above) accrued,
through the date of termination; and (iii) the additional compensation provided
in Section 8(h) below, if any.
(h) If Employee's employment is terminated (or deemed terminated in
accordance with Section 8(f) above):
(i) by Company pursuant to Section 8(a) above, Employee will receive
the benefit of any Company disability plans; or
(ii) (A) by Company other than pursuant to Sections 8(a), 8(b) or
8(c) above, (B) by Employee pursuant to Section 8(d) above, or (C) deemed
terminated as set forth in
5
7
clause (B) above in accordance with Section 8(f)(iii) above, Company shall pay
Employee a lump sum in an amount equal to the aggregate amount of Employee's
base salary payable at the annualized level being paid to Employee pursuant to
Section 6 above at the time of such termination, less required withholdings,
during the Payment Period specified below. As used herein, the "Payment Period"
shall mean (I) fifty percent (50%) of the remainder of the scheduled Term if
such termination occurs during the first three (3) years of the Term, (II)
twelve (12) consecutive months after the effective date of such termination if
such termination occurs during the fourth (4th) year of the Term, or (III) the
full remainder of the scheduled Term if such termination occurs during the fifth
(5th) year of the Term. Employee shall have no duty of mitigation and shall not
be subject to any right of offset with respect to any other compensation
received by Employee during the Payment Period. If, pursuant to Section 8(f)(ii)
above, Employee's employment shall be deemed to have been terminated by Employee
with Justification pursuant to Section 8(e) above, then the terms of this
Section 8(h)(ii) shall apply to such termination; provided, however, that the
Payment Period shall be reduced by fifty percent (50%). The parties hereto agree
that the payment set forth in this Section 8(h)(ii) constitutes fair
compensation and the sole remedy for damages for any termination addressed in
this Section 8(h)(ii).
(i) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to Employee on or
after the effective date of termination of the executive's employment by Company
under any federal, state or local law that provides for the continuation of any
medical or other employee benefits after employment.
(j) (i) In the event of a dispute between Employee and Company as to
whether any termination of Employee's employment constituted a termination by
Company for Cause, a termination by Employee for Good Reason, or a termination
by Employee with Justification, and, consequently, as to whether any payment is
due to Employee pursuant to Section 8(h)(ii) above and/or which provisions of
Section 10 below shall be applicable (an "Arbitrable Dispute"), then solely as
to such Arbitrable Dispute (and not as to any other disputes under this
Agreement, as such other disputes shall be settled in accordance with Section 14
below), the Arbitrable Dispute shall be settled exclusively by arbitration,
before a single arbitrator, in accordance with this Section 8(j) and the then
most applicable rules of the American Arbitration Association for employment
dispute resolution. Judgment upon any award rendered by the arbitrator may be
entered by any state or federal court having jurisdiction thereof. Such
arbitration shall be decided within ninety (90) days of the filing of a petition
to arbitration. Such arbitration shall be administered by the American
Arbitration Association and shall be the exclusive remedy for determining any
Arbitrable Dispute (as opposed to any other disputes between the parties
hereto). If a party desires to submit an Arbitrable Dispute to arbitration
pursuant to this Section 8(j) when the arbitration proceeding set forth in
Section 7(h) of the Label Employment Agreement already is in effect, such
Arbitrable Dispute shall be determined in the same arbitration proceeding as
that which is already so in effect.
(i) If the parties are unable to agree upon an arbitrator, the
parties shall select a single arbitrator from a list of fifteen arbitrators
drawn by the parties at random from the "Independent" (or "Gold Card") list of
retired judges or, at Employee's option, from a list of fifteen persons (which
shall be retired judges or litigation attorneys experienced in labor matters)
provided by the American Arbitration Association. If the parties are unable to
agree upon an arbitrator from the list so drawn, then the parties shall each
strike names alternately from the list, with the first to strike being
determined by lot. After each party has used seven strikes, the remaining name
on the list shall be the arbitrator. If such person is unable to serve for any
reason, the parties shall repeat this process until an arbitrator is selected.
6
8
(iii) In the event of an Arbitrable Dispute, the parties shall be
entitled to reasonable discovery subject to the discretion of the arbitrator.
The remedial authority of the arbitrator shall be the same as, but no greater
than, would be the remedial power of a court having jurisdiction over the
parties in respect of the specific Arbitrable Dispute, and shall be expressly
limited to such Arbitrable Dispute and shall not extend to any other matters or
disputes. The arbitrator shall, upon an appropriate motion, dismiss any claim
without an evidentiary hearing if the party bringing the motion establishes that
he or it would be entitled to summary judgment if the matter had been pursued in
court litigation. In the event of a conflict between the applicable rules of the
American Arbitration Association and these procedures, the provisions of these
procedures shall govern.
(iv) Unless mutually agreed by the parties otherwise, any such
arbitration shall take place in the City of Los Angeles, California. Any filing
or administrative fees related to such arbitration initially shall be borne by
the party requesting arbitration, and the parties shall bear equally the cost of
the arbitrator's compensation; provided, however, that the arbitrator shall be
entitled to award the prevailing party in such arbitration all of such party's
filing or administrative fees related to such arbitration, as well as require
the nonprevailing party to bear the entire cost of the arbitrator's
compensation. Each party hereto shall be responsible all of its own attorneys'
fees and costs related to such dispute and arbitration proceedings.
9. Rights to Works. In return for the consideration described herein,
Employee agrees as follows:
(a) All inventions, trade secrets, ideas, recordings, original works of
authorship or other work product of any kind that Employee conceives, develops,
discovers or makes in whole or in part pursuant to this Agreement or in the
scope of Employee's employment hereunder and Employee's contributions thereto
(hereinafter referred to as "Works") shall belong solely and exclusively to
Company. Company shall have the perpetual and exclusive right to use, exhibit,
distribute, or license throughout the universe, any Work or part thereof in
which Employee's services for Company are utilized by all forms of audio,
visual, textual, digital, electronic or other distribution that are now known or
may hereafter exist, and otherwise exploit such Works in such media, forums and
for such uses throughout the universe as it deems appropriate; provided,
however, that no likeness of Employee shall be used during or after the Term
without Employee's written consent and no quote of Employee shall be attributed
to Employee during or after the Term without Employee's written consent. All
revenues derived by Company from the use, exhibition, distribution, licensing,
or other exploitation of such Works shall be the sole and exclusive property of
Company.
(b) To the extent that the Works are considered: (i) contributions to
collective works and/or (ii) as parts or components of audiovisual works, the
parties hereby expressly agree that the Works shall be considered "works made
for hire" under the United States Copyright Act of 1976, as amended (17 U.S.C.
Section 101 et seq.). In accordance therewith, the sole right of copyright in
and to the Works shall belong exclusively to Company in perpetuity. To the
extent that the Works are deemed works other than contributions to collective
works and/or parts or components of audiovisual works, Employee hereby
irrevocably assigns and transfers to Company to the maximum extent permitted by
law all right, title and interest in the Works, including but not limited to all
copyrights, patents, trade secret rights, and other proprietary rights in or
relating to the Works. At Company's reasonable written request and sole expense,
Employee shall execute, verify, acknowledge, deliver and file any and all formal
assignments, recordations and any and all other documents that Company may
prepare and reasonably call for to give effect to the provisions of this
Agreement. If Employee fails to execute any such
7
9
document or instrument, or perform any such act, within ten (10) business days,
Employee shall be deemed to have irrevocably constituted and appointed Company,
with full power of substitution, to be Employee's true and lawful attorney, in
Employee's name, place, and stead, solely to execute, acknowledge, swear to, and
file all instruments, conveyances, certificates, agreements, and other
documents, and to take any action which may be necessary or appropriate to
effect the provisions of this Section 9. The powers of attorney granted herein
shall be deemed to be coupled with an interest and shall be irrevocable.
(c) It is understood that the rights granted to Company in this Section
9 shall continue in effect after the termination or expiration of this Agreement
to the extent necessary for Company's full enjoyment of such rights.
(d) All provisions of this Agreement relating to the assignment by
Employee of any invention or innovation are subject to the provisions of
California Labor Code Sections 2870, 2871 and 2872. In accordance with Section
2870 of the California Labor Code, the obligation to assign as provided in this
Agreement does not apply to an invention or innovation that Employee developed
entirely on his own time without using Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate to either (A) the business of Company or any of its Subsidiaries at
the time of conception or reduction to practice of the invention, or (B) actual
or demonstrably anticipated research or development of Company or any of its
Subsidiaries; or (ii) result from any work performed by Employee for Company or
any of its Subsidiaries. A copy of California Labor Code Sections 2870, 2871 and
2872 is attached to this Agreement as Exhibit 4.
