Document:

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                                                                   EXHIBIT 10.31

                                  MP3.COM, INC.
                                 P.O. Box 910091
                               San Diego, CA 92191

May 26, 1999

Gregory P. Kostello
12851 Via Latina
Del Mar, CA  92014

RE:     EMPLOYMENT TERMS

Dear Greg:

MP3.com, Inc., a Delaware corporation, (the "Company") is pleased to offer you
the position of Director of Product Analysis, on the following terms.

You will serve as Director of Product Analysis and will be responsible for such
duties as are normally associated with such position or as otherwise determined
by the President or Chief Financial Officer of the Company. You will report to
Paul Ouyang, the Chief Financial Officer and Executive Vice President of the
Company. You will work at our facility located in San Diego. Of course, the
Company may change your position, duties, and work location from time to time as
it deems necessary.

Your compensation will be $4,615.38 paid bi-weekly, less payroll deductions and
all required withholdings. You will be eligible for standard benefits, such as
medical insurance, sick leave, vacations and holidays, according to standard
Company policy as may be adopted by the Company from time to time. Details about
these benefits will be provided in an Employee Handbook and in Summary Plan
Descriptions, which will be prepared by the Company and made available for your
review in due course. The Company may modify your compensation and benefits from
time to time as it deems necessary.

Upon commencement of employment with the Company pursuant to this letter (the
"Commencement Date"), and subject to the approval by the Company's Board of
Directors, you will be granted an Incentive Stock Option to purchase 40,000
shares of the Common Stock of the Company under the Company's 1998 Equity
Incentive Plan (the "Plan"). The exercise price per share of the Incentive Stock
Option will be equal to the fair market value of the Common Stock on the date
you commence your employment with the Company, as determined in good faith by
the Company's Board of Directors.

The shares of Common Stock subject to your Incentive Stock Option will be
subject to vesting over four years so long as you continue to be employed with
the Company,

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according to the following schedule: 25% of such shares will vest as of the one
year anniversary of the Commencement Date; an additional one forty-eighth
(1/48th) of such shares will vest as of the end of each monthly period
thereafter.

The specific terms and conditions of your Incentive Stock Option will be set
forth in an Incentive Stock Option Agreement between you and the Company. Such
agreement shall be in substantially the form approved by the Board of Directors
of the Company for use with the Plan, and will be executed after you commence
your employment with the Company pursuant to this letter.

As a Company employee, you will be expected to abide by Company rules and
regulations, and acknowledge in writing that you have read the Company's
Employee Handbook (once it has been made available to you). As a condition of
employment, you will be required to sign and comply with a Proprietary
Information and Inventions Agreement, a copy of which is attached hereto as
Exhibit A, which, among other things, prohibits unauthorized use or disclosure
of Company proprietary information.

Normal working hours are from 8:30 a.m. to 5:30 p.m., Monday through Friday. As
an exempt salaried employee, you will be expected to work additional hours as
required by the nature of your work assignments.

You may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company in writing no later than two
weeks prior to the date of such termination. Likewise, the Company may terminate
your employment at any time and for any reason whatsoever, with or without cause
or advance notice. This at-will employment relationship cannot be changed except
in a writing signed by a Company officer.

The employment terms in this letter supersede any other agreements or promises
made to you by anyone, whether oral or written, and comprise the final, complete
and exclusive agreement between you and the Company. As required by law, this
offer is subject to satisfactory proof of your right to work in the United
States.

Please sign and date this letter, and return it to me as soon as possible if you
wish to accept employment at the Company under the terms described above. If you
accept our offer, we would like you to start on June 14, 1999.

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We look forward to your favorable reply and to a productive and enjoyable work
relationship.

Sincerely,

MP3.COM, INC.

By:     /s/ DELON DOTSON
   --------------------------------------------------------
        Delon Dotson, Executive Vice President, Engineering

ACCEPTED BY:

      /s/ GREGORY P. KOSTELLO
----------------------------------------
        Gregory P. Kostello

      June 11, 1999
----------------------------------------
        Date

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                                    EXHIBIT A

                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT<PAGE>   1
                                                                   EXHIBIT 10.32

                    SECOND AMENDMENT TO SETTLEMENT AGREEMENT

               This Amendment, dated as of February 28, 2001 ("Amendment") to
the Amendment to the Settlement Agreement, dated December 28, 2000, which
amended the Settlement Agreement, dated as of October 17, 2000 ("Settlement
Agreement"), is made by and between, on the one hand, The Harry Fox Agency, Inc.
("HFA"), a New York corporation, MPL Communications, Inc. ("MPL") a New York
Corporation, and Peer International Corporation ("Peermusic"), a New Jersey
corporation, and on the other hand, MP3.com, Inc. ("MP3.com"), a Delaware
corporation.

