Exhibit 10.5
RESTRICTED STOCK UNIT AGREEMENT
MAKEMUSIC, INC.
2003 EQUITY INCENTIVE PLAN
     THIS AGREEMENT is made effective as of this                      day of
                    ,                      , by and between MakeMusic, Inc., a
Minnesota corporation (the “Company”), and                      (the
“Participant”).
WITNESSETH:
     WHEREAS, the Participant on the date hereof is a key employee, officer,
director of or consultant or advisor to, the Company or one of its Subsidiaries;
     WHEREAS, the Company wishes to grant a restricted stock unit award to the
Participant for shares of the Company’s Common Stock pursuant to the Company’s
2003 Equity Incentive Plan (the “Plan”); and
     WHEREAS, the Administrator of the Plan has authorized the grant of a
restricted stock unit award to the Participant.
     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
     1. Grant of Restricted Stock Unit Award. The Company hereby grants to the
Participant a restricted stock unit award (the “Award”) for                     
(                    ) restricted stock units on the terms and conditions set
forth herein. Each restricted stock unit shall entitle the Participant to
receive one share of the Company’s Common Stock. This Award shall expire
________, unless terminated earlier under the provisions of Paragraph 2 below.
     2. Vesting of Restricted Stock Units.
          a. General. Except as provided in Paragraph 3 below, the restricted
stock units subject to this Award shall vest according to the following
schedule:

          Number of Restricted Stock Units Vesting Date   Available for Exercise
                    , 20     
                      
                    , 20     
                      
                    , 20     
                      
                    , 20     
                      

          b. Termination of Relationship. Except as provided in Paragraph 3
below, if, prior to the vesting of all or any portion of the Award, the
Participant ceases to be [a key employee or officer] [a consultant or advisor]
[a director] of the Company or any Affiliate for any reason, the Participant may
be required to forfeit all restricted stock units subject to this Award which
have not vested and this Award may, in the Administrator’s discretion, terminate
as of the date of the act giving rise to such termination. Notwithstanding
anything herein to the contrary, if any payments to be made to the Participant
hereunder are subject to the requirements of Code Section 409A and the Company
determines that the Participant is a “specified employee” as defined in Code
Section 409A as of the date of the termination, such payments shall not be paid
or commence earlier than the date that is six months after the termination. Any
payment not made during the six month period shall be paid on the first day of
the seventh month following termination.

 

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          c. Issuance of Shares; Rights as a Shareholder. On each Vesting Date
or in the event of a termination in connection with a Change of Control (as
defined below), the Company shall cause to be issued a stock certificate
representing that number of shares of Common Stock that have vested as of such
Vesting Date, less any shares withheld for payment of taxes as provided in
Paragraph 4(e) below, and shall deliver such certificate to the Participant.
Until the issuance of such shares, the Participant shall not be entitled to
receive dividends attributable to such shares of Common Stock, and shall not
have any other rights as a shareholder with respect to such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such shares are issued, except as provided in
Section 14 of the Plan and Paragraph 4(c) of this Agreement.
     3. Change of Control.
          a. Acceleration. Notwithstanding anything in the Plan or this
Agreement to the contrary, in the event of the termination of the Participant’s
relationship with the Company in connection with a Change of Control (as defined
below), this Award shall immediately and fully vest.
          b. Change of Control Defined. For purposes of this Paragraph 3, a
“Change of Control” means:
          i. The consummation of any merger, consolidation, exchange, or
reorganization to which the Company is a party if the individuals and entities
who were shareholders of the Company immediately prior to the effective date of
such transaction have, immediately following the effective date of such
transaction, beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of less than fifty percent (50%) of the total combined
voting power of all classes of securities issued by the surviving corporation
for the election of directors of the surviving corporation;
          ii. The shareholders of the Company approve any plan or proposal for
the liquidation of the Company;
          iii. A sale, lease or other transfer of all or substantially all of
the assets of the Company to any person or entity which is not an Affiliate of
the Company; or
          iv. The acquisition, without prior approval by resolution adopted by
the Board, of direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the Company
representing, in the aggregate, fifty percent (50%) or more of the total
combined voting power of all classes of the Company’s then-issued and
outstanding securities by any person or entity or by a group of associated
persons or entities acting in concert; provided, however, that a Change of
Control will not be deemed to occur if such acquisition is initiated by the
Participant or an entity in which the Participant owns fifty percent (50%) or
more of the total combined voting power of all classes of such entity’s
securities, or if the Participant or such entity is a member of the group of
associated persons or entities acting in concert.
In all cases, the determination of whether a Change of Control has occurred
shall be made in accordance with Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), and the regulations, notices and other guidance
of general applicability issued thereunder.
          c. Limitation on Change of Control Payments. The Participant shall not
be entitled to receive any Change of Control Payment, as defined below, which
would constitute a “parachute payment” for purposes of Code Section 280G, or any
successor provision, and the regulations

