<PAGE>   1
                                                                   EXHIBIT 10.26

                                    [* * *] -- TEXT OMITTED AND FILED SEPARATELY
                                          CONFIDENTIAL TREATMENT REQUESTED UNDER
                           17 C.F.R. SECTIONS 200.80(b)(4), 200.83 AND 240.24b-2


                              SETTLEMENT AGREEMENT

        This Settlement Agreement and Mutual Release (hereinafter "Settlement
Agreement") is entered into effective as of June 8, 2000 by and between MP3.COM,
INC. ("MP3" herein) on the one hand, and BMG Entertainment ("Company") on the
other hand, both of which are sometimes collectively referred to as the
"Parties" and is made with reference to the following:

1.      RECITALS:

        a)      Company, through its related entities BMG Music d/b/a The RCA
                Records Label and Arista Records, Inc., is a Plaintiff and MP3
                is the defendant in the following litigation (the "Litigation"):
                UMG RECORDINGS, INC., SONY MUSIC ENTERTAINMENT INC., WARNER
                BROS. RECORDS INC., ARISTA RECORDS INC., ATLANTIC RECORDING
                CORPORATION, BMG MUSIC D/B/A THE RCA RECORDS LABEL, CAPITOL
                RECORDS, INC., ELEKTRA ENTERTAINMENT GROUP, INC., INTERSCOPE
                RECORDS, AND SIRE RECORDS GROUP INC., Plaintiffs, vs. MP3.COM,
                INC., Defendant, Case No. 00 Civ. 0472 (JSR).

        b)      Each of the Parties to this Settlement Agreement desire to
                permanently settle and resolve any and all claims, disputes,
                issues or matters that exist between them as of the date of this
                Settlement Agreement and to dismiss with prejudice the
                Litigation.

        c)      NOW, THEREFORE, in consideration of the mutual promises,
                covenants and agreements set forth herein, and subject to the
                terms and conditions set forth below, the Parties desire to, and
                hereby do, resolve their differences and agree as follows:

2.      SETTLEMENT TERMS:

        a)      In consideration hereof, concurrently with the execution hereof
                and of the License Agreement referred to in subparagraph (e)
                below, and the execution and filing of the Dismissal With
                Prejudice of the Litigation as described hereinbelow MP3 will
                pay Company the sum of [* * *] by wire transfer as follows:
                [* * *].

        b)      [* * *]


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                [* * *]

                i)      [* * *]

                ii)     [* * *]

                        a)      Sony Music Entertainment, Inc., - [* * *];

                        b)      Warner Music Group, Inc. - [* * *];

                        c)      UMG Recordings, Inc. - [* * *]; and

                        d)      EMI Records Group - [* * *].

                iii)    [* * *]

        c)      For the consideration set forth hereinabove, Company also hereby
                agrees that the master recordings previously copied by MP3 which
                are owned or controlled by Company shall be deemed to have been
                copied with Company's consent.

        d)      [* * *]


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                [* * *].

        e)      It specifically is understood that the term "Company" shall
                include any corporation or other entity controlling, or
                controlled by, or under common control therewith, [* * *].

        f)      Concurrently herewith, Company and MP3 are entering into a
                License Agreement in the form annexed hereto as Exhibit A (the
                "License Agreement").

3.      RELEASES

        a)      Company Release. Company, on behalf of itself and its heirs,
                agents, employees, representatives, partners, owners, related
                entities, officers, parents, shareholders, directors,
                subsidiaries, affiliates, attorneys, transferees, predecessors,
                successors, and assigns does hereby irrevocably release, acquit
                and forever discharge MP3 and each of its respective heirs,
                agents, employees, representatives, partners, owners, related
                entities, officers, parents, shareholders, directors,
                subsidiaries, parents, subsidiaries, divisions, affiliates,
                officers, directors, shareholders, investors, family members,
                attorneys, transferees, predecessors, successors, and assigns,
                jointly and severally (the "MP3 Releasees"), of and from any and
                all debts, suits, claims, actions, causes of action,
                controversies, demands, rights, damages, losses, expenses,
                costs, attorneys' fees, compensation, liabilities and
                obligations whatsoever (hereinafter referred to collectively as
                "Claims"), suspected or unsuspected, known or unknown, foreseen
                or unforeseen, arising at any time up to and including the date
                of this Settlement Agreement, which Company may now have or at
                any time heretofore may have had, or which at any time hereafter
                may have or claim to have against the MP3 Releasees, relating
                to, arising from, or concerning the MyMP3 service, the
                Litigation or the subject matter thereof (hereinafter "Released
                Claims").

