AMENDED AND RESTATED EMPLOYMENT AGREEMENT
 
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and
entered into as of May 12, 2008 (the “Effective Date”), by and between NAPSTER,
INC., a Delaware corporation with its principal offices at 9044 Melrose Avenue,
Los Angeles, California 90069 (the “Company”), and WILLIAM CHRISTOPHER GOROG, an
individual residing at 11434 Bellagio Road, Los Angeles, California 90049 ( the
“Executive”), and amends and restates in its entirety that certain Employment
Agreement by and between the Company and the Executive dated as of August 15,
2003 (the “Prior Employment Agreement”).
 
1.    Employment. The Company agrees to employ Executive and Executive agrees to
be employed by the Company upon the terms and conditions set forth in this
Agreement.
 
2.    Duties. Executive is employed by the Company to render services to the
Company in the position of Chairman and CEO of the Company. Executive agrees to
perform such duties, and such other duties reasonable and consistent with such
office as may be assigned to Executive by the Company’s Board of Directors from
time to time. The principal places where Executive shall render his services
hereunder shall be at the Company’s offices in Santa Clara and Los Angeles,
California, and New York, New York, as well as in his home office, as he shall
reasonably determine from time to time is in the best interests of the Company.
In no case shall the Executive be required to relocate his residence from Los
Angeles, California, nor to relocate his offices outside any of the cities of
Santa Clara, New York or Los Angeles without his consent. Executive will devote
his full time and efforts to the performance of Executive’s duties and
responsibilities under this Agreement and to the business and affairs of
Company, its subsidiaries and affiliates, in general, and Executive shall use
his reasonable efforts to promote the interests thereof. Executive may engage in
personal, charitable, professional and investment activities to the extent such
activities do not materially conflict or interfere with Executive’s duties and
obligations under this Agreement or Executive’s ability to perform his duties
and responsibilities under this Agreement. During the Term, Executive shall not
serve on the Board of Directors of any other business entity without the prior
approval of the Board of Directors. The Board of Directors is aware of and
approves Executive’s service on the Board of Directors of the following
entities: House of Blues and Critical Path, Inc. provided that Executive’s
future activities on such Boards do not materially conflict or interfere with
the performance of his duties for the Company.
 
3.    Term of Employment. The initial term of Executive’s employment hereunder
shall commence on August 15, 2003 (the “Commencement Date”) and, unless
terminated sooner as provided in Paragraph 7 below, shall continue through
August 14, 2008 (“Initial Term”). Thereafter Executive’s employment hereunder
shall automatically continue year to year for successive terms of one year each
ending on the next August 14th (each such year being referred to herein as an
“Extended Year”), unless at least ninety (90) days prior to the end of the
Initial Term or the then current Extended Year, as the case may be, either
Executive or the Company delivers to the other written notice of non-renewal
(“Non-Renewal Notice”), in which event Executive’s employment hereunder shall
terminate as of the end of the Initial Term or the then current Extended Year,
as applicable. The date on which Executive’s employment hereunder is terminated
(either by reason of a Non-Renewal Notice or otherwise) pursuant to the
provisions of this Agreement shall be referred to herein as the “Termination
Date.” The capitalized word “Term” as used herein shall mean the period
beginning on the Commencement Date and ending on the Termination Date.
 
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4.    Compensation.
 
(a)    Salary. For all services rendered by Executive hereunder, the Company
agrees to pay Executive the sum of Six Hundred Twenty Five Thousand Dollars
($625,000) per annum (“Salary”), payable in accordance with the Company’s then
applicable payroll practices applicable to similarly-situated executives
generally. The amount of the annual Salary shall be subject to annual review and
upward adjustment at the first quarter board of directors meeting each fiscal
year of the Term; provided, however, that the amount of the annual Salary may
not be reduced during the Term. Any adjustment to the annual Salary shall be in
the sole discretion of the Company.
 
(b)    Bonus Compensation; Equity Award Grants. In addition to the Salary,
Executive will be eligible to participate in Company’s annual bonus program and
any other bonus plan adopted during the Term, and will be eligible for equity
award grants, in each case as determined by the Company’s compensation committee
(the “Compensation Committee”) and dependent on Executive’s performance and that
of the Company.
 
(c)    Change in Control Gross-Up. Executive shall be entitled to the excise tax
protections set forth in Exhibit A attached hereto.
 
5.    Benefits. Executive shall be entitled to four (4) weeks paid vacation per
each calendar year during the Term. Executive shall also be entitled to
participate in such life, disability, medical insurance and pension and
retirement plans (and any other plans and benefits not otherwise referred to in
this Agreement) as the Company may maintain or establish from time to time
applicable to other Company executives on terms no less favorable than the terms
applicable to such executives and in which Executive would be entitled to
participate pursuant to the terms thereof. In addition, the Company shall
directly pay for or reimburse Executive for up to a total aggregate amount of
$15,000 per year in order for Executive to purchase supplemental life and/or
disability insurance, any such reimbursement to be made not later than the end
of the calendar year following the year in which the related expense was
incurred. Executive and the Company acknowledge that, as of the Effective Date,
Executive has accrued and heretofore unpaid vacation of approximately 143.1
hours.
 