(e) Employee shall disclose all inventions and innovations to Company
that reasonably could be anticipated to be owned by or required to be assigned
to Company hereunder.
(f) Notwithstanding the foregoing provisions of this Section 9, this
Section 9 shall not apply to Works relating to the Label's business and affairs,
as such Works are addressed in the Label Employment Agreement.
10. Restrictions. In recognition of the consideration described herein,
Employee agrees that:
(a) Without limiting the generality of Section 2(a) above, and except as
set forth in Section 2(b) above, Employee shall not engage or be financially
interested, directly or indirectly, at any time prior to the "Noncompetition
Expiration Date," in any activity directly competitive with any business then
carried on by, or anticipated to be carried on by, Company or any of its
Subsidiaries (excluding the Label, as a corresponding commitment appears in the
Label Employment Agreement). Notwithstanding the foregoing, Employee may acquire
or hold, solely for investment, publicly traded securities of any corporation,
so long as such securities, in the aggregate, constitute less than five percent
(5%) of any class or series of outstanding securities of such corporation. As
used in this Section 10, "Noncompetition Expiration Date" shall mean:
(i) If Employee's employment is terminated by Company pursuant to
Section 8(a) or 8(c) above (or deemed so terminated in accordance with Section
8(f) above), then the actual date of termination of Employee's employment with
Company;
(ii) If Employee's employment is terminated (A) by Company pursuant
to Section 8(b) above (B) by Employee other than pursuant to Sections 8(d) or
8(e) above, or (C) deemed terminated as set forth in clauses (A) or (B) above in
accordance with Section 8(f)
8
10
above, then the later of the actual date of such termination or the date upon
which the Term is scheduled to expire; or
(iii) If Employee's employment is terminated (A) by Company other
than pursuant to Sections 8(a), 8(b) or 8(c) above, (B) by Employee pursuant to
Sections 8(d) or 8(e) above, or (C) deemed terminated as set forth in clauses
(A) or (B) above in accordance with Section 8(f) above, then the actual date of
such termination.
(b) During the term of Employee's employment and at all times
thereafter, Employee shall hold in secrecy all trade secrets and confidential
information relating to Company's (and its Subsidiaries') business and affairs
that come to his knowledge while employed by Company (excluding information that
is or becomes publicly known or available for use through no fault of Employee),
including but not limited to: (i) matters of a business nature related to
Company or any Subsidiary, such as information about costs, profits, markets,
sales, lists of customers, lists of clients and other information of a similar
nature, (ii) plans or strategies for development of the business of Company or
any Subsidiary and (iii) matters of a technical nature related to Company or any
Subsidiary. Except as required in the performance of Employee's duties to
Company under this Agreement, Employee shall not use for his own benefit or
disclose to any person (except to his attorneys and financial advisors and as
required by law or legal process, provided Employee shall undertake to give
Company notice prior to such disclosure and shall comply with any applicable
protective order or equivalent), directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by Company in
advance. Employee shall advise his attorneys and financial advisors that such
trade secrets and confidential information are confidential and that by
receiving such trade secrets and confidential information such attorneys and
financial advisors are agreeing to be bound by this Section 10(b). Employee
agrees to be responsible for any breach of this Section 10(b) by his attorneys
or financial advisors. Notwithstanding the foregoing provisions of this Section
10(b), this Section 10(b) shall not apply to trade secrets and confidential
information relating to the Label's business and affairs, as such matters are
addressed in the Label Employment Agreement.
(c) Employee shall not, directly or indirectly, hire, offer to hire,
entice away, or in any other manner persuade or attempt to persuade any officer,
employee (other than Employee's personal assistant(s)), agent, representative,
customer, client, performer or songwriter of Company or any Subsidiary, to
discontinue his or her relationship with Company or any Subsidiary, until the
"Nonsolicitation Expiration Date," which shall mean the date one (1) year
following the date upon which the Term is scheduled to expire, unless Employee's
employment is terminated (i) by Company other than pursuant to Sections 8(a),
8(b) or 8(c) above, (ii) by Employee pursuant to Sections 8(d) or 8(e) above, or
(iii) deemed terminated as set forth in clauses (i) or (ii) above in accordance
with Section 8(f) above, in each of which cases it shall mean the date one (1)
year following the actual date of such termination. Notwithstanding the
foregoing provisions of this Section 10(c), this Section 10(c) shall not apply
to hiring, offering to hire, enticing away, or in any other manner persuading or
attempting to persuade any officer, employee (other than Employee's personal
assistant(s)), agent, representative, customer, client, performer or songwriter
of the Label, to discontinue his or her relationship with the Label, as such
matters are addressed in the Label Employment Agreement.
11. Employee's Representations. Employee hereby represents and warrants
that: (a) he has the right to enter into this Agreement and to grant the rights
granted by him herein, (b) the provisions of this Agreement do not violate any
other contracts or agreements to which he is a party and that would adversely
affect his ability to perform his obligations hereunder, (c) he will
9
11
comply in all material respects with all policies of Company of which he has
written notice, provided they are consistent with applicable laws and (d) this
Agreement is enforceable against Employee in accordance with its terms, except
(i) as such enforceability may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) as such obligations are subject to general
principles of equity and (iii) as rights to indemnity may be limited by federal,
state or local securities laws or by public policy. Without limiting the
generality of the foregoing, Employee specifically represents and warrants that
no term or condition under any contract or agreement related to Employee's past
employment with Universal Music Group or the termination thereof shall in any
way reduce or restrict Employee's ability to execute and perform this Agreement.
12. Assistance with Litigation. Employee agrees that for five years
following termination of his employment with Company, Employee shall make
himself reasonably available to Company to assist Company with litigation based
on fact or circumstance that arose during his employment. Employee further
agrees to cooperate reasonably with Company in any such litigation. Company
agrees to compensate Employee at a reasonable rate for his time, except time
spent in depositions or trial. Company further agrees to reimburse Employee such
reasonable and necessary out-of-pocket expenses incurred by Employee in
providing such assistance, in accordance with the principles set forth in
Section 7(c) above.
13. Company's Representations. Company hereby represents and warrants that,
subject to the satisfaction of the conditions set forth in the Side Letter: (a)
it has the right, power and authority to enter into this Agreement and to incur
the obligations incurred by it herein, (b) this Agreement has been duly and
validly authorized by Company and is enforceable against Company in accordance
with its terms, except (i) as such enforceability may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) as such obligations are subject to
general principles of equity and (iii) as rights to indemnity may be limited by
federal, state or local securities laws or by public policy, and (c) the
provisions of this Agreement do not violate any other contracts or agreements to
which it is a party that would adversely affect its ability to perform its
obligations hereunder.
14. Governing Law.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the internal substantive laws (and not the laws of choice of
laws) of the State of California.
(b) Subject to Section 8(j) above, each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
exclusive jurisdiction of any California state court or federal court of the
United States of America sitting in the Central District of the State of
California, situated in Los Angeles County, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
California state court or, to the extent permitted by law, in such federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in
10
12
any California state court or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
15. Exhibits. All exhibits to this Agreement are incorporated herein in
their entirety.
16. Entire Agreement. This Agreement and the Side Letter constitute the
whole agreement of the parties hereto in reference to any employment of Employee
by Company and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
17. Assignability. The services to be performed by Employee hereunder are
personal in nature and, accordingly, Employee may not, without the prior express
written consent of Company in each instance, assign or transfer this Agreement
or any rights or obligations hereunder. Company may not assign or transfer this
Agreement or any rights or obligations hereunder. For purposes of this
Agreement, a "Change in Control," meaning a sale of all or substantially all of
the assets of Company, or any transaction or series of related transactions
(including without limitation, any merger, reorganization, consolidation or
purchase of outstanding equity interests) resulting in the transfer of 50% or
more of the outstanding voting securities of Company, shall not be considered an
assignment. For the avoidance of doubt, however, the provisions of Section 8(d)
above shall continue to apply following a Change in Control. Nothing expressed
or implied herein is intended or shall be construed to confer upon or give to
any person, other than the parties hereto, any right, remedy or claim under or
by reason of this Agreement or of any term, covenant or condition hereof.