        b)      MP3 Release. MP3, on behalf of itself and its heirs, agents,
                employees, representatives, partners, owners, related entities,
                officers, parents,


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<PAGE>   4

                shareholders, directors, subsidiaries, affiliates, attorneys,
                transferees, predecessors, successors, and assigns does hereby
                irrevocably release, acquit and forever discharge Company and
                each of its respective heirs, agents, employees,
                representatives, partners, owners, related entities, officers,
                parents, shareholders, directors, subsidiaries, affiliates,
                attorneys, transferees, predecessors, successors, and assigns,
                jointly and severally (the "Company Releasees"), of and from any
                and all debts, suits, claims, actions, causes of action,
                controversies, demands, rights, damages, losses, expenses,
                costs, attorneys' fees, compensation, liabilities and
                obligations whatsoever (hereinafter referred to collectively as
                "Claims"), suspected or unsuspected, known or unknown, foreseen
                or unforeseen, arising at any time up to and including the date
                of this Settlement Agreement, which MP3 may now have or at any
                time heretofore may have had, or which at any time hereafter may
                have or claim to have against the Company Releasees, relating
                to, arising from, or concerning the MyMP3 service, the
                Litigation or the subject matter thereof and any counter claims
                which MP3 could have asserted in connection with the Litigation
                (hereinafter "Released Claims").

        c)      Statutory Waiver. With respect to the Released Claims, all
                rights under California Civil Code Section 1542 (and any other
                law of similar effect), are hereby expressly waived by the
                Parties, and each of them, notwithstanding any provision to the
                contrary. Section 1542 provides as follows:

                        "A general release does not extend to claims which the
                        creditor does not know or suspect to exist in his favor
                        at the time of executing the Release, which if known by
                        him must have materially affected his settlement with
                        the debtor."

        d)      The Parties, and each of them, and their representatives, heirs
                and assigns expressly waive and release any right or benefit
                which they have or may have under Section 1542 of the Civil Code
                of the State of California, to the fullest extent that they may
                waive all such rights and benefits pertaining to the matters
                released herein. It is the intention of the Parties, and each of
                them, through this Settlement Agreement, and with the advice of
                counsel, to fully, finally and forever settle and release all
                such matters, and all claims relative thereto, in furtherance of
                such intention.

        e)      Dismissal With Prejudice. Company, concurrently with the
                execution and delivery hereof and payment of the sum described
                in 2(a) above, shall execute, file and deliver to MP3 a
                Dismissal With Prejudice of the Litigation, in the form annexed
                hereto as Exhibit B.


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<PAGE>   5

4.      NOTICES

        a)      Any notice, demand, request, consent, approval, or communication
                that either Party desires or is required to give to the other
                Party is ordered to be addressed and served on or delivered to
                the other Party at the address set forth below. Any Party may
                change his/his/its address by notifying the other Parties of
                their change of address(es) in writing.

                i)      The addresses for MP3 are as follows:

                        MP3.com, Inc.
                        4790 Eastgate Mall
                        San Diego, CA 92121
                        Attn: General counsel and VP Legal

                        With simultaneous copies to:

                        Gary Stiffelman, Esq.
                        Ziffren, Brittenham, Branca & Fischer
                        1801 Century Park West
                        Los Angeles, CA 90067

                ii)     The address for Company is as follows:

                        BMG Entertainment
                        Broadway
                        43rd Floor
                        New York, NY 10036-4098
                        Attn: Senior Vice President and General Counsel

5.      MISCELLANEOUS PROVISIONS

        a)      In order to carry out the terms and conditions of this
                Settlement Agreement, the Parties agree to promptly execute upon
                reasonable request any and all documents and instruments
                consistent herewith necessary to effectuate the terms of this
                Settlement Agreement.

        b)      By entering into this Settlement Agreement, no Party admits or
                acknowledges that they committed any wrongdoing on their part.

        c)      This Settlement Agreement and any controversy which might arise
                therefrom shall in all respects be interpreted, enforced and
                governed by the laws of the


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                State of New York applicable to agreements made and to be fully
                performed therein. All parties consent to the sole and exclusive
                personal jurisdiction and venue in the United States District
                Court for the SDNY, and agree that all disputes or litigation
                regarding this Settlement Agreement shall be submitted to and
                determined by said court which shall have sole and exclusive
                jurisdiction. Subsequent changes in New York law or federal law
                through legislation or judicial interpretation that creates or
                finds additional or different rights and obligations of the
                Parties shall not affect this Settlement Agreement.