6.    Business Expenses; Etc. During the Term, all of Executive’s reasonable
travel and other expenses incurred in the performance of Executive’s duties for
the Company will be paid for or reimbursed by the Company. When traveling by
air, Executive will exercise his judgment regarding when economy, business class
or first class air travel is justified. The Company will pay or reimburse
Executive for reasonable expenses relating to airline clubs, and to his
participation in professional organizations (including, without limitation, the
Young Presidents Organization or any successor organizations), provided,
however, that Executive may not exceed $20,000 per year in such expenses without
prior approval of the Compensation Committee. Executive shall be entitled to a
car allowance of $1,500 per month plus car insurance, an annual Company-paid
physical examination, a health club subsidy and financial planning assistance
(the health club subsidy and financial planning assistance not to exceed $7,500
per year in the aggregate on a gross basis), and such other perquisites not
otherwise provided for in this Agreement (if any) as are accorded generally to
other Company executives. The Company shall reimburse Executive for or pay the
reasonable legal fees incurred by Executive relating to the negotiation and
preparation of this Agreement, provided that in no event shall the Company’s
obligation with respect to such reimbursement or payment of such legal fees
exceed Twenty Thousand Dollars ($20,000). Any reimbursement made to Executive
pursuant to this Paragraph 6 shall be subject to the Company’s expense
reimbursement policies in effect from time to time and in all events shall be
made not later than the end of the calendar year following the year in which the
related expense was incurred.
 
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7.    Termination of Employment. The employment of Executive under this
Agreement shall be terminated prior to the end of the Initial Term or prior to
the end of an Extended Year, as the case may be, under the following
circumstances:
 
(a)    Termination by Reason of Death of Executive. Upon the death of Executive,
the employment of Executive hereunder shall automatically terminate on the date
of Executive’s death.
 
(b)    Termination by Reason of Disability of Executive. In the event Executive
suffers a disability, due to illness or injury, such that Executive is unable to
perform the essential functions of his position, even with a reasonable
accommodation, for a period in excess of six (6) consecutive months
(“Disability”), the Company reserves the right to terminate Executive’s
employment by giving Executive written notice of termination (the “Disability
Notice”) if Executive remains Disabled at the time such Disability Notice is
given. If Executive disputes a Disability termination, the Company may require
that Executive be evaluated, at the Company’s expense, by an independent
physician to be selected by the Company. In the event that Executive’s physician
and the Company’s physician report contrary findings as to the nature and
duration of the Disability, the Company may require an additional evaluation, at
the Company’s expense, by a second independent physician of the Company’s
choice. At such time that the second independent physician’s evaluation of
Executive is completed, the Company will use the findings reported by two of the
three physicians to determine the nature and duration of the Disability and its
resulting effect on the continuation or termination of Executive’s employment.
 
(c)    Termination for Cause. The Company shall have the right to terminate
Executive’s employment hereunder for “Cause” if Cause as defined below exists
and at least 2/3 of the members of the Board of Directors of the Company make
the good faith determination that termination is appropriate. For purposes of
this Agreement, the term “Cause” shall be limited to (i) conviction of, or a
plea of nolo contendre to, a felony or crime involving moral turpitude;
(ii) gross negligence in the performance of Executive’s duties that has injured
the reputation or business of the Company; or (iii) willful misconduct by
Executive with respect to the Company’s business that has injured the reputation
or business of the Company.
 
(d)    Termination by Executive for Good Reason. Executive shall have the right
to terminate his employment under this Agreement for “Good Reason” upon thirty
(30) days’ written notice to the Company. For the purposes of this Agreement,
the term “Good Reason” means the good faith determination by the Executive that
any one or more of the following has occurred: (i)  without the express, written
consent of Executive, a material diminution of Executive’s duties, titles,
authority, or responsibilities; (ii) without the express, written consent of
Executive, the Company requiring Executive to report to anyone other than the
Board of Directors; (iii) any material breach by the Company of this Agreement,
including, but not limited to, failure by the Company to comply with any of the
provisions of Paragraphs 4 and/or 5, other than insubstantial and inadvertent
failures to comply, remedied promptly by the Company after receipt of notice
thereof from Executive; (iv) without Executive’s consent, any requirement by the
Company that Executive be based at any office or location other than an office
or location located in the greater Santa Clara, California, New York, New York,
or Los Angeles, California area (except for travel reasonably required for the
performance of Executive’s duties), or (v) any proposed termination by the
Company of Executive’s employment hereunder other than as permitted by this
Agreement. Executive agrees that nothing has occurred on or before the Effective
Date that would constitute Good Reason under this Agreement.
 