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thereunder. In the event any Change of Control Payment payable to the
Participant would constitute a “parachute payment,” the Participant shall have
the right to designate those Change of Control Payments which would be reduced
or eliminated so that the Participant will not receive a “parachute payment.”
For purposes of this Paragraph 3(c), a “Change of Control Payment” shall mean
any payment, benefit or transfer of property in the nature of compensation paid
to or for the benefit of the Participant under any arrangement which is
considered contingent on a Change of Control for purposes of Code Section 280G,
including, without limitation, any and all of the Company’s salary, bonus,
incentive, restricted stock, stock option, equity-based compensation or benefit
plans, programs or other arrangements, and shall include the acceleration of
this Award.
     4. Miscellaneous.
          a. Employment; Rights as Shareholder. This Agreement shall not confer
on the Participant any right with respect to continuance of employment by the
Company or any of its subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment. The Participant shall have no
rights as a shareholder with respect to shares subject to this Award until such
shares have been issued to the Participant. No adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such shares are issued, except as provided in Section 14 of the Plan.
          b. Securities Law Compliance. The Participant may be required by the
Company, as a condition of the effectiveness of this Award, to agree in writing
that all Common Stock subject to this Agreement shall be held, until such time
that such Common Stock is registered or otherwise freely tradable under
applicable state and federal securities laws, for the Participant’s own account
without a view to any further distribution thereof, that the certificates for
such shares shall bear an appropriate legend to that effect and that such shares
will be not transferred or disposed of except in compliance with applicable
state and federal securities laws.
          c. Mergers, Recapitalizations, Stock Splits, Etc. Except as otherwise
specifically provided in any employment, change of control, severance or similar
agreement executed by the Participant and the Company, pursuant and subject to
Section 14 of the Plan and Paragraph 3 hereof, certain changes in the number or
character of the Common Stock of the Company (through sale, merger,
consolidation, exchange, reorganization, divestiture (including a spin-off),
liquidation, recapitalization, stock split, stock dividend or otherwise) shall
result in an adjustment, reduction or enlargement, as appropriate, in the
Participant’s rights with respect to any restricted stock units subject to this
Award which continue to be subject to vesting (i.e., the Participant shall have
such “anti-dilution” rights under the Award with respect to such events, but
shall not have “preemptive” rights).
          d. Shares Reserved. The Company shall at all times during the term of
this Award reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
          e. Withholding Taxes. To permit the Company to comply with all
applicable federal and state income tax laws or regulations, the Company may
take such action as it deems appropriate to ensure that, if necessary, all
applicable federal and state payroll, income or other taxes attributable to this
Award are withheld from any amounts payable by the Company to the Participant.
If the Company is unable to withhold such federal and state taxes, for whatever
reason, the Participant hereby agrees to pay to the Company an amount equal to
the amount the Company would otherwise be required to withhold under federal or
state law prior to the issuance of any certificates for the shares of Common
Stock subject to this Award. Subject to such rules as the Administrator may
adopt, the Administrator may, in its sole discretion, permit the Participant to
satisfy such withholding tax obligations, in whole or in part, by delivering
shares of Common Stock, including shares of Common Stock received pursuant to
this Award upon vesting. Such