        d)      This Settlement Agreement, together with the License Agreement,
                is the entire agreement between the Parties with respect to the
                Released Claims or subject matter of this Settlement Agreement
                and supersedes all prior and contemporaneous oral and written
                agreements and discussions pertaining to the Released Claims or
                subject matter of this Settlement Agreement. This Settlement
                Agreement may be amended only by a written agreement executed by
                each of the Parties hereto. No breach of the License Agreement
                may or shall be deemed a breach of this Settlement Agreement.

        e)      No breach of any provision hereof can be waived unless in
                writing signed by the party to be charged with such a waiver.
                Waiver of any one breach of any provision hereof shall not be
                deemed to be a waiver of any other breach of the same or any
                other provision hereof.

        f)      This Settlement Agreement shall be binding upon and inure to the
                benefit of the Parties hereto and his/his/its respective heirs,
                agents, employees, representatives, partners, parents,
                subsidiaries, divisions, affiliates, officers, related entities,
                licensees, directors, shareholders, investors, attorneys,
                transferors, transferees, predecessors, successors, trustees in
                bankruptcy, and assigns and each and every entity which now or
                ever was a division, parent, successor, predecessor, division,
                affiliate, officer, director, shareholder, investor, employee,
                attorney, transferor, transferee, or subsidiary for each Party
                and its respective legal successors and assigns.

        g)      The Parties represent and warrant that each of them have not
                assigned all or any portion of any claim pertaining to the
                Released Claims to any person or entity. In the event any claims
                are made by any third persons or entities based upon any
                purported assignment or any such liens or claims are asserted in
                connection with the Released Claims or proceeds of the
                Settlement Agreement, then the Party who has breached his
                representation or warranty contained herein agrees to indemnify
                and hold harmless the other Party from any said claims being
                made.


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<PAGE>   7

        h)      In the event that any covenant, condition or other provision
                herein contained is held to be invalid, void or illegal by any
                court of competent jurisdiction, the same shall be deemed
                severable from the remainder of this Settlement Agreement and
                shall in no way affect, impair or invalidate any other covenant,
                condition or other provision herein contained. If such
                condition, covenant or other provisions shall be deemed invalid
                due to its scope or breadth, such covenant, condition or other
                provision shall be deemed valid to the extent of the scope or
                breadth permitted by law.

        i)      Each of the Parties hereto represent and declare that in
                executing this Settlement Agreement, they rely solely upon their
                own judgment, belief and knowledge, and on the advice and
                recommendations of their own independently selected counsel,
                concerning the nature, extent and duration of their rights and
                claims and that they have not been influenced to any extent
                whatsoever in executing the same by any representations or
                statements covering any matters made by any of the Parties
                hereto or by any person representing them or any of them. The
                Parties acknowledge that no Party hereto nor any of their
                representatives have made any promise, representation or
                warranty whatsoever, written or oral to any other party, as any
                inducement to enter into this Settlement Agreement, except as
                expressly set forth in this Settlement Agreement.

        j)      The Parties hereto or responsible officer or representative
                thereof, and each of them, further represent and warrant that
                they have carefully read this Settlement Agreement and know and
                understand the contents hereof, and that they signed this
                Settlement Agreement freely and voluntarily and have had the
                benefit of the advice of legal counsel before executing this
                Settlement Agreement. Each of the representatives executing this
                Settlement Agreement on behalf of their respective corporations
                or partnerships is empowered to do so and thereby binds his
                respective corporation or partnership. The Parties hereto
                acknowledge and agree that this Settlement Agreement shall be
                deemed to have been drafted jointly by all Parties hereto.
                Ambiguities shall not be construed against the interest of
                either party by reason of it having drafted all or any part of
                this Settlement Agreement.

        k)      This Settlement Agreement may be executed in counterparts and
                when each Party has signed and delivered at least one such
                counterpart to each of the other Parties, each counterpart shall
                be deemed an original, and all counterparts taken together shall
                constitute one and the same agreement, which shall be binding
                and effective as to all Parties. This Settlement Agreement may
                be executed via facsimile signatures, which shall have the same
                force and effect as if they were original signatures to be
                followed by executed originals.