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(e)    Termination by the Company Other than For Death, Disability, or Cause.
The Company may terminate Executive’s employment at any time for any reason
other than the reasons specified in Paragraphs 7(a), 7(b) or 7(c) hereof or for
no reason whatsoever, effective thirty (30) days after written notice is given
to Executive of such termination.
 
(f)    Obligations of the Company upon Termination.
 
(i)    In General. Except as otherwise expressly provided in this Agreement, all
compensation otherwise payable to Executive under this Agreement shall cease to
accrue upon termination of Executive’s employment and Executive’s entitlements
under applicable plans and programs of the Company following termination of
Executive’s employment will be determined under the terms of those plans and
programs. Upon any termination of Executive’s employment, the Company shall pay
to Executive, within thirty (30) days after the Termination Date: (i) any
accrued Salary that had not been paid prior to the Termination Date, (ii) any
bonus payable with respect to the fiscal year preceding the fiscal year in which
the Termination Date occurs that had not previously been paid, (iii) a per diem
amount based upon Executive’s Salary for any accrued vacation days not
previously taken by Executive prior to the Termination Date, and (iv)
reimbursement for expenses incurred through the Termination Date in accordance
with the provisions of Paragraph 6 of this Agreement (the sum of the amounts
described in clauses (i), (ii), (iii) and (iv) shall be hereinafter referred to
as the “Accrued Obligations”).
 
(ii)    Death. If Executive’s employment is terminated by reason of Executive’s
death during the Term, Executive’s heirs shall be entitled to the following: (1)
payment to Executive’s estate of the Accrued Obligations set forth in 7(f)(i)
above; (2) payment to Executive’s estate or beneficiary, as applicable, any
amounts due pursuant to the terms of any applicable welfare benefit plans,
including but not limited to any life insurance proceeds; (3) reimbursement to
Executive’s dependents for a period of eighteen (18) months following
Executive’s death of any COBRA premiums paid by Executive’s dependents to
continue medical and dental insurance coverage under COBRA; and (4) any stock
options and restricted stock awards granted by the Company to Executive, to the
extent outstanding and unvested as of the Termination Date, shall become fully
vested as of such date, and such stock options, together with any previously
vested stock options granted by the Company to Executive that are then
outstanding, shall be exercisable by Executive’s heirs for one (1) year
thereafter (subject to earlier termination upon the expiration of the maximum
ten-year term of such options and further subject to earlier termination upon a
dissolution, liquidation, change of control or similar event in accordance with
Section 12 of the RSOP or similar provisions of the particular option plan under
which such options were granted).
 
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(iii)    Disability. If Executive’s employment is terminated by reason of
Executive’s Disability during the Term, Executive shall be entitled to receive,
after the date of receipt by Executive of the Disability Notice: (1) payment of
the Accrued Obligations pursuant to 7(f)(i) above, (2) the maximum disability
benefits then provided by Company to disabled executives and/or their families,
(3) to the extent Executive elects to continue medical and dental insurance
coverage under COBRA, reimbursement of the COBRA premium for such continuation
coverage for a period of eighteen (18) months following the Termination Date;
and (4) any stock options and restricted stock awards granted by the Company to
Executive, to the extent outstanding and unvested as of the Termination Date,
shall become fully vested as of such date, and such stock options, together with
any previously vested stock options granted by the Company to Executive that are
then outstanding, shall be exercisable by Executive or Executive’s heirs, as the
case may be, for one (1) year thereafter (subject to earlier termination upon
the expiration of the maximum ten-year term of such options and further subject
to earlier termination upon a dissolution, liquidation, change of control or
similar event in accordance with Section 12 of the RSOP or similar provisions of
the particular option plan under which such options were granted).
 