18. Remedies. Any material breach or violation by Employee of the terms of
Sections 3, 9, or 10 above, would result in immediate and irreparable injury and
harm to Company, and would cause damage to Company in amounts difficult to
ascertain and for which Company's remedies and defenses at law would be
inadequate. Accordingly, (a) in the event of any breach or threatened breach of
Section 10(a) above, Company shall be entitled to seek the remedy of injunction,
as well as all other remedies to which Company may be entitled, at law, in
equity or otherwise and (b) in the event of any such breach or threatened breach
of the aforementioned Sections other than Section 10(a) above, Company shall be
entitled to, and Employee hereby consents to, the remedy of injunction, as well
as all other remedies to which Company may be entitled, at law, in equity or
otherwise. The preceding sentence shall not be construed to prevent Employee
from disputing the factual basis of any remedies or defenses asserted by
Company.
19. Covenants Reasonable as to Time and Territory. Employee and Company have
considered carefully the nature and extent of the restrictions set forth in this
Agreement and the rights and remedies conferred upon Company under this
Agreement, and hereby acknowledge and agree that: (i) such restrictions are
reasonable in time and territory; and (ii) the consideration provided and to be
provided to Employee is sufficient to compensate Employee for such restrictions.
20. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as,
11
13
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
21. Notices. All notices, consents, requests and other communications hereunder
shall be in writing and, if given by personal delivery, shall be deemed to have
been validly served, given or delivered upon actual delivery and, if mailed or
delivered by overnight courier, shall be deemed to have been validly served,
given or delivered when deposited in the United States mail, as registered or
certified mail, with proper postage prepaid, or when deposited with the courier
service (provided the courier service obtains a signature acknowledging
receipt), and addressed to the party or parties to be notified, at the following
addresses (or such other addresses) as a party may designate for itself by like
notice:
If to Employee: Xxxxxxxxx X. Field
c/o Radar Pictures
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
With a copy to: Ziffren, Brittenham, Branca & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000-0000
Attention: Skip X. Xxxxxxxxxx, Esq. or
Xxxx Xxxxxxxxxx, Esq.
If to Company: ARTISTdirect, Inc.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
With copies to: VP of Business and Legal Affairs
and
Xxxxxx & Xxxxxxxx LLP
0000 Xxxxxxx Xxxx Xxxx
Xxxxx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
22. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
23. Section Headings. The Section headings herein are used solely for
convenience and shall not be used in the interpretation or construction of this
Agreement.
12
14
24. No Drafting Presumption. In interpreting the provisions of this
Agreement, no presumption shall apply against any party that otherwise would
operate against such party by reason of such document having been drafted by
such party or at the direction of such party.
25. Counterparts: Facsimile. This Agreement may be executed in two
counterparts and by facsimile, each of which shall be deemed an original and
both of which together shall be deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"EMPLOYEE" "COMPANY"
/s/ XXXXXXXXX X. FIELD ARTISTdirect, Inc.
----------------------------------
Xxxxxxxxx X. Field By: /s/ XXXX XXXXXX
------------------------------
Xxxx Xxxxxx
Its: Chief Executive Officer
13
15
EXHIBIT 1
Option to Acquire 3,023,700 Shares of Common Stock
16
ARTISTDIRECT, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of ARTISTdirect, Inc. (the
"Corporation"):
Optionee: Xxxxxxxxx X. Field
Grant Date: May 31, 2001
Vesting Commencement Date: The date Optionee commences Service as
CEO of the Corporation.
Exercise Price: $0.75 per share
Number of Option Shares: 3,023,700 shares
Expiration Date: May 30, 2008
Type of Option: Incentive Stock Option
-----
X Non-Statutory Stock Option
-----
Date Exercisable: Immediately Exercisable
Vesting Schedule: Although the Option is immediately exercisable,
the Option Shares shall initially be unvested and subject to repurchase by the
Corporation at the Exercise Price paid per share. Optionee shall acquire a
vested interest in, and the Corporation's repurchase right shall accordingly
lapse with respect to, the Option Shares in a series of sixty (60) successive
equal monthly installments upon Optionee's completion of each month of Service
over the sixty (60)-month period measured from the Vesting Commencement Date.
Notwithstanding the foregoing, the Option Shares are also subject to accelerated
vesting as specifically provided for in the attached Stock Option Agreement and
Stock Purchase Agreement. Except as set forth in Section 6(e) of the Stock
Option Agreement attached hereto as Exhibit A or in Section D.6(ii) of the Stock
Purchase Agreement attached hereto as Exhibit B, in no other event shall any
additional Option Shares vest after Optionee's cessation of Service.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS
ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.
Optionee hereby agrees to be bound by all the terms and
conditions of the Option as set forth in the Stock Option Agreement and Stock
Purchase Agreement attached hereto as Exhibits A and B respectively.
17
All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement or
Stock Purchase Agreement.
DATED: MAY 31, 2001
ARTISTDIRECT, INC.
By: /s/ XXXX XXXXXX
-------------------------------------
Title: Chief Executive Officer
----------------------------------
By: /s/ XXXXXXXXX X. FIELD
-------------------------------------
OPTIONEE: XXXXXXXXX X. FIELD
Address: c/o Radar Pictures, Inc.
00000 Xxxxxxxx Xxxx.,
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - PROSPECTUS FOR STOCK OPTION GRANT
18
EXHIBIT A
STOCK OPTION AGREEMENT
19
ARTISTDIRECT, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
RECITALS
A. The Board and the shareholders have approved a stock
option grant to Optionee in order to attract and retain Optionee to serve the
Corporation in the capacity of Chairman and Chief Executive Officer.
B. The option evidenced by this Agreement is granted to
Optionee in consideration of the services Optionee is to render the Corporation
and not for any capital-raising purposes or in connection with any
capital-raising activities.
C. The granted option is intended to be a Non-Qualified
Option which does NOT satisfy the requirements of Section 422 of the Code.
D. All capitalized terms in this Agreement shall have the
meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an Option to purchase up to the number of Option
Shares specified in the Grant Notice attached hereto. The Option Shares shall be
purchasable from time to time during the Option term specified in Paragraph 2 at
the Exercise Price.
2. OPTION TERM. This Option shall have a term of seven (7)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This Option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee or as otherwise provided herein. However,
this Option may, in connection with the Optionee's estate plan, be assigned in
whole or in part during Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established for the exclusive benefit
of one or more such family members. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the Option
pursuant to such assignment or as set forth herein. The terms applicable to the
assigned portion shall be the same as those in effect for this Option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. The Option shall become exercisable for
the Option Shares as specified in the Grant Notice.
1
20
5. CESSATION OF SERVICE. The Option term specified in
Paragraph 2 shall terminate (and this Option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:
(i) Should Optionee cease Service by reason of an
Involuntary Termination, then Optionee's right to
exercise this Option shall lapse, and this Option
shall cease to be outstanding, upon the later of
(a) the expiration of the twelve (12) month period
measured from the date of Optionee's cessation of
Service or (b) the expiration of Optionee's initial
five-year employment term as set forth in the
Employment Agreement. In no event shall this Option
be exercisable at any time after the Expiration
Date.
(ii) Should Optionee cease Service by reason of
Justification, then Optionee's right to exercise
this Option shall lapse, and this Option shall
cease to be outstanding, upon the earlier of (a)
the expiration of the twelve (12) month period
measured from the date of Optionee's cessation of
Service or (b) the expiration of Optionee's initial
five-year employment term as set forth in the
Employment Agreement. In no event shall this Option
be exercisable at any time after the Expiration
Date.
(iii) Should Optionee cease Service for any reason other
than (a) an Involuntary Termination, (b) a
termination for Cause, (c) Optionee's death or
Permanent Disability or (d) Justification, then
Optionee's right to exercise this Option shall
lapse and this Option cease to be outstanding, upon
the earlier of (x) the expiration of the ninety
(90) day period measured from the date of
Optionee's cessation of Service or (y) the
Expiration Date.
(iv) Should Optionee's Service be terminated for Cause,
then this Option shall immediately terminate and
cease to be outstanding.
(v) Should Optionee cease Service by reason of his
death, then the personal representative of
Optionee's estate or the person or persons to whom
the Option is transferred pursuant to Optionee's
will or in accordance with the laws of descent and
distribution or, if the Option has been transferred
to
2
21
a trust in accordance with the terms herein, the
trustee of such trust, shall have the right to
exercise this Option. Such right shall lapse, and
this Option shall cease to be outstanding, upon the
earlier of (a) the expiration of the twelve (12)
month period measured from the date of Optionee's
death or (b) the Expiration Date.