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<PAGE>   8

        l)      Each party hereto warrants and represents that it has all
                necessary right, title, and authority to enter into this
                Settlement Agreement, to grant the rights and interests herein
                granted, and to perform all of its obligations under this
                Settlement Agreement.

        m)      The provisions and existence of this Settlement Agreement (a)
                may not be cited by any party hereto as an admission of any
                issue of fact or law; and (b) shall not be disclosed to any
                third party or entity, except (i) as required by law or
                regulation, (ii) to the parties respective professional advisors
                and executives on a "need to know" basis, provided that such
                parties agree to be bound by these confidentiality provisions,
                and (iii) the Internal Revenue Service, or any state or
                municipal taxing authority or other regulatory body having
                jurisdiction. [* * *] It is understood and agreed that if the
                foregoing provision is breached by any party hereto, the
                non-breaching parties may be entitled to injunctive or other
                equitable relief to prevent such a breach. Any non-breaching
                party seeking such injunctive relief will not be obligated to
                secure any bond or give any security in connection with the
                application for such relief. The right to seek injunctive relief
                under this paragraph shall be in addition to all other rights,
                remedies and forms of relief which may be available. In
                furtherance of the foregoing, any and all press releases
                relating to the subject matter hereof shall not be released
                until approved in writing by Company's Senior Vice President,
                World Wide Marketing or Senior Vice President and General
                Counsel; provided, the parties agree than a press release with
                respect to this Settlement Agreement shall be mutually agreed
                and issued within a reasonable period after execution hereof. //
                // // // //


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<PAGE>   9

        IN WITNESS WHEREOF, the Parties hereto have executed this Settlement
Agreement on the date(s) written beside his/his/its name, respectively.

                                          BMG Music d/b/a BMG Entertainment


Dated:                                    By:  //signed//
      --------------------                   -----------------------------------
                                          Its:
                                              ----------------------------------


Dated:                                    MP3.com, Inc.
      --------------------

                                          By:  //signed//
                                             -----------------------------------
                                          Its:
                                              ----------------------------------


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<PAGE>   10
              EXHIBIT A TO SETTLEMENT AGREEMENT - LICENSE AGREEMENT


                                  MP3.com, Inc.
                               4790 Eastgate Mall
                               San Diego, CA 92121

                                   May 2, 2000


BMG Entertainment
1540 Broadway
New York, NY 10036-4098
Attn: Senior Vice President and General Counsel

Gentlepersons:

This letter, when and if fully executed, will set forth the basic terms of the
license agreement between ("Company" or "you", which terms are deemed to include
all of Company's Affiliates) and MP3.com, Inc. ("MP3", "us" or "we"), with
respect to your licensing certain rights to us on the following terms:

1. DEFINITIONS:

        a)      [* * *]



<PAGE>   11


                [* * *].

        b)      "Affiliate": Any corporation or other person or entity
                controlling, or controlled by, or under common control with a
                party or Person, as the case may be. It expressly is
                acknowledged that [* * *] is not an Affiliate of Company.

        c)      "Artist": A recording artist, record producer, or other third
                party entitled to a royalty or other participation in revenues
                derived from the exploitation of Company Recordings, subject to
                paragraph 2(f) below.

        d)      "Beam It": [* * *]

        e)      "Company Album": [* * *]

        f)      "Company Master": [* * *]

        g)      "Company Recordings": [* * *]

        h)      "Company Shelf": [* * *]



                                      -2-
<PAGE>   12

                [* * *].

        i)      "Download" or "Downloading": [* * *].

        j)      [* * *].

        k)      "Instant Listen": [* * *].

        l)      "Internet": A medium consisting of wired or wireless electronic
                or electromagnetic networks (including without limitation, fiber
                optic, microwave, twisted-pair copper wires, coaxial cable,
                satellite, wireless transmission, cellular networks, and
                combinations thereof) and collections thereof now or hereafter
                existing, wherever, located, for the transmission from a distant
                location of digital data (e.g., text, information, graphics,
                audio, video, or combination of the foregoing), through the use
                of any protocols or standards now known or hereafter devised
                (including without limitation, Transmission Control
                Protocol/Internet Protocol ["TCP/IP"] and subsequent extensions
                or modifications thereof) from or to electronic devices (e.g.,
                computers [mainframe, desktop, laptop, handheld, etc.], set-top
                boxes, cable modems, handheld devices, cell phones, televisions,
                etc.) capable of transmitting or receiving digital data or
                digital information, irrespective of




                                      -3-
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                whether such networks are open or proprietary, public or
                private, or whether a fee is charged or a subscription or
                membership is required in order to access such networks.
                "Internet" also includes without limitation the computer network
                comprising inter-connected networks commonly referred to as the
                "Internet" and the "World Wide Web." [* * *]

        m)      "Locker": [* * *].