(iv)    Termination by the Company Other than For Death, Disability, or Cause;
Termination by Executive for Good Reason. Subject to Paragraphs 7(f)(v) and
7(f)(vi) below, if, during the Term, Executive’s employment with the Company is
terminated by the Company pursuant to Paragraph 7(e) or by Executive for Good
Reason, then Executive shall be entitled to the following: (1) payment to
Executive of the Accrued Obligations provided for in Paragraph 7(f)(i) above;
(2) subject to Paragraph 7(f)(ix) below, within thirty (30) days after
Executive’s Separation from Service (as defined below), payment to Executive of
an amount equal to Executive’s Salary which would otherwise be payable from the
Termination Date through the end of the Initial Term, or Extended Term as the
case may be, provided, however, that such payment may not be more than 300% of
Executive’s then-applicable Salary or less than 165% of Executive’s
then-applicable Salary; (3) to the extent Executive elects to continue medical
and dental insurance coverage under COBRA, reimbursement of the COBRA premium
for such continuation coverage for a period of eighteen (18) months following
the Termination Date; and (4) any stock options and restricted stock awards
granted by the Company to Executive, to the extent outstanding and unvested as
of the Termination Date, shall become fully vested as of such date, and such
stock options, together with any previously vested stock options granted by the
Company to Executive that are then outstanding, shall be exercisable by
Executive or Executive’s heirs, as the case may be, for the full term of such
options (subject to earlier termination upon a dissolution, liquidation, change
of control or similar event in accordance with Section 12 of the RSOP or similar
provisions of the particular option plan under which such options were granted).
As used herein, a “Separation from Service” occurs when the Executive dies,
retires, or otherwise has a termination of employment with the Company that
constitutes a “separation from service” within the meaning of Treasury
Regulation Section 1.409A-1(h)(1), without regard to the optional alternative
definitions available thereunder.
 
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(v)    Modified Severance Benefits on Certain Terminations. Notwithstanding
Paragraph 7(f)(iv) and subject to Paragraph 7(f)(vi), if, during the Term (x)
Executive’s employment with the Company is terminated by the Company pursuant to
Paragraph 7(e) or by Executive for Good Reason, and either (y) the Termination
Date occurs on or after August 15, 2008, or (z) the Termination Date occurs on
or before August 14, 2008 and the Company’s Board of Directors, by at least a
majority vote, makes a determination in its sole discretion that the Company is
not actively engaged in discussions with one or more third parties for a
transaction that, if consummated, would result in a Change of Control, then
Executive shall be entitled to the following (in lieu of, not in addition to,
the benefits provided under Paragraph 7(f)(iv)): (1) payment to Executive of the
Accrued Obligations provided for in Paragraph 7(f)(i) above; (2) if the
Termination Date occurs prior to the end of the Initial Term, then subject to
Paragraph 7(f)(ix), within thirty (30) days after Executive's Separation from
Service, payment to Executive of an amount equal to Executive's Salary which
would otherwise be payable from the Termination Date through the end of the
Initial Term; (3) subject to Paragraph 7(f)(ix), within thirty (30) days after
Executive’s Separation from Service, payment to Executive of an amount equal to
nine (9) months of Executive’s Salary at the rate in effect on the Termination
Date; (4) to the extent Executive elects to continue medical and dental
insurance coverage under COBRA, reimbursement of the COBRA premium for such
continuation coverage for a period of eighteen (18) months following the
Termination Date; and (5) on the Termination Date, any portion of Executive’s
stock options and restricted stock awards granted by the Company that are
outstanding and unvested immediately prior to the Termination Date and would
have otherwise become vested on or before the first anniversary of the
Termination Date based solely on Executive’s continued employment through that
anniversary date (had it continued through that date and assuming that no Change
of Control had occurred during such twelve-month period and, in the case of a
Termination Date that occurs on or after August 15, 2008, after giving effect to
the modified vesting schedule set forth in Paragraph 7(f)(x)) shall be vested as
of the Termination Date. Any portion of Executive’s stock options and restricted
stock awards that are outstanding and unvested as of the Termination Date after
giving effect to the preceding clause (5) shall terminate as of the Termination
Date.
 
(vi)    Certain Terminations Prior to Change of Control. Notwithstanding
Paragraphs 7(f)(iv) and 7(f)(v), in the event that Executive’s employment is
terminated during the Term by the Company without Cause and a Change of Control
occurs during the period of six (6) months following the Termination Date,
Executive shall be entitled to the benefits set forth in Paragraph 8 (in lieu
of, not in addition to, benefits under any other provision of this Paragraph
7(f)). In the event that any of Executive’s stock options or restricted stock
awards that had not vested as of the Termination Date were cancelled or
otherwise terminated prior to the date of the Change of Control solely as a
result of such termination of Executive’s employment, such awards shall be
reinstated and shall automatically become fully vested and, in the case of stock
options, Executive shall be given a reasonable opportunity to exercise such
accelerated portion of the option before it terminates.
 
(vii)    [Reserved.]
 
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(viii)    No Duplication of Benefits. For purposes of clarity, in no event will
the Executive be entitled to benefits under more than one of the foregoing
paragraphs of this Paragraph 7(f). In the event that Executive is entitled to
receive severance benefits under Paragraph 8 in connection with a termination of
his employment, Executive shall receive the severance benefits provided in
Paragraph 8 and not any severance benefits provided in this Paragraph 7(f).
 