(vi) Should Optionee cease Service by reason of
Permanent Disability while this Option is
outstanding, then Optionee's right to exercise this
Option shall lapse, and this Option shall cease to
be outstanding, upon the later of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's cessation of Service or
(b) the expiration of Optionee's initial five-year
employment term as set forth in the Employment
Agreement. In no event shall this Option be
exercisable at any time after the Expiration Date.
In the event that such Permanent Disability
prevents Optionee from personally exercising this
Option, this Option may be exercised by Optionee's
personal authorized representative to the same
extent that Optionee could otherwise exercise this
Option.
(vii) During the applicable post-Service exercise period,
this Option may not be exercised in the aggregate
for more than the number of Option Shares in which
the Optionee has acquired a vested interest in at
the time of Optionee's cessation of Service. Upon
the expiration of such exercise period or (if
earlier) upon the Expiration Date, this Option
shall terminate and cease to be outstanding for any
exercisable Option Shares for which the Option has
not otherwise been exercised.
6. CORPORATE TRANSACTION AND ACCELERATED VESTING OF OPTION
SHARES.
(a) In the event of any Corporate Transaction, the
Option Shares at the time subject to this Option but not otherwise vested shall
automatically vest in full so that this Option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares and may be exercised for any or all of
those Option Shares as vested shares. The Corporation shall provide Optionee
with a minimum of ten days prior written notice of any Corporate Transaction.
3
22
(b) Immediately following the Corporate Transaction,
this Option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or Parent thereof) in connection with the
Corporate Transaction.
(c) If this Option is assumed in connection with a
Corporate Transaction, then this Option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the Option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
(e) In the event Optionee ceases Service by reason of
an Involuntary Termination, the Option Shares at the time subject to this Option
but not otherwise vested shall automatically vest in full so that this Option
shall immediately upon Optionee's cessation of Service become exercisable for
all of the Option Shares as fully-vested shares and may be exercised for any or
all of those Option Shares as vested shares.
(f) In the event Optionee ceases Service by reason of a
termination for deemed Justification pursuant to Section 8(f)(ii) of the
Employment Agreement, then the Option Shares at the time subject to this Option
but not otherwise vested shall automatically vest as to one-half of such
unvested Option Shares, so that this Option shall, immediately upon Optionee's
cessation of Service, become vested for one-half of such otherwise unvested
Option Shares.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the number and/or
class of securities subject to this Option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this Option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the Option, paid the Exercise Price and become a holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this Option with respect to
all or any part of the Option Shares for which this Option is at the time
exercisable, Optionee (or any other person or persons exercising the Option)
must take the following actions:
(i) Execute and deliver to the Corporation a
Stock Purchase Agreement for the number of Option Shares for which the
Option is exercised.
4
23
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) shares of Common Stock held by
Optionee (or any other person or persons exercising the Option)
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(C) to the extent the Option is exercised
for vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the Option) shall concurrently provide
irrevocable instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the Option exercise, payment of the
Exercise Price must accompany the Stock Purchase Agreement
delivered to the Corporation in connection with the Option
exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the Option (if other
than Optionee) have the right to exercise this Option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of federal and state
securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all federal, state and local income and
employment tax withholding requirements applicable to the Option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this Option) a certificate for the purchased Option Shares.
(c) In no event may this Option be exercised for any
fractional shares.
5
24
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE STOCK PURCHASE AGREEMENT.
11. LOCK-UP. Optionee agrees that prior to the one-year
anniversary of the commencement of his employment with the Corporation, he will
not sell, make any short sale of, hedge, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
the Option Shares without the written consent of the Corporation's Board of
Directors.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
Option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq National Market or other national market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
14. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
15. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate office. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
6
25
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CAUSE shall have the meaning given such term in the Employment
Agreement.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean any of the following
transactions effecting a change in control or ownership of the Corporation:
(i) a stockholder-approved merger or consolidation in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's assets, or
(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 Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
G. CORPORATION shall mean ARTISTdirect, Inc., a Delaware
corporation.
H. EMPLOYEE shall mean the Optionee in his capacity as an
employee of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work to be performed
and the manner and method of performance.
I. EMPLOYMENT AGREEMENT shall mean that certain Employment
Agreement dated as of May 31, 2001, between Optionee and the Corporation.
J. EXERCISE DATE shall mean the date on which the Option shall
have been exercised in accordance with Paragraph 9 of the Agreement.
A-1
26
K. EXERCISE PRICE shall mean the exercise price per share as
specified in the Grant Notice.
L. EXPIRATION DATE shall mean the date on which the Option
expires as specified in the Grant Notice.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date, for purposes of Section 9 only, shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the average
of the high and low selling prices per share of Common Stock on the date
in question, as such prices are reported by the National Association of
Securities Dealers on the Nasdaq National Market (or, if not listed on
such market, any other national market) and published in The Wall Street
Journal. If there are no selling prices quoted for the Common Stock on
the date in question, then the Fair Market Value shall be the average of
the high and low selling prices on the last preceding date for which
such quotations exist.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the average high and
low selling prices per share of Common Stock on the date in question on
the Stock Exchange determined by the Compensation Committee to be the
primary market for the Common Stock, as such prices are officially
quoted in the composite tape of transactions on such exchange and
published in The Wall Street Journal. If there are no selling prices
quoted for the Common Stock on the date in question, then the Fair
Market Value shall be the average of the high and low selling prices on
the last preceding date for which such quotations exist.
X. XXXXX DATE shall mean the date of grant of the Option as
specified in the Grant Notice.
X. XXXXX NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the Option evidenced hereby.
P. INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than (X) for Cause or (Y) by reason of
death or Permanent Disability, or
(ii) Optionee's resignation for Good Reason, as defined
in the Employment Agreement.
Q. JUSTIFICATION shall have the meaning given such term in the
Employment Agreement.
A-2
27
R. NON-QUALIFIED OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock
subject to the Option as specified in the Grant Notice.
T. OPTION TERM shall mean the actual period of time that this
Option remains outstanding pursuant to Paragraph 2 of this Agreement.
U. OPTIONEE shall mean the person to whom the Option is granted
as specified in the Grant Notice.
V. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
W. PERMANENT DISABILITY shall mean the inability of Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
X. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the
New York Stock Exchange.
Z. STOCK PURCHASE AGREEMENT shall mean the written notice of the
Option exercise on the form provided by the Corporation for such purpose.
AA. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-3
28
EXHIBIT B
STOCK PURCHASE AGREEMENT
29
ARTISTDIRECT, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this _____ day of ___________________, _____ by
and between ARTISTdirect, Inc., a Delaware corporation, and Xxxxxxxxx X. Field,
Optionee.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases _______ shares of
Common Stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on May __, 2001 (the "Grant Date") to purchase up to
_______________ shares of Common Stock (the "Option Shares") at the exercise
price of $0.75 per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement
to the Corporation, Optionee shall pay the Exercise Price for the Purchased
Shares in accordance with the provisions of the Option Agreement and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Optionee (or any successor in interest) shall
have all the rights of a stockholder (including voting, dividend and liquidation
rights) with respect to the Purchased Shares, subject, however, to the transfer
restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. While the Purchased Shares have
been registered under the 1933 Act, Optionee hereby confirms that Optionee has
been informed that the Purchased Shares are control securities under the 1933
Act because Optionee is an affiliate of the Corporation and accordingly, the
Purchased Shares may not be resold or transferred except in compliance with the
federal securities laws.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
1
30
3. RESTRICTIVE LEGENDS. The stock certificates for the
Purchased Shares shall be endorsed with one or more of the following restrictive
legends:
(a) "The shares represented by this certificate are
"control" securities under the Securities Act of
1933 because the holder is an affiliate of the
Corporation. The shares may not be sold or offered
for sale in the absence of satisfactory assurances
to the Corporation that such sale or offer complies
with all applicable federal and state securities
laws."
(b) "The shares represented by this certificate are
subject to certain repurchase rights and other
restrictions on transfer granted to the Corporation
and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed
of except in conformity with the terms of a written
agreement dated ____________, ______ between the
Corporation and the registered holder of the shares
(or the predecessor in interest to the shares). A
copy of such agreement is maintained at the
Corporation's principal corporate offices."
Upon request by Optionee, the Corporation agrees to remove the legends above, in
each case, when the applicable restrictions or repurchase rights have lapsed and
are no longer, and will not in the future become, applicable.