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shares shall have a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to the
supplemental income attributable to this Award. In no event may the Participant
deliver shares having a Fair Market Value in excess of such statutory minimum
required tax withholding. The Participant’s election to deliver shares or to
have shares withheld for this purpose shall be made on or before the date that
the amount of tax to be withheld is determined under applicable tax law. Such
election shall be approved by the Administrator and otherwise comply with such
rules as the Administrator may adopt to assure compliance with Rule 16b-3, or
any successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, if applicable.
          f. Nontransferability. During the lifetime of the Participant, this
Award shall not be transferable, in whole or in part, by the Participant, other
than by will or by the laws of descent and distribution. If the Participant
shall attempt any transfer of this Award prior to such date, such transfer shall
be void and this Award shall terminate.
          g. 2003 Equity Incentive Plan. The Award evidenced by this Agreement
is granted pursuant to the Plan, a copy of which Plan has been made available to
the Participant and is hereby incorporated into this Agreement. This Agreement
is subject to and in all respects limited and conditioned as provided in the
Plan. All defined terms of the Plan shall have the same meaning when used in
this Agreement. The Plan governs this Award and, in the event of any questions
as to the construction of this Agreement or in the event of a conflict between
the Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
          h. Lockup Period Limitation. The Participant agrees that in the event
the Company advises the Participant that it plans an underwritten public
offering of its Common Stock in compliance with the Securities Act of 1933, as
amended, and that the underwriter(s) seek(s) to impose restrictions under which
certain shareholders may not sell or contract to sell or grant any option to buy
or otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, the Participant hereby agrees that for a period not to
exceed 180 days from the prospectus, the Participant will not sell or contract
to sell or grant an option to buy or otherwise dispose of this Award or any of
the underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
          i. Blue Sky Limitation. Notwithstanding anything in this Agreement to
the contrary, in the event the Company makes any public offering of its
securities and determines, in its sole discretion, that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right to
(i) accelerate the vesting of this restricted stock unit award, provided that
the Company gives the Participant 15 days’ prior written notice of such
acceleration, or (ii) cancel any portion of this Award or any other award
granted to the Participant pursuant to the Plan which has not vested prior to or
contemporaneously with such public offering. Notice shall be deemed given when
delivered personally or when deposited in the United States mail, first class
postage prepaid and addressed to the Participant at the address of the
Participant on file with the Company.
          j. Stock Legend. The Administrator may require that the certificates
for any shares of Common Stock issued to the Participant (or, in the case of
death, the Participant’s successors) under this Agreement shall bear an
appropriate legend to reflect the restrictions of this Agreement; provided,
however, that failure to so endorse any of such certificates shall not render
invalid or inapplicable any such restrictions.

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          k. Scope of Agreement. This Agreement shall be and inure to the
benefit of the Company and its successors and assigns and the Participant and
any successor or successors of the Participant permitted by Paragraph 4(f)
above.
          l. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least ten (10) years.
If the parties cannot agree on an arbitrator within twenty (20) days, any party
may request that the chief judge of the District Court for Hennepin County,
Minnesota select an arbitrator. Arbitration will be conducted pursuant to the
provisions of this Agreement and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement. Limited civil discovery shall be permitted for the
production of documents and taking of depositions. Unresolved discovery disputes
may be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or relief
that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded. The arbitrator may award to
the prevailing party, if any, as determined by the arbitrator, all of its costs
and fees, including the arbitrator’s fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys’ fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
          m. Accounting Compliance. The Participant agrees that, if a
“transaction” (as defined in Section 14 of the Plan) occurs, and the Participant
is an “affiliate” of the Company or any Affiliate (as defined in applicable
legal and accounting principles) at the time of such transaction, the
Participant will comply with all requirements of Rule 145 of the Securities Act
of 1933, as amended, and the requirements of such other legal or accounting
principles, and will execute any documents necessary to ensure such compliance.
          n. Right to Amend. The Company hereby reserves the right to amend this
Agreement without the Participant’s consent to the extent necessary or desirable
to comply with the requirements of Code Section 409A and the regulations,
notices and other guidance of general application issued thereunder.
          o. Governing Law. This Agreement and all rights and obligations
hereunder shall be construed in accordance with the Plan and governed by the
laws of the State of Minnesota.
[Signature page follows]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.

            MAKEMUSIC, INC.
            By:      Its:     

         

By execution hereof, the
Participant acknowledges having
received a copy of the Plan.
  PARTICIPANT
                     

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