(ix)    Section 409A. Notwithstanding any provision of this Agreement to the
contrary, if Executive is a “specified employee” within the meaning of Treasury
Regulation Section 1.409A-1(i) as of the date of Executive’s Separation from
Service, Executive shall not be entitled to any payment or benefit pursuant to
this Paragraph 7(f) or Paragraph 8 until the earlier of (i) the date which is
six (6) months after Executive’s Separation from Service for any reason other
than death, or (ii) the date of Executive’s death. Any amounts otherwise payable
to Executive upon or in the six (6) month period following Executive’s
Separation from Service that are not so paid by reason of this Paragraph
7(f)(ix) shall be paid (without interest) as soon as practicable (and in all
events within thirty (30) days) after the date that is six (6) months after
Executive’s Separation from Service (or, if earlier, as soon as practicable, and
in all events within thirty (30) days, after the date of Executive’s death). The
provisions of this Paragraph 7(f)(ix) shall only apply if, and to the extent,
required to avoid the imputation of any tax, penalty or interest pursuant to
Section 409A of the Internal Revenue Code of 1986, as amended. To the extent
that the payment of any COBRA premiums pursuant to this Paragraph 7(f) or
Paragraph 8 is taxable to Executive, any such payment shall be paid to Executive
on or before the last day of Executive’s taxable year following the taxable year
in which the related expense was incurred. Executive’s right to payment of such
premiums is not subject to liquidation or exchange for another benefit and the
amount of such benefits that Executive receives in one taxable year shall not
affect the amount of such benefits that Executive receives in any other taxable
year.
 
(x)    Vesting of Restricted Stock Awards. In the event that Executive continues
to be employed with the Company through August 15, 2008, the vesting schedule of
each of Executive’s then-outstanding and unvested restricted stock awards shall
be adjusted, effective as of August 15, 2008, as follows:
 

 
·
The next annual installment that is scheduled to vest under the original vesting
schedule after August 15, 2009 shall be divided into twelve (12) substantially
equal monthly installments, with the first such installment being scheduled to
vest on August 15, 2009 and an additional installment vesting on the 15th day of
each month thereafter through July 15, 2010.

 

 
·
Each subsequent annual installment under the original vesting schedule (if any)
shall be divided into twelve (12) substantially equal monthly installments, with
the first such monthly installment being scheduled to vest on the August 15 that
precedes the date such annual installment was originally scheduled to vest and
the last such monthly installment being scheduled to vest on the July 15 that
follows the date such annual installment was scheduled to vest under the
original schedule.

 
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Except as expressly set forth in this Paragraph 7(f) and Paragraph 8 below, this
Agreement does not modify any other terms of such restricted stock awards.
 
8.    Change of Control. If a Change of Control (as defined in the RSOP) occurs
during the Term (or in the event that Paragraph 7(f)(vi) applies), at
Executive’s option, all stock options and restricted stock awards that are
granted to Executive by the Company (including options and restricted stock
awards granted to Executive after the date of this Agreement) and that are
outstanding immediately before the Change of Control will thereupon become fully
vested and, in the case of options, may be exercised at any time thereafter
without restriction for a period of twenty-four (24) months (subject to earlier
termination upon the expiration of the maximum ten-year term of such options and
further subject to earlier termination upon a dissolution, liquidation, change
of control or similar event in accordance with Section 12 of the RSOP or similar
provisions of the particular option plan under which such options were granted).
In the event Executive resigns or is terminated (other than a termination by the
Company for Cause) within twelve (12) months following a Change of Control,
instead of and not in addition to the payments and benefits set forth in
Paragraph 7(f)(iv) above, Executive shall be entitled to receive the following:
(1) payment of the Accrued Obligations provided for in Paragraph 7(f)(i) above;
(2) subject to Paragraph 7(f)(ix), a lump sum severance payment, in cash, within
thirty (30) days after the date of Executive’s Separation from Service, in an
amount equal to two hundred ninety-nine percent (299%) of the Executive’s
then-applicable Salary, (3) a lump sum bonus for the year in which termination
or resignation occurs in an amount equal to the average of the three prior cash
bonuses received by Executive, such amount to be paid in cash within thirty (30)
days after the date of Executive’s Separation from Service; and (4) to the
extent Executive elects to continue medical and dental insurance coverage under
COBRA, reimbursement of the COBRA premium for such continuation coverage for a
period of eighteen (18) months following the Termination Date. The accelerated
vesting provided for in this Paragraph 8 will apply notwithstanding the fact
that accelerated vesting may not be required in the circumstances under the
applicable Company stock option plan.
 
9.    Exclusive Employment, Confidential Information, Etc.
 
(a)    Non-Competition. Executive agrees that Executive’s employment hereunder
is on an exclusive basis, and that during the Term, Executive will not engage in
any other business activity which is in conflict with Executive’s duties and
obligations hereunder, except for any such activities which have been previously
reported to Company’s Board of Directors prior to the date of this Agreement.
Subject to the foregoing, Executive agrees that for the Term Executive shall not
directly or indirectly engage in or participate as an officer, employee,
director, agent of or consultant for any business in the United States directly
competitive with that of Company, nor shall Executive make any investments in
any company or business competing with Company; provided, however, that nothing
herein shall prevent Executive from investing as less than a one (1%) percent
shareholder without limit in the securities of any company listed on a national
securities exchange or quoted on an automated quotation system.
 