        n)      "Locker Owner": The Person who shall have established a
                particular Locker. Each prospective Locker Owner shall be
                required to enter the name of an individual as part of the "sign
                on" process.

        o)      "MyMP3": [* * *].

        p)      "Person": Any individual, corporation, partnership or other
                legal entity.

        q)      "Record": Any and all forms of reproductions of audio recordings
                (e.g., Albums, singles, etc.), now or hereafter known,
                manufactured or distributed primarily for non-public use,
                including, without limitation, home use, school use, juke box
                use, or use in means of transportation including both physical
                and digitized reproductions.

        r)      "Recording": every recording of sound, whether or not coupled
                with a visual image, by any method and on any substance or
                material, whether now or hereafter known, which is used or
                useful in the recording, production and/or manufacture of
                Records.

        s)      "Stream": [* * *].



                                       -4-
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                "Title List(s)": The unique set of Recordings, including Albums
                and individual master recordings or other copyrightable
                recordings, accessible from within an individual Locker.

2.      LICENSE:

        a)      Company hereby licenses to MP3 the right to make any and all
                Company Recordings available for inclusion on Title Lists in
                accordance with the methods set forth herein and to do the
                following:

                i)      The right to make a number of copies of Company
                        Recordings employing any compression technologies
                        selected by MP3 as may reasonably be needed in order to
                        create a database of recorded music which Locker Owners
                        can access only via the methods described herein.

                ii)     The right to use the names and tradenames of Company and
                        its Affiliates (as same appear on Company Recordings),
                        the titles of Company Albums and Company Masters, the
                        names and approved likenesses of any Artists or other
                        Persons rendering services or granting rights to Company
                        with respect to recordings embodied on Company
                        Recordings on an informational basis and as a part of
                        any and all Title Lists and Lockers (it being understood
                        that any Album cover artwork shall be deemed approved
                        for purposes hereof). MP3 also shall have the right to
                        use any of said materials, with Company's reasonable
                        approval, in the promotion, marketing and advertising of
                        MyMP3. With respect to the use of artist-related
                        material for the promotion, marketing and advertising of
                        MyMP3, Company will not be deemed to be acting
                        unreasonably in refusing to consent based on artist
                        relations concerns. The use of the foregoing names and
                        tradenames will not be used in a manner which would
                        suggest or imply an endorsement of MP3 or MyMP3.

        b)      MP3 covenants and agrees that Company Recordings can be added to
                or inserted in an individual Locker only as follows:

                i)      Via MP3's "Instant Listen" system (or any equivalent
                        system established by MP3), or

                ii)     Via MP3's "Beam-it" system (or any equivalent system
                        established by MP3).

        c)      [* * *]



                                      -5-
<PAGE>   15

                [* * *].

        d)      [* * *]

        e)      It is agreed that rights to musical compositions, or to use the
                names and other identification in their capacity as songwriters
                or music publishers, are not being conveyed herein.

        f)      [* * *]

3.      EXCLUSIVITY: The rights granted to MP3 hereunder shall be non-exclusive.

4.      TERM AND TERRITORY:

        a)      The territory shall be [* * *]

        b)      The term of this license shall commence forthwith and shall
                continue until [* * *]




                                      -6-
<PAGE>   16

5.      CONSIDERATION:In consideration of this license, Company shall receive
        the following:

        a)      Concurrently with the execution hereof and the execution by
                Company of a Settlement Agreement and the filing of a dismissal
                with prejudice by Company insofar as Company is concerned in
                respect of the following lawsuit: UMG RECORDINGS, INC., SONY
                MUSIC ENTERTAINMENT INC., WARNER BROS. RECORDS INC., ARISTA
                RECORDS INC., ATLANTIC RECORDING CORPORATION, BMG MUSIC D/B/A
                THE RCA RECORDS LABEL, CAPITOL RECORDS, INC., ELEKTRA
                ENTERTAINMENT GROUP, INC., INTERSCOPE RECORDS, AND SIRE RECORDS
                GROUP INC., Plaintiffs, vs. MP3.COM, INC., Defendant, Case No.
                00 Civ. 0472 (JSR), MP3 will pay Company [* * *].

        b)      [* * *]

        c)      [* * *]

        d)      [* * *]

        e)      [* * *]




                                      -7-
<PAGE>   17


                [* * *]

        f)      [* * *]

6.      COMPANY SHELF:[* * *]







                                      -8-
<PAGE>   18


        [* * *]