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted
Transfer, Optionee shall not transfer, assign, encumber or otherwise dispose of
any of the Purchased Shares which are subject to the Repurchase Right.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Optionee.
3. LOCK-UP. Optionee agrees that prior to the one-year
anniversary of the commencement of his employment with the Corporation, he will
not sell, make any short sale of, hedge, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
the Purchased Shares without the written consent of the Corporation's Board of
Directors.
2
31
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price any or all of the Purchased
Shares in which Optionee is not, at the time of his cessation of Service, vested
in accordance with the Vesting Schedule applicable to those shares or the
special vesting acceleration provisions of Paragraph D.6 of this Agreement (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the sixty (60)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation on the
closing date specified for the repurchase. Concurrently with the receipt of such
stock certificates, the Corporation shall pay to Owner, in cash, an amount equal
to the Exercise Price previously paid for the Unvested Shares which are to be
repurchased from Owner. Notwithstanding the foregoing, in the event such stock
certificates are not delivered to the Corporation at the time the Exercise Price
is so paid, such Unvested Shares shall nonetheless be deemed cancelled as of the
time of such payment and the Corporation may take such action is as necessary,
including the imposition of stop transfer orders, with respect to such shares.
The Corporation's right to exercise the Repurchase Right shall be conditioned on
the Corporation having taken all corporate action required to be taken to exempt
such repurchase from the provisions of Section 16(b) of the Securities Exchange
Act of 1934, as amended, pursuant to Rule 16b-3(e), or successor rule,
thereunder, and providing the Owner with satisfactory written evidence thereof
with its notice of exercise.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
any Lock-up restrictions set forth in section C.3 hereof.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised
in more than one increment so that Optionee is a party to one or more other
Stock Purchase Agreements (the "Prior Purchase Agreements") which are executed
prior to the date of this Agreement, then the total number of Purchased Shares
as to which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
3
32
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
6. SPECIAL VESTING ACCELERATION.
(a) The Repurchase Right shall automatically terminate
in its entirety, and all the Purchased Shares shall
vest in full, (i) immediately prior to the
consummation of any Corporate Transaction that
occurs prior to Optionee's cessation of Service or
(ii) upon the cessation of Optionee's Service as a
result of an Involuntary Termination.
(b) The Repurchase Right shall automatically terminate
as to one-half of the then Unvested Shares
(calculated as of the time immediately prior to
application of this Section D.6(b)) upon any
termination of Optionee's employment with the
Corporation for deemed Justification (as defined in
the Employment Agreement) pursuant to Section
8(f)(ii) of the Employment Agreement.
E. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit I. OPTIONEE SHOULD CONSULT WITH HIS TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES AND
THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND NOT THE
CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF
OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
HIS BEHALF.
F. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase
Right to any person or entity selected by the Board, including (without
limitation) one or more stockholders of the Corporation.
4
33
2. NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery, one business day after being delivered to a reputable overnight
courier service, or upon deposit in the U.S. mail, registered or certified,
postage prepaid and properly addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
3. NO WAIVER. The failure of the Corporation in any instance
to exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee. No waiver
of any breach or condition of this Agreement shall be deemed to be a waiver of
any other or subsequent breach or condition, whether of like or different
nature.
4. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
G. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Optionee or the
Purchased Shares pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement and the
Registration Side Letter constitute the entire contract between the parties
hereto with regard to the subject matter hereof.
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
5
34
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Optionee, Optionee's permitted assigns and the
legal representatives, heirs and legatees of Optionee's estate, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
ARTISTDIRECT, INC.
By:
--------------------------------
Title:
--------------------------------
Address:
--------------------------------
--------------------------------
By:
--------------------------------
OPTIONEE: XXXXXXXXX X. FIELD
Address:
--------------------------------
--------------------------------
6
35
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves
the foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his cessation of Service.
By:
----------------------------------
OPTIONEE'S SPOUSE
Address:
----------------------------------
----------------------------------
36
EXHIBIT I
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(B) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the fair market value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for those shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the fair market
value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(B)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
The excess of (a) the fair market value of
the Purchased Shares on the date the Option is exercised or (if later)
on the date any forfeiture restrictions applicable to the Purchased
Shares lapse over (b) the Exercise Price paid for the Purchased Shares
will be includible in Optionee's taxable income for alternative minimum
tax purposes.
If Optionee makes a disqualifying
disposition of the Purchased Shares, then Optionee will recognize
ordinary income in the year of such disposition equal in amount to the
excess of (a) the fair market value of the Purchased Shares on the date
the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either short-term
or long-term capital gain depending upon the period for which the
Purchased Shares are held prior to the disposition.
II-1
37
For purposes of the foregoing, the term
"forfeiture restrictions" will include the right of the
Corporation to repurchase the Purchased Shares pursuant to
the Repurchase Right. The term "disqualifying disposition"
means any sale or other disposition(1) of the Purchased
Shares within two (2) years after the Grant Date or within
one (1) year after the exercise date of the Option.
In the absence of final Treasury Regulations
relating to Incentive Options, it is not certain whether
Optionee may, in connection with the exercise of the
Option for any Purchased Shares at the time subject to
forfeiture restrictions, file a protective election under
Code Section 83(b) which would limit Optionee's ordinary
income upon a disqualifying disposition to the excess of
the fair market value of the Purchased Shares on the date
the Option is exercised over the Exercise Price paid for
the Purchased Shares. Accordingly, such election if
properly filed will only be allowed to the extent the
final Treasury Regulations permit such a protective
election.
The Code Section 83(b) election will be
effective in limiting the Optionee's alternative minimum
taxable income to the excess of the fair market value of
the Purchased Shares at the time the Option is exercised
over the Exercise Price paid for those shares.
Page 2 of the attached form for making the election should be
filed with any election made in connection with the exercise of an Incentive
Option.
--------
(1) Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2
38
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
The property with respect to which the election is being made is
_____________ shares of the common stock of ARTISTdirect, Inc.
The property was issued on ______________, _____.
The taxable year in which the election is being made is the calendar year
_____.
The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's service with the issuer terminates. The
issuer's repurchase right will lapse in a series of annual and monthly
installments over a four (4)-year period ending on ___________, 200__.
The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $__________per share.
The amount paid for such property is $___________ per share.
A copy of this statement was furnished to ARTISTdirect, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
This statement is executed on _________________, ______.
______________________________ ______________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her federal and state tax returns for the current tax year and an additional
copy for his or her records.
39
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
One purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares.
Section 421(a)(1) of the Code expressly excludes from
income any excess of the fair market value of the purchased shares over the
amount paid for such shares. Accordingly, this election is also intended to be
effective in the event there is a "disqualifying disposition" of the shares,
within the meaning of Section 421(b) of the Code, which would otherwise render
the provisions of Section 83(a) of the Code applicable at that time.
Consequently, the Taxpayer hereby elects to have the amount of disqualifying
disposition income measured by the excess of the fair market value of the
purchased shares on the date of transfer to the Taxpayer over the amount paid
for such shares. Since Section 421(a) presently applies to the shares which are
the subject of this Section 83(b) election, no taxable income is actually
recognized for regular tax purposes at this time, and no income taxes are
payable, by the Taxpayer as a result of this election. The foregoing election is
to be effective to the full extent permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2
40
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean any of the following transactions
effecting a change in control or ownership of the Corporation:
(i) a stockholder-approved merger or consolidation in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's assets, or
(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 Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
F. CORPORATION shall mean ARTISTdirect, Inc., a Delaware corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of ARTISTdirect, Inc.
G. EMPLOYMENT AGREEMENT shall mean that certain Employment Agreement
dated as of May 31, 2001, by and between Optionee and the Corporation.
H. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
X. XXXXX DATE shall have the meaning assigned to such term in Paragraph
A.1.
X. XXXXX NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
A-1
41
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than (X) for Cause, as defined in the
Employment Agreement, or (Y) by reason of death or Permanent Disability,
or
(ii) Optionee's voluntary resignation for Good Reason,
as defined in the Employment Agreement.
M. 1933 ACT shall mean the Securities Act of 1933, as amended.
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
O. OPTION shall have the meaning assigned to such term in Paragraph A.1.
P. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
Q. OPTIONEE shall mean the person to whom the Option is granted.
R. OWNER shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
S. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of inheritance following
Optionee's death, (iii) a transfer to the Corporation in pledge as security for
any purchase-money indebtedness incurred by Optionee in connection with the
acquisition of the Purchased Shares, or (iv) a transfer of the Purchased Shares
to a trust for the sole benefit of Optionee or his immediately family.
U. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such term
in Paragraph D.4.
V. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
A-2
42
W. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
X. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
Y. REGISTRATION SIDE LETTER shall mean that certain side letter dated as
of May 31, 2001, by and between the Corporation and Optionee with respect to the
registration on Form S-8 of the Purchased Shares
Z. SEC shall mean the Securities and Exchange Commission.
AA. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
BB. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
CC. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service; provided, the Option
Shares are subject to accelerated vesting pursuant to Section D.6 of the
Agreement.
DD. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3
43
EXHIBIT C
PROSPECTUS FOR STOCK OPTION GRANT
44
EXHIBIT 2
Option to Acquire 755,880 Shares of Common Stock
45
ARTISTDIRECT, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of ARTISTdirect, Inc. (the
"Corporation"):
Optionee: Xxxxxxxxx X. Field
Grant Date: May 31, 2001
Vesting Commencement Date: The date Optionee commences Service
as CEO of the Corporation.
Exercise Price: $0.75 per share
Number of Option Shares: 755,880 shares
Expiration Date: May 30, 2008
Type of Option: Non-Statutory Stock Option
Exercise Schedule: The Option shall not be exercisable and the
Option Shares shall not be vested until a Triggering Event (as defined below)
has occurred. If no Triggering Event has occurred by the third anniversary of
the Vesting Commencement Date, then the Option Shares shall remain unvested and
unexercisable and the Option shall terminate. If a Triggering Event occurs by
the third anniversary of the Vesting Commencement Date, however, Optionee shall
acquire a vested interest in, and the Option shall become exercisable with
respect to, all of the Option Shares.
For purposes of this Option, "Triggering Event" shall be deemed
to occur upon the first to occur of (w) the "Average Closing Price" (as defined
below) equals or exceeds $3.50 (subject to adjustment for stock splits and the
like), (x) the shares of the Corporation's Common Stock are re-listed on the
Nasdaq National Market following a de-listing, (y) a Corporate Transaction
occurs or (z) upon an Involuntary Termination (as defined in the Option
Agreement) of Optionee's Service. "Average Closing Price," for purposes of this
Option, shall mean (i) the average closing price reported by the National
Association of Securities Dealers on the Nasdaq National Market (or, if not
listed on such market, any other national market) for shares of the
Corporation's Common Stock for any thirty (30) consecutive trading days during
the first three years measured from the Vesting Commencement Date or (ii), if
the Corporation is acquired by another entity, the consideration per share of
Common Stock received by the Corporation's stockholders in such acquisition.
Optionee hereby agrees to be bound by all the terms and
conditions of the Option as set forth in the Stock Option Agreement attached
hereto as Exhibit A.
All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement.
46
DATED: MAY 31, 2001
ARTISTDIRECT, INC.
By: /s/ XXXX XXXXXX
-------------------------------------
Title: Chief Executive Officer
----------------------------------
By: /s/ XXXXXXXXX X. FIELD
-------------------------------------
OPTIONEE: XXXXXXXXX X. FIELD
Address: c/o Radar Pictures, Inc.
00000 Xxxxxxxx Xxxx.,
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PROSPECTUS FOR STOCK OPTION GRANT
47
EXHIBIT A
STOCK OPTION AGREEMENT
48
ARTISTDIRECT, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
RECITALS
A. The Board and the shareholders have approved a stock
option grant to Optionee in order to attract and retain Optionee to
serve the Corporation in the capacity of Chairman and Chief Executive
Officer.
B. The option evidenced by this Agreement is granted to
Optionee in consideration of the services Optionee is to render the
Corporation and not for any capital-raising purposes or in connection
with any capital-raising activities.
C. The granted option is intended to be a Non-Qualified
Option which does NOT satisfy the requirements of Section 422 of the
Code.
D. All capitalized terms in this Agreement shall have the
meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an option to purchase up to the number of Option
Shares specified in the Grant Notice attached hereto. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.
2. OPTION TERM. This Option shall have a term of seven (7)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This Option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee or as otherwise set forth herein. However,
this Option may, in connection with the Optionee's estate plan, be assigned in
whole or in part during Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established for the exclusive benefit
of one or more such family members. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the Option
pursuant to such assignment or as set forth herein. The terms applicable to the
assigned portion shall be the same as those in effect for this Option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. The Option shall not be exercisable for
any Option Shares unless a Triggering Event has occurred by the third
anniversary of the Vesting
49
Commencement Date. If a Triggering Event has occurred by the third anniversary
of the Vesting Commencement Date, the Option shall become exercisable for all of
the Option Shares.
5. CESSATION OF SERVICE. The Option term specified in
Paragraph 2 shall terminate (and this Option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:
(i) Notwithstanding anything herein to the contrary, if
a Triggering Event has not occurred by the third
anniversary of the Vesting Commencement Date, the
option shall immediately terminate and cease to be
outstanding.
(ii) Should Optionee cease Service by reason of an
Involuntary Termination, then Optionee's right to
exercise this Option shall lapse, and this Option
shall cease to be outstanding, upon the later of
(a) the expiration of the twelve (12) month period
measured from the date of Optionee's cessation of
Service or (b) the expiration of Optionee's initial
five-year employment term as set forth in the
Employment Agreement. In no event shall this Option
be exercisable at any time after the Expiration
Date.
(iii) Should Optionee cease Service by reason of
Justification, then to the extent this Option is
otherwise exercisable at the time of such cessation
of Service, Optionee's right to exercise this
Option shall lapse, and this Option shall cease to
be outstanding, upon the earlier of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's cessation of Service or
(b) the expiration of Optionee's initial five-year
employment term as set forth in the Employment
Agreement. In no event shall this Option be
exercisable at any time after the Expiration Date.
(iv) Should Optionee cease Service for any reason other
than (a) an Involuntary Termination, (b) a
termination for Cause, (c) Optionee's death or
Permanent Disability, or (d) Justification, then to
the extent this Option is otherwise exercisable at
the time of such cessation of Service, Optionee's
right
2
50
to exercise this Option shall lapse and this Option
cease to be outstanding, upon the earlier of (x)
the expiration of the ninety (90) day period
measured from the date of Optionee's cessation of
Service or (y) the Expiration Date.
(v) Should Optionee's Service be terminated for Cause,
then this Option shall immediately terminate and
cease to be outstanding.
(vi) Should Optionee cease Service by reason of his
death, then the personal representative of
Optionee's estate or the person or persons to whom
the Option is transferred pursuant to Optionee's
will or in accordance with the laws of descent and
distribution or, if the Option has been transferred
to a trust in accordance with the terms herein, the
trustee of such trust, shall have the right to
exercise this Option to the extent this Option is
otherwise exercisable at the time of such death.
Such right shall lapse, and this Option shall cease
to be outstanding, upon the earlier of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's death or (b) the
Expiration Date.
(vii) Should Optionee cease Service by reason of
Permanent Disability while this Option is
outstanding, then to the extent this Option is
otherwise exercisable at the time of such cessation
of Service, Optionee's right to exercise this
Option shall lapse, and this Option shall cease to
be outstanding, upon the later of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's cessation of Service or
(b) the expiration of Optionee's initial five-year
employment term as set forth in the Employment
Agreement. In no event shall this Option be
exercisable at any time after the Expiration Date.
In the event that such Permanent Disability
prevents Optionee from personally exercising this
Option, this Option may be exercised by Optionee's
personal authorized representative to the same
extent that Optionee could otherwise exercise this
Option.
3
51
(viii) Upon the expiration of the applicable exercise
period or (if earlier) upon the Expiration Date,
this Option shall terminate and cease to be
outstanding for any exercisable Option Shares for
which the Option has not otherwise been exercised.
6. CORPORATE TRANSACTION
(a) Immediately following a Corporate Transaction, this
Option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or Parent thereof) in connection with the
Corporate Transaction. The Corporation shall provide Optionee with a minimum of
ten days prior written notice of any Corporate Transaction.
(b) If this Option is assumed in connection with a
Corporate Transaction, then this Option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the Option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(c) This Agreement shall not in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the number and/or
class of securities subject to this Option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this Option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the Option, paid the Exercise Price and become a holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this Option with respect to
all or any part of the Option Shares for which this Option is at the time
exercisable, Optionee (or any other person or persons exercising the Option)
must take the following actions:
(i) Execute and deliver to the Corporation a
Notice of Exercise for the number of Option Shares for which the Option
is exercised.