(b)    Confidential Information. Executive recognizes and agrees that access to
and knowledge of Company’s trade secrets and other confidential information
(collectively “confidential information”), which are valuable and unique assets
of their businesses, is essential to the performance of Executive’s duties
hereunder. Accordingly, Executive agrees that Executive shall not during the
Term disclose any confidential information to or for the benefit of any third
party for any purpose whatsoever (except as may be required by law or court
order or in the performance of Executive’s duties hereunder), nor make use of
any of the same for Executive’s own purposes; provided, however, that
disclosures may be made (i) to the extent necessary to comply with government
disclosure requirements or applicable laws, (ii) pursuant to subpoena or order
of any judicial, legislative, executive, regulatory or administrative body, or
for Executive to enforce Executive’s rights under this Agreement, (iii) to
employees, advisors, counsel, financial advisors and other third parties as may
be necessary and appropriate in connection with the proper performance and
enforcement of this Agreement; and (iv) pursuant to Executive’s normal reporting
procedures as an executive of a publicly traded company (e.g., pursuant to
Sarbanes-Oxley requirements or otherwise). Confidential information includes,
but is not limited to, information regarding the businesses of Company, and
Company’s customers, vendors, policies, products, services, designs, systems,
business plans, agreements, marketing strategies, pricing and costs.
Notwithstanding any of the foregoing to the contrary, confidential information
shall be deemed not to include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by Executive or
any other person who directly or indirectly receives such information from
Executive or at Executive’s direction or (ii) is or becomes available to
Executive on a non-confidential basis from a source which is entitled to
disclose it to Executive.
 
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(c)    Non-Solicitation of Employees. Executive promises and agrees that he will
not, for a period of one year following termination of his employment, directly
or indirectly solicit any of the employees of the Company whose annualized rate
of compensation was $100,000 or more at any time during the last six months of
his or her employment with the Company to work for any business, individual,
partnership, firm, corporation, or other entity. This Paragraph shall not apply
to Executive’s Personal Assistant.
 
10.    Notices. All notices required to be given hereunder shall be given in
writing, by personal delivery or by certified mail, return receipt requested, at
the respective addresses of the parties hereto set forth above, or at such other
address as may be designated in writing by either party, and in the case of
Company, to the attention of the General Counsel of Company, and shall also be
given to David Krinsky, Esq., c/o O’Melveny & Myers LLP, 610 Newport Center
Drive, Suite 1700, Newport Beach, California 92660. Copies of any notices to
Executive shall be delivered to him at the Company’s Santa Clara, California
office, and shall also be given to M. Kenneth Suddleson, Esq., c/o Foley &
Lardner LLP, 2029 Century Park East, Suite 3500, Los Angeles, California 90067.
Any notice given by mail shall be deemed to have been given three days following
such mailing.
 
11.    Assignment. This is an Agreement for the performance of personal services
by Executive and may not be assigned by Executive or the Company except that the
Company may assign this Agreement to any successor in interest to the Company as
a result of a merger, consolidation or sale of all or substantially all of the
assets of the Company, whether by operation of law (in the case of a sale or
other transfer of stock) or otherwise (subject to the provisions of Paragraph 7
above).
 
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12.    California law, Etc. This Agreement and all matters or issues collateral
thereto shall be governed by the laws of the State of California applicable to
contracts entered into and to be performed entirely therein. Any disputes
regarding this Agreement or Executive’s employment by Company will be resolved
through binding arbitration with a single neutral arbitrator under the rules of
JAMS. The proper venue for any such action is the County of Los Angeles. In any
action to enforce this Agreement, Executive and the Company each agree to accept
service of process by mail at its address, as applicable, as set forth above (or
at any different address of which Executive has notified the Company, or the
Company has notified Executive, as applicable, in writing). In any action in
which service is made pursuant to this Paragraph, Executive and the Company each
waive any challenge to the personal jurisdiction of JAMS.
 
13.    Entire Understanding. This Agreement contains the entire understanding of
the parties hereto relating to the subject matter herein contained, and can be
changed only by a writing signed by both parties hereto.
 
14.    Void Provisions. If any provision of this Agreement, as applied to either
party or to any circumstances, shall be adjudged by a court to be void or
unenforceable, the same shall be deemed stricken from this Agreement and shall
in no way affect any other provision of this Agreement or the validity or
enforceability of this Agreement.
 