7.      ACCOUNTINGS:

        a)      MP3 will compute the sums due Company under paragraphs 5(b),
                5(c) and 5(e) as of each March 31, June 30, September 30 and
                December 31 after the date hereof. Within ninety-(90) days after
                each calendar quarterly period , MP3 will send Company a
                statement covering sums due hereunder and shall concurrently pay
                Company any sums shown due thereunder..

        b)      MP3 will maintain books and records with respect to sums payable
                to Company hereunder, including, for example, calculations with
                respect to the definition of Adjusted Gross Revenues. Company
                may, at its own expense no more than once per calendar year,
                examine and copy those books and records, as provided in this
                paragraph. Company may make such an examination for a particular
                statement within three (3) years after the date when MP3 sends
                Company the statement concerned. Company shall only have the
                right to institute suit with respect to a particular statement
                within three and one-half (3-1/2) years after the rendition
                thereof. Company may make those examinations only during MP3's
                usual business hours, and at the place where it keeps the books
                and records. Such books and records shall be kept at the MP3
                office in San Diego, California, unless otherwise notified.
                Company will be required to notify MP3 at least ten (10) days
                before the date of planned examination. No audit shall exceed 30
                consecutive days. If an audit reveals an underpayment which the
                parties agree or which is determined by a court of competent
                jurisdiction to be greater than 10% of the total amount payable
                throughout the applicable period of the audit, MP3 shall
                reimburse Company for its reasonable audit costs.

        c)      MP3 shall provide Company information setting forth [* * *] MP3
                will work in good faith with Company to develop formats for
                MP3's accounting statements which will assist Company in
                accounting to Artists with respect to the exploitation by MP3 of
                Company Recordings.



                                      -9-
<PAGE>   19

8.      AUTHORITY TO CONTRACT: Each party represents and warrants to the other
        party that such party has the full legal right, power and all authority
        and approval required to enter into, execute and deliver this Agreement,
        to grant the rights and licenses herein granted and fully to perform its
        obligations hereunder. Company represents that no third party consent is
        required to grant to MP3 the rights and licenses herein granted. Company
        will be responsible for payment of any sums due [* * *]. MP3 will be
        responsible for the payment of sums due [* * *]. MP3 warrants that it
        has the right to the software and methodologies used in connection with
        MyMP3 and that MP3's use thereof will not result in any liability of
        Company to third parties other than [* * *] as described herein. [* * *]
        This Agreement has been duly authorized, executed and delivered by such
        party and constitutes the valid and binding obligation of such party
        enforceable in accordance with its terms, subject, as to enforcement, to
        applicable bankruptcy, insolvency, reorganization, moratorium or other
        similar laws affecting creditors' rights generally.

9.      INDEMNITY: Each party hereby agrees to hold harmless and indemnify the
        other party from any and all damages, liabilities, costs, losses and
        expenses (including costs and reasonable attorneys' fees) arising out of
        or connected with any claim, demand or action (collectively referred to
        as a "Claim") which:

        a)      If proven, would constitute a breach of any of the warranties,
                representations or covenants made by the indemnifying party in
                this Agreement, and

        b)      is reduced to a final, adverse judgment or settled with the
                indemnified party's consent, which consent shall not
                unreasonably be withheld. The indemnifying party agrees to
                reimburse the indemnified party, on demand, for any payment made
                by the indemnified party at any time with respect to any such
                damage, liability, cost, loss or expense to which the foregoing
                indemnity applies.

        c)      The indemnified party shall promptly notify the indemnifying
                party of any action commenced on such a claim. The indemnifying
                party in respect of any claim shall have the right to control
                the prosecution, defense, settlement or compromise thereof;
                provided that the indemnified party will be entitled, at its
                sole cost and expense, to participate therein with counsel of
                its own choosing. The indemnifying party's decisions, however,
                in connection with any such claim shall be final and binding,
                except that the indemnifying party will not be entitled, without
                the indemnified party's prior written consent (which the
                indemnified party may withhold in its sole discretion) to agree
                to the imposition of any equitable relief applicable to such
                indemnified party.

10.     NOTICES: All notices to be given hereunder shall be sent to the
        applicable address set forth on page 1 hereof or at such other address
        as shall be designated in




                                      -10-
<PAGE>   20

        writing from time to time by the party receiving notice. Company shall
        send a copy of each such notice to MP3 to Ziffren, Brittenham, Branca &
        Fischer, LLP., 1801 Century Park West, Los Angeles, California 90067,
        Attn: Gary Stiffelman, Esq. MP3 shall send a copy of each notice to
        Company to Company's Senior Vice President, Worldwide Marketing at BMG
        Entertainment, 1540 Broadway, NY, NY 10036. All notices shall be in
        writing and shall either be served by personal delivery, registered or
        certified mail, return receipt requested,, all charges prepaid. Except
        as otherwise provided herein, such notices shall be deemed given when
        personally delivered or mailed, all charges prepaid, except that notices
        of change of address shall be effective only after the actual receipt
        thereof.