4
52
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) shares of Common Stock held by
Optionee (or any other person or persons exercising the Option)
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(C) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the Option) shall concurrently provide
irrevocable instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the Option exercise, payment of the
Exercise Price must accompany the Notice of Exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the Option (if other
than Optionee) have the right to exercise this Option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of federal and state
securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all federal, state and local income and
employment tax withholding requirements applicable to the Option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares.
(c) In no event may this option be exercised for any
fractional shares.
5
53
10. LOCK-UP. Optionee agrees that prior to the one-year
anniversary of the commencement of his employment with the Corporation, he will
not sell, make any short sale of, hedge, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
the Option Shares without the written consent of the Corporation's Board of
Directors.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
Option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq National Market or other national market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
14. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
6
54
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify ARTISTdirect, Inc. (the "Corporation") that I
elect to purchase ______________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me on _______,
_______.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________________, _______
Date
___________________________________
Optionee
Address: __________________________
___________________________________
Print name in exact manner it is to
appear on the stock certificate: ___________________________________
Address to which certificate is to
be sent, if different from address
above: ___________________________________
___________________________________
Social Security Number: ___________________________________
55
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean any of the following
transactions effecting a change in control or ownership of the Corporation:
(i) a stockholder-approved merger or consolidation in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's assets, or
(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 Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
F. CORPORATION shall mean ARTISTdirect, Inc., a Delaware
corporation.
G. EMPLOYEE shall mean the Optionee in his capacity as an
employee of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work to be performed
and the manner and method of performance.
H. EMPLOYMENT AGREEMENT shall mean that certain Employment
Agreement dated as of May 31, 2001, between Optionee and the Corporation.
I. EXERCISE DATE shall mean the date on which the Option
shall have been exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as
specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the Option
expires as specified in the Grant Notice.
56
L. FAIR MARKET VALUE per share of Common Stock on any
relevant date, for purposes of Section 9 only, shall be determined in accordance
with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the average
of the high and low selling prices per share of Common Stock on the date
in question, as such prices are reported by the National Association of
Securities Dealers on the Nasdaq National Market (or, if not listed on
such market, any other national market) and published in The Wall Street
Journal. If there are no selling prices quoted for the Common Stock on
the date in question, then the Fair Market Value shall be the average of
the high and low selling prices on the last preceding date for which
such quotations exist.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the average high and
low selling prices per share of Common Stock on the date in question on
the Stock Exchange determined by the Compensation Committee to be the
primary market for the Common Stock, as such prices are officially
quoted in the composite tape of transactions on such exchange and
published in The Wall Street Journal. If there are no selling prices
quoted for the Common Stock on the date in question, then the Fair
Market Value shall be the average of the high and low selling prices on
the last preceding date for which such quotations exist.
X. XXXXX DATE shall mean the date of grant of the Option as
specified in the Grant Notice.
X. XXXXX NOTICE shall mean the Notice of Grant of Stock
Option accompanying the Agreement, pursuant to which Optionee has been informed
of the basic terms of the Option evidenced hereby.
P. INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than (X) for Cause, as defined in the
Employment Agreement, or (Y) by reason of death or Permanent Disability,
or
(ii) Optionee's resignation for Good Reason, as defined
in the Employment Agreement.
Q. JUSTIFICATION shall have the meaning given such term in
the Employment Agreement.
R. NON-QUALIFIED OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. NOTICE OF EXERCISE shall mean the written notice of
exercise in the form attached hereto as Exhibit I.
57
T. OPTION SHARES shall mean the number of shares of Common
Stock subject to the option as specified in the Grant Notice.
U. OPTIONEE shall mean the person to whom the Option is
granted as specified in the Grant Notice.
V. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
W. PERMANENT DISABILITY shall mean the inability of Optionee
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
X. SERVICE shall mean the Optionee's performance of services
for the Corporation (or any Parent or Subsidiary) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or
the New York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AA. TRIGGERING EVENT shall have the meaning given such term in
the Grant Notice.
58
EXHIBIT B
PROSPECTUS FOR STOCK OPTION GRANT
59
EXHIBIT 3
Option to Acquire 665,220 Shares of Common Stock
60
ARTISTDIRECT, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of ARTISTdirect, Inc. (the
"Corporation"):
Optionee: Xxxxxxxxx X. Field
Grant Date: May 31, 2001
Vesting Commencement Date: The date Optionee commence Service as
CEO of the Corporation
Exercise Price: $0.75 per share
Number of Option Shares: 665,220 shares
Expiration Date: May 30, 2008
Type of Option: Non-Statutory Stock Option
Exercise Schedule: The Option shall not be exercisable and the
Option Shares shall not be vested until a Triggering Event (as defined below)
has occurred. If no Triggering Event has occurred by the third anniversary of
the Vesting Commencement Date, then the Option Shares shall remain unvested and
unexercisable and the Option shall terminate. If a Triggering Event occurs by
the third anniversary of the Vesting Commencement Date, however, Optionee shall
acquire a vested interest in, and the Option shall become exercisable with
respect to, all of the Option Shares.
For purposes of this Option, "Triggering Event" shall be deemed
to occur upon the first to occur of (w) the "Average Closing Price" (as defined
below) equals or exceeds $7.00 (subject to adjustment for stock splits and the
like), (x) the shares of the Corporation's Common Stock are re-listed on the
Nasdaq National Market following a de-listing, (y) a Corporate Transaction
occurs, or (z) upon an Involuntary Termination (as defined in the Option
Agreement) of Optionee's Service. "Average Closing Price," for purposes of this
Option, shall mean (i) the average closing price reported by the National
Association of Securities Dealers on the Nasdaq National Market (or, if not
listed on such market, any other national market) for shares of the
Corporation's Common Stock for any thirty (30) consecutive trading days during
the first three years measured from the Vesting Commencement Date or (ii), if
the Corporation is acquired by another entity, the consideration per share of
Common Stock received by the Corporation's stockholders in such acquisition.
Optionee hereby agrees to be bound by all the terms and
conditions of the Option as set forth in the Stock Option Agreement attached
hereto as Exhibit A.
All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement.
61
DATED: MAY 31, 2001
ARTISTDIRECT, INC.
By: /s/ XXXX XXXXXX
-------------------------------------
Title: Chief Executive Officer
----------------------------------
By: /s/ XXXXXXXXX X. FIELD
-------------------------------------
OPTIONEE: XXXXXXXXX X. FIELD
Address: c/o Radar Pictures, Inc.
00000 Xxxxxxxx Xxxx.,
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PROSPECTUS FOR STOCK OPTION GRANT
62
EXHIBIT A
STOCK OPTION AGREEMENT
63
ARTISTDIRECT, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
RECITALS
A. The Board and the shareholders have approved a stock
option grant to Optionee in order to attract and retain Optionee to
serve the Corporation in the capacity of Chairman and Chief Executive
Officer.
B. The option evidenced by this Agreement is granted to
Optionee in consideration of the services Optionee is to render the
Corporation and not for any capital-raising purposes or in connection
with any capital-raising activities.
C. The granted option is intended to be a Non-Qualified
Option which does NOT satisfy the requirements of Section 422 of the
Code.
D. All capitalized terms in this Agreement shall have the
meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an option to purchase up to the number of Option
Shares specified in the Grant Notice attached hereto. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.
2. OPTION TERM. This Option shall have a term of seven (7)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This Option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee or as otherwise set forth herein. However,
this Option may, in connection with the Optionee's estate plan, be assigned in
whole or in part during Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established for the exclusive benefit
of one or more such family members. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the Option
pursuant to such assignment or as set forth herein. The terms applicable to the
assigned portion shall be the same as those in effect for this Option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. The Option shall not be exercisable for
any Option Shares unless a Triggering Event has occurred by the third
anniversary of the Vesting
64
Commencement Date. If a Triggering Event has occurred by the third anniversary
of the Vesting Commencement Date, the Option shall become exercisable for all of
the Option Shares.
5. CESSATION OF SERVICE. The Option term specified in
Paragraph 2 shall terminate (and this Option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:
(i) Notwithstanding anything herein to the contrary, if
a Triggering Event has not occurred by the third
anniversary of the Vesting Commencement Date, the
option shall immediately terminate and cease to be
outstanding.