15.    Supersedes Previous Understanding. This Agreement embodies the entire
agreement of the parties hereto respecting the matters within its scope. This
Agreement supersedes all prior agreements of the parties hereto on the subject
matter hereof (including, without limitation, the Prior Employment Agreement).
Any prior negotiations, correspondence, agreements, proposals, or understandings
relating to the subject matter hereof shall be deemed to be merged into this
Agreement and to the extent inconsistent herewith, such negotiations,
correspondence, agreements, proposals, or understandings shall be deemed to be
of no force or effect. There are no representations, warranties, or agreements,
whether express or implied, or oral or written, with respect to the subject
matter hereof, except as set forth herein.
 
[Remainder of Page Intentionally Blank]
 
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IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Employment Agreement on the date first above written.

 

 
NAPSTER, INC.
               
By: /s/ Wm. Christopher Gorog
   
Name: Wm. Christopher Gorog
   
Title: Chief Executive Officer
         
By: /s/ Robert Rodin
   
Name: Robert Rodin
   
Title: Chairman, Compensation Committee
               
EXECUTIVE
               
/s/ Wm. Christopher Gorog
   
WILLIAM CHRISTOPHER GOROG
 

 
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EXHIBIT A

SECTION 280G GROSS-UP PROVISIONS

Equalization Payment. If upon or following a CIC (as defined below) the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
“Code”), or any similar or successor tax (the “Excise Tax”) applies, because of
the CIC, to any payments, benefits and/or amounts received by Executive as
severance benefits or otherwise, including, without limitation, any amounts
received or deemed received, within the meaning of any provision of the Code, by
Executive as a result of (and not by way of limitation) any automatic vesting,
lapse of restrictions and/or accelerated target or performance achievement
provisions, or otherwise, applicable to outstanding grants or awards to
Executive under any of the Company’s incentive plans or agreements
(collectively, the “Total Payments”), the Company shall pay in cash to Executive
or for Executive’s benefit as provided below an additional amount or amounts
(the “Gross-Up Payment(s)”) such that the net amount retained by Executive after
the deduction of any Excise Tax on such Total Payments so received and any
Federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment(s) provided for by this Exhibit A shall be equal to such Total
Payments so received had they not been subject to the Excise Tax. Such Gross-Up
Payment(s) shall be made by the Company to Executive or applicable taxing
authority on behalf of Executive as soon as practicable following the receipt or
deemed receipt of any portion of such Total Payments so received, and may be
satisfied by the Company making a payment or payments on Executive’s account in
lieu of withholding for tax purposes but in all events shall be made within
thirty (30) days of the receipt or deemed receipt by Executive of any portion of
such Total Payments. For purposes of this Exhibit A, “CIC” means the occurrence,
either during the Term or, if the Executive’s employment by the Company
terminates during the Term, at any time following such termination of
employment, of either (a) a change in the ownership or effective control of the
Company (within the meaning of Section 280G of the Code), or (b) or a change in
the ownership of a substantial portion of the assets of the Company (within the
meaning of Section 280G of the Code).
 
Calculation of Gross-Up Payment. The determination of whether a Gross-Up Payment
is required pursuant to this Exhibit A and the amount of any such Gross-Up
Payment shall be determined in writing (the “Determination”) by a
nationally-recognized certified public accounting firm selected by the Company
(the “Accounting Firm”). The Accounting Firm shall provide its Determination in
writing, together with detailed supporting calculations and documentation and
any assumptions used in making such computation, to the Company and Executive
within twenty (20) days after the later of the date of the CIC or the
Executive’s Termination Date. Within twenty (20) days following delivery of the
Accounting Firm’s Determination, Executive shall have the right, at the
Company’s expense, to obtain the opinion of an “outside counsel,” which opinion
need not be unqualified, which sets forth: (a) the amount of Executive’s
“annualized includible compensation for the base period” (as defined in Code
Section 280G(d) (1)); (b) the present value of the Total Payments; (c) the
amount and present value of any “excess parachute payment;” and (d) detailed
supporting calculations and documentation and any assumptions used in making
such computations. The opinion of such outside counsel shall be supported by the
opinion of a nationally-recognized certified public accounting firm and, if
necessary or required by the Company, a firm of nationally-recognized executive
compensation consultants. The outside counsel’s opinion shall be binding upon
the Company and Executive and shall constitute the “Determination” for purposes
of this Exhibit A instead of the initial determination by the Accounting Firm.
The Company shall pay (or, to the extent paid by Executive, reimburse Executive
for) the certified public accounting firm’s and, if applicable, the executive
compensation consultant’s reasonable and customary fees for rendering such
opinion. For purposes of this Exhibit A, “outside counsel” means a licensed
attorney selected by Executive who is recognized in the field of executive
compensation and has experience with respect to the calculation of the Excise
Tax; provided that the Company must approve Executive’s selection, which
approval shall not be unreasonably withheld.
 