11.     MISCELLANEOUS:

        a)      This Agreement sets forth the entire understanding of the
                parties hereto relating to the subject matter hereof and
                supersedes all prior and contemporaneous agreements and
                understandings, whether oral or written. This Agreement may be
                amended, modified, superseded, canceled, renewed or extended,
                and the terms hereof may be waived, only by a written instrument
                signed by the parties hereto or, in the case of a waiver, by the
                party waiving compliance.

        b)      Each party shall have the right to assign this Agreement and any
                or all of its rights and obligations hereunder only to a Person
                owning or acquiring all or substantially all of its stock or
                assets. No such assignments shall relieve the assignor of any of
                its obligations hereunder. Any purported assignment in violation
                of this subparagraph shall be void.

        c)      This Agreement shall be binding upon and inure to the benefit of
                the parties, their permitted assigns and the respective
                successors and legal representatives of the foregoing.

        d)      THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
                WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
                MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE (WITHOUT
                GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES UNDER NEW YORK
                LAW). THE NEW YORK COURTS (STATE AND FEDERAL), SHALL HAVE SOLE
                JURISDICTION OF ANY CONTROVERSIES REGARDING THIS AGREEMENT; ANY
                ACTION OR OTHER PROCEEDING WHICH INVOLVES SUCH A CONTROVERSY
                SHALL BE BROUGHT IN THOSE COURTS IN NEW YORK COUNTY AND NOT
                ELSEWHERE PROVIDED, HOWEVER, IF COMPANY IS SUED OR JOINED IN ANY
                OTHER COURT OR FORUM (INCLUDING AN ARBITRATION PROCEEDING) IN
                RESPECT OF ANY MATTER WHICH MAY GIVE RISE TO A CLAIM BY RCA
                HEREUNDER, COMPANY AND MP3 CONSENT TO THE JURISDICTION OF SUCH
                COURT OR FORUM OVER ANY SUCH CLAIM WHICH MAY BE ASSERTED. THE



                                      -11-
<PAGE>   21

                PARTIES WAIVE ANY AND ALL OBJECTIONS TO VENUE IN THOSE COURTS
                AND HEREBY SUBMIT TO THE JURISDICTION OF THOSE COURTS. ANY
                PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY, AMONG OTHER
                METHODS, BE SERVED UPON MP3 BY DELIVERING IT OR MAILING IT, BY
                REGISTERED OR CERTIFIED MAIL, DIRECTED TO THE ADDRESS DESIGNATED
                PURSUANT TO PARAGRAPH 10 ABOVE. ANY SUCH DELIVERY OR MAIL
                SERVICE SHALL BE DEEMED TO HAVE THE SAME FORCE AND EFFECT AS
                PERSONAL SERVICE WITHIN THE STATE OF NEW YORK. Except as is
                specifically provided herein, nothing in this Agreement is
                intended to confer on any person not a party hereto any rights
                or remedies under this Agreement.

        e)      Neither party shall be deemed to be in breach of any of its
                obligations hereunder unless and until the other party shall
                have given specific written notice in accordance with paragraph
                10 above, describing in detail the breach and the allegedly
                breaching party shall have failed to cure that breach within
                thirty (30) days (fifteen (15) days with respect to payment of
                monies) after its receipt of that written notice.

        f)      This Agreement may be executed in counterparts and when each
                Party has signed and delivered at least one such counterpart to
                each of the other Parties, each counterpart shall be deemed an
                original, and all counterparts taken together shall constitute
                one and the same agreement, which shall be binding and effective
                as to all Parties. This Agreement may be executed via facsimile
                signatures, which shall have the same force and effect as if
                they were original signatures to be followed by executed
                originals.

        g)      The Parties hereto acknowledge and agree that this Agreement
                shall be deemed to have been drafted jointly by all Parties
                hereto. Ambiguities shall not be construed against the interest
                of either party by reason of it having drafted all or any part
                of this Agreement.