(ii) Should Optionee cease Service by reason of an
Involuntary Termination, then Optionee's right to
exercise this Option shall lapse, and this Option
shall cease to be outstanding, upon the later of
(a) the expiration of the twelve (12) month period
measured from the date of Optionee's cessation of
Service or (b) the expiration of Optionee's initial
five-year employment term as set forth in the
Employment Agreement. In no event shall this Option
be exercisable at any time after the Expiration
Date.
(iii) Should Optionee cease Service by reason of
Justification, then to the extent this Option is
otherwise exercisable at the time of such cessation
of Service, Optionee's right to exercise this
Option shall lapse, and this Option shall cease to
be outstanding, upon the earlier of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's cessation of Service or
(b) the expiration of Optionee's initial five-year
employment term as set forth in the Employment
Agreement. In no event shall this Option be
exercisable at any time after the Expiration Date.
(iv) Should Optionee cease Service for any reason other
than (a) an Involuntary Termination, (b) a
termination for Cause, (c) Optionee's death or
Permanent Disability, or (d) Justification, then to
the extent this Option is otherwise exercisable at
the time of such cessation of Service, Optionee's
right
2
65
to exercise this Option shall lapse and this Option
cease to be outstanding, upon the earlier of (x)
the expiration of the ninety (90) day period
measured from the date of Optionee's cessation of
Service or (y) the Expiration Date.
(v) Should Optionee's Service be terminated for Cause,
then this Option shall immediately terminate and
cease to be outstanding.
(vi) Should Optionee cease Service by reason of his
death, then the personal representative of
Optionee's estate or the person or persons to whom
the Option is transferred pursuant to Optionee's
will or in accordance with the laws of descent and
distribution or, if the Option has been transferred
to a trust in accordance with the terms herein, the
trustee of such trust, shall have the right to
exercise this Option to the extent this Option is
otherwise exercisable at the time of such death.
Such right shall lapse, and this Option shall cease
to be outstanding, upon the earlier of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's death or (b) the
Expiration Date.
(vii) Should Optionee cease Service by reason of
Permanent Disability while this Option is
outstanding, then to the extent this Option is
otherwise exercisable at the time of such cessation
of Service, Optionee's right to exercise this
Option shall lapse, and this Option shall cease to
be outstanding, upon the later of (a) the
expiration of the twelve (12) month period measured
from the date of Optionee's cessation of Service or
(b) the expiration of Optionee's initial five-year
employment term as set forth in the Employment
Agreement. In no event shall this Option be
exercisable at any time after the Expiration Date.
In the event that such Permanent Disability
prevents Optionee from personally exercising this
Option, this Option may be exercised by Optionee's
personal authorized representative to the same
extent that Optionee could otherwise exercise this
Option.
3
66
(viii) Upon the expiration of the applicable exercise
period or (if earlier) upon the Expiration Date,
this Option shall terminate and cease to be
outstanding for any exercisable Option Shares for
which the Option has not otherwise been exercised.
6. CORPORATE TRANSACTION
(a) Immediately following a Corporate Transaction, this
Option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or Parent thereof) in connection with the
Corporate Transaction. The Corporation shall provide Optionee with a minimum of
ten days prior written notice of any Corporate Transaction.
(b) If this Option is assumed in connection with a
Corporate Transaction, then this Option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the Option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(c) This Agreement shall not in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the number and/or
class of securities subject to this Option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this Option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the Option, paid the Exercise Price and become a holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this Option with respect to
all or any part of the Option Shares for which this Option is at the time
exercisable, Optionee (or any other person or persons exercising the Option)
must take the following actions:
(i) Execute and deliver to the Corporation a
Notice of Exercise for the number of Option Shares for which the Option
is exercised.
4
67
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) shares of Common Stock held by
Optionee (or any other person or persons exercising the Option)
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(C) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the Option) shall concurrently provide
irrevocable instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the Option exercise, payment of the
Exercise Price must accompany the Notice of Exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the Option (if other
than Optionee) have the right to exercise this Option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of federal and state
securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all federal, state and local income and
employment tax withholding requirements applicable to the Option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares.
(c) In no event may this option be exercised for any
fractional shares.
5
68
10. LOCK-UP. Optionee agrees that prior to the one-year
anniversary of the commencement of his employment with the Corporation, he will
not sell, make any short sale of, hedge, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
the Option Shares without the written consent of the Corporation's Board of
Directors.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
Option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq National Market or other national market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
14. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
6
69
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify ARTISTdirect, Inc. (the "Corporation") that I
elect to purchase ______________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me on _______,
_______.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________________, _______
Date
___________________________________
Optionee
Address: __________________________
___________________________________
Print name in exact manner it is to
appear on the stock certificate: ___________________________________
Address to which certificate is to
be sent, if different from address
above: ___________________________________
___________________________________
Social Security Number: ___________________________________
70
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean any of the following
transactions effecting a change in control or ownership of the Corporation:
(i) a stockholder-approved merger or consolidation in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) a stockholder-approved sale, transfer or other
disposition of all or substantially all of the Corporation's assets, or
(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 Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
F. CORPORATION shall mean ARTISTdirect, Inc., a Delaware
corporation.
G. EMPLOYEE shall mean the Optionee in his capacity as an
employee of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work to be performed
and the manner and method of performance.
H. EMPLOYMENT AGREEMENT shall mean that certain Employment
Agreement dated as of May 31, 2001, between Optionee and the Corporation.
I. EXERCISE DATE shall mean the date on which the Option
shall have been exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as
specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the Option
expires as specified in the Grant Notice.
71
L. FAIR MARKET VALUE per share of Common Stock on any
relevant date, for purposes of Section 9 only, shall be determined in accordance
with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the average
of the high and low selling prices per share of Common Stock on the date
in question, as such prices are reported by the National Association of
Securities Dealers on the Nasdaq National Market (or, if not listed on
such market, any other national market) and published in The Wall Street
Journal. If there are no selling prices quoted for the Common Stock on
the date in question, then the Fair Market Value shall be the average of
the high and low selling prices on the last preceding date for which
such quotations exist.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the average high and
low selling prices per share of Common Stock on the date in question on
the Stock Exchange determined by the Compensation Committee to be the
primary market for the Common Stock, as such prices are officially
quoted in the composite tape of transactions on such exchange and
published in The Wall Street Journal. If there are no selling prices
quoted for the Common Stock on the date in question, then the Fair
Market Value shall be the average of the high and low selling prices on
the last preceding date for which such quotations exist.
X. XXXXX DATE shall mean the date of grant of the Option as
specified in the Grant Notice.
X. XXXXX NOTICE shall mean the Notice of Grant of Stock
Option accompanying the Agreement, pursuant to which Optionee has been informed
of the basic terms of the Option evidenced hereby.
P. INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than (X) for Cause, as defined in the
Employment Agreement, or (Y) by reason of death or Permanent Disability,
or
(ii) Optionee's resignation for Good Reason, as defined
in the Employment Agreement.
Q. JUSTIFICATION shall have the meaning given such term in
the Employment Agreement.
R. NON-QUALIFIED OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. NOTICE OF EXERCISE shall mean the written notice of
exercise in the form attached hereto as Exhibit I.
72
T. OPTION SHARES shall mean the number of shares of Common
Stock subject to the option as specified in the Grant Notice.
U. OPTIONEE shall mean the person to whom the Option is
granted as specified in the Grant Notice.
V. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
W. PERMANENT DISABILITY shall mean the inability of Optionee
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
X. SERVICE shall mean the Optionee's performance of services
for the Corporation (or any Parent or Subsidiary) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or
the New York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AA. TRIGGERING EVENT shall have the meaning given such term in
the Grant Notice.
73
EXHIBIT B
PROSPECTUS FOR STOCK OPTION GRANT
74
EXHIBIT 4
California Labor Code Sections 2870, 2871 and 2872
SECTION 2870
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee developed
entirely on his or her own time without using the employer's equipment,
supplies, facilities, or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
SECTION 2871
No employer shall require a provision made void and unenforceable by Section
2870 as a condition of employment or continued employment. Nothing in this
article shall be construed to forbid or restrict the right of an employer to
provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.
SECTION 2872
If an employment agreement entered into after January 1, 1980, contains a
provision requiring the employee to assign or offer to assign any of his or her
rights in any invention to his or her employer, the employer must also, at the
time the agreement is made, provide a written notification to the employee that
the agreement does not apply to an invention which qualifies fully under the
provisions of Section 2870. In any suit or action arising thereunder, the burden
of proof shall be on the employee claiming the benefits of its provisions.