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Computation Assumptions. For purposes of determining whether any payments,
benefits and/or amounts, including amounts paid as severance benefits, will be
subject to Excise Tax, and the amount of any such Excise Tax:
 
(a)    Any other payments, benefits and/or amounts received or to be received by
Executive in connection with or contingent upon a CIC of the Company or
Executive’s termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, or with
any person whose actions result in a CIC of the Company or any person affiliated
with the Company or such persons) shall be combined to determine whether
Executive has received any “parachute payment” within the meaning of Section
280G(b)(2) of the Code, and if so, the amount of any “excess parachute payments”
within the meaning of Section 280G(b)(1) that shall be treated as subject to the
Excise Tax, unless in the opinion of the person or firm rendering the
Determination, such other payments, benefits and/or amounts (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to
the Excise Tax;
 
(b)    The value of any non-cash benefits or any deferred payment or benefit
shall be determined by the person or firm rendering the Determination in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
 
(c)    The compensation and benefits provided for in this Agreement, and any
other compensation earned prior to the Termination Date by Executive pursuant to
the Company’s compensation programs (if such payments would have been made in
the future in any event, even though the timing of such payment is triggered by
the CIC), shall for purposes of the calculation pursuant to this Exhibit A be
deemed to be reasonable; and
 
(d)    Executive shall be deemed to pay Federal, state, and local income taxes
at the highest applicable marginal rate of taxation (subject, in the case of
employment taxes, to any applicable wage base limitations) in the calendar year
in which the Gross-Up Payment is to be made. Furthermore, the computation of the
Gross-Up Payment shall assume (and adjust for the fact) that (i) there is a loss
of miscellaneous itemized deductions under Section 67 of the Code (or analogous
federal or state provisions) on account of the Gross-Up Payment and (ii) a loss
of itemized deductions under Section 68 of the Code (or analogous federal or
state provisions) on account of the Gross-Up Payment. The computation of the
Gross-Up Payment shall take into account any reduction in the Gross-Up Payment
due to Executive’s share of the hospital insurance portion of FICA and any state
withholding taxes (other than any state withholding tax for income tax
liability). The computation of the state and local income taxes applicable to
the Gross-Up Payment shall be based on the highest marginal rate of taxation in
the state and locality of Executive’s residence on the Termination Date, and
shall take into account the maximum reduction in Federal income taxes that could
be obtained from the deduction of such state and local taxes.
 
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Executive’s Obligation to Notify Company. Executive shall promptly notify the
Company in writing of any claim by the Internal Revenue Service (or any
successor thereof) or any state or local taxing authority (individually or
collectively, the “Taxing Authority”) that, if successful, would require the
payment by the Company of a Gross-Up Payment in excess of any Gross-Up Payment
as originally set forth in the Determination. If the Company notifies Executive
in writing that it desires to contest such claim, Executive shall: (a) give the
Company any information reasonably requested by the Company relating to such
claim; (b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney selected by the Company that is reasonably acceptable to Executive;
(c) cooperate with the Company in good faith in order to effectively contest
such claim; and (d) permit the Company to participate in any proceedings
relating to such claim; provided that the Company shall bear and pay directly
all attorneys fees, costs and expenses (including additional interest, penalties
and additions to tax) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for all taxes
(including, without limitation, income and excise taxes), interest, penalties
and additions to tax imposed in relation to such claim and in relation to the
payment of such costs and expenses or indemnification. Without limitation on the
foregoing provisions of this paragraph, and to the extent its actions do not
unreasonably interfere with or prejudice Executive’s disputes with the Taxing
Authority as to other issues, the Company shall control all proceedings taken in
connection with such contest and, in its reasonable discretion, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the Taxing Authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax, interest or penalties claimed and sue
for a refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs Executive to pay such claim and sue for a refund, the Company shall
advance an amount equal to such payment to Executive, on an interest-free basis,
and shall indemnify and hold Executive harmless, on an after-tax basis, from all
taxes (including, without limitation, income and excise taxes), interest,
penalties and additions to tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance, as any such amounts
are incurred; and, further, provided, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties or additions to
tax for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount; and,
provided, further, that any settlement of any claim shall be reasonably
acceptable to Executive and the Company’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest, as the case may
be, any other issue.
 
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Subsequent Recalculation. In the event of a binding or uncontested determination
by the Taxing Authority that adjusts the computation set forth in the
Determination so that Executive did not receive the greatest net benefit
required pursuant to this Exhibit A, the Company shall reimburse Executive as
provided herein for the full amount necessary to place Executive in the same
after-tax position as he would have been in had no Excise Tax applied. In the
event of a binding or uncontested determination by the Taxing Authority that
adjusts the computation set forth in the Determination so that Executive
received a payment or benefit in excess of the amount required pursuant to this
Exhibit A, then Executive shall promptly pay to the Company (without interest)
the amount of such excess.
 

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