        h)      The provisions and existence of this agreement: (a) may not be
                cited by any party hereto as an admission of any issue of fact
                or law; and (b) shall not be disclosed to any third party or
                entity, except (i) as required by law or regulation, (ii) to the
                parties respective professional advisors and executives on a
                "need to know" basis, provided that such parties agree to be
                bound by these confidentiality provisions, and (iii) the
                Internal Revenue Service, or any state or municipal taxing
                authority or other regulatory body having jurisdiction. [* * *]
                It is understood and agreed that if the foregoing provision is
                breached by any party hereto, the non-breaching parties may be
                entitled to injunctive or other equitable relief to



                                      -12-
<PAGE>   22

                prevent such a breach. Any non-breaching party seeking such
                injunctive relief will not be obligated to secure any bond or
                give any security in connection with the application for such
                relief. In furtherance of the foregoing, any and all press
                releases relating to the subject matter hereof shall not be
                released until approved in writing by Company's Senior Vice
                President, World Wide Marketing or Senior Vice President and
                General Counsel; provided, the parties agree that a press
                release with respect to this Agreement shall be mutually agreed
                and issued within a reasonable period after execution hereof.

12.     [* * *]


        Please indicate your acceptance of the above terms by signing in the
space indicated below.

                                             Very truly yours,




                                      -13-
<PAGE>   23


                                             MP3.COM, INC.


                                             By:  //signed//
                                                -----------------------------
AGREED AND ACCEPTED:
BMG Entertainment


By:      //signed//
    -----------------------------




                                      -14-
<PAGE>   24

                         EXHIBIT A TO LICENSE AGREEMENT

                                     [* * *]



<PAGE>   25


                         EXHIBIT B TO LICENSE AGREEMENT

                                     [* * *]


<PAGE>   26




          EXHIBIT B TO SETTTLEMENT AGREEMENT - DISMISSAL WITH PREJUDICE





<PAGE>   27
                                   EXHIBIT B

                          UNITED STATES DISTRICT COURT
                     FOR THE SOUTHERN DISTRICT OF NEW YORK


--------------------------------------
UMG RECORDINGS, INC., SONY MUSIC
ENTERTAINMENT INC., WARNER BROS.
RECORDS INC., ARISTA RECORDS INC.,
ATLANTIC RECORDING CORPORATION, BMG
MUSIC d/b/a THE RCA RECORDS LABEL,
CAPITOL RECORDS, INC, ELEKTRA
ENTERTAINMENT GROUP INC., INTERSCOPE
RECORDS, and SIRE RECORDS GROUP INC.,               Case No.: 00 CIV. 0472 (JSR)

                           Plaintiffs,

       v.

MP3.COM, INC.,

                            Defendant.
--------------------------------------

             STIPULATION OF DISMISSAL WITH PREJUDICE OF PLAINTIFFS
         BMG MUSIC d/b/a THE RCA RECORDS LABEL AND ARISTA RECORDS INC.

        Plaintiffs BMG Music d/b/a The RCA Records Label and Arista Records Inc.
and defendant MP3.com, Inc. hereby stipulate that all claims of plaintiffs BMG
Music d/b/a The RCA Records Label and Arista Records Inc. herein are dismissed
with prejudice, pursuant to rule 41 of the Federal Rules of Civil Procedure.
Plaintiffs BMG Music d/b/a The RCA Records Label and Arista Records Inc. and
defendant MP3.com, Inc. shall bear their own costs and expenses, including
attorneys' fees.

Dated:  New York, New York
        June 8, 2000

                                        ARNOLD & PORTER

                                        By: /s/ ROBERT A. GOODMAN
                                           -------------------------------
                                                Robert A. Goodman
                                                399 Park Avenue

<PAGE>   28

                                    New York, NY 10022
                                    (212) 715-1000
                                         -and-
                                    Hadrian R. Katz
                                    555 Twelfth Street, N.W.
                                    Washington, D.C., 20004
                                    (202) 942-5000

                                    Counsel for Plaintiffs
                                    BMG Music d/b/a The RCA Records Label
                                    and Arista Records Inc.


                                    COOLEY GODWARD LLP


                                    By: /s/ MICHAEL G. RHODES
                                        -------------------------------
                                        Michael G. Rhodes (MR-0426)
                                        4365 Executive Drive
                                        New York, NY 10103
                                        (212) 506-5000

                                               -and-

                                        ORRICK, HERRINGTON & SUTCLIFFE LLP


                                    By: /s/ JEFFREY A. CONCIATORI
                                        --------------------------------
                                        Jeffrey A. Conciatori
                                        666 Fifth Avenue
                                        Suite 1100
                                        San Diego, CA 92121
                                        (858) 550-6000

                                        Counsel for Defendant
                                        MP3.com, Inc.


So ordered:


-----------------------------------
United States District Judge


                                       2