                                    RECITALS

               WHEREAS, the parties hereto (the "Parties") wish to extend the
deadline by which individual HFA publisher principals must approve the
Settlement Agreement, as amended, so that the Parties can maximize the number of
music publishers that participate in the settlement and secure any corresponding
licenses provided therein; and

               WHEREAS, all capitalized terms used herein but not defined shall
have the meanings given to such terms in the Settlement Agreement, as amended.

               NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants, undertakings, and conditions set forth herein, and
for value received, the sufficiency of which is hereby acknowledged, the Parties
agree to amend the Settlement Agreement as follows:

                                    AGREEMENT

I.      Amendments

        A. Section 1.5 of the Settlement Agreement is hereby amended and
restated in its entirety to read as follows:

               1.5 "Effective Date" shall mean the date that is the earlier of
               (i) March 30, 2001, or (ii) the date on which HFA returns all
               monies due to MP3.com, if any, pursuant to Sections 5.1 and 5.2,
               provided that this Settlement Agreement has not been terminated
               prior to such date pursuant to Sections 5.1(b), 5.2(b), or 9.1.

        B. Section 1.11 of the Settlement Agreement is hereby amended and
restated in its entirety to read as follows:

               1.11 "Response Date" shall mean March 23, 2001.

        C. Section 5.1(a) of the Settlement Agreement is hereby amended and
restated to read as follows:

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               5.1    Settlement Payment

                      (a) Fifteen million dollars ($15,000,000) of the Total
               Payment (the "Settlement Payment") shall be used to settle claims
               against MP3.com pursuant to Section 2 above. In the event that
               HFA does not receive by the Response Date executed endorsements
               of Settlement and License Notice and Authorization forms from all
               of the Relevant HFA Publisher-Principals, HFA will return to
               MP3.com an amount that shall be calculated by multiplying the
               Settlement Payment by the Percent Market Share, and then
               subtracting that figure from the Settlement Payment. HFA shall
               return such amount, if any, with accrued interest, to MP3.com by
               wire transfer on or by March 30, 2001. For purposes of this
               Section only, Percent Market Share shall be calculated by
               determining the percentage of Total Revenues attributable to the
               Settling HFA Publisher-Principals and Additional Settling HFA
               Publisher-Principals combined, and Total Revenues shall be the
               sum of all royalties distributed to Relevant HFA
               Publisher-Principals by HFA over the previous two (2) full
               calendar years (i.e., 1998 and 1999).

        D. Section 5.2(a) of the Settlement Agreement is hereby amended and
restated to read as follows:

               5.2    Advance Payment.

                      (a) Fifteen million dollars ($15,000,000) of the Total
               Payment (the "Advance Payment") shall be used as a recoupable,
               nonrefundable advance to Licensing HFA Publisher-Principals for
               royalties due under licenses issued pursuant to the Governing
               Agreement during the term thereof. In the event that HFA does not
               receive by the Response Date written authorization to issue
               licenses to MP3.com for the use of Copyrighted Works as provided
               in the Governing Agreement, in the form of executed endorsements
               of Settlement and License Notice and Authorization forms or
               License Only Notice and Authorization forms, from all of HFA's
               Publisher-Principals, excluding Universal Music Group and its
               Affiliates, HFA will return to MP3.com an amount that shall be
               calculated by multiplying the Advance Payment by the Percent
               Market Share, and then subtracting that figure from the Advance
               Payment. HFA shall return such amount, if any, with accrued
               interest, to MP3.com by wire transfer on or by March 30, 2001.
               For purposes of this Section only, Percent Market Share shall be
               calculated by determining the percentage of Total Revenues
               attributable to Licensing HFA Publisher-Principals, provided,
               however, that, consistent with Section 5.2(c), should a Licensing
               HFA Publisher-Principal, in accordance with the Settlement and
               License Notice and Authorization or License Only Notice and
               Authorization, choose to license some, but not all, of its
               Copyrighted Works, that Licensing HFA Publisher-Principal's
               revenues will be determined based solely on the revenues
               generated by the Copyrighted Works it has licensed. For purposes
               of this Section only, Total Revenues shall be the sum of all
               royalties distributed to HFA Publisher-Principals, excluding
               Universal Music Group and its Affiliates, by HFA over the
               previous two (2) full calendar years (i.e., 1998 and 1999).

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II. Controlling Document. The provisions of the Settlement Agreement, as
modified by this Amendment and the Amendment dated December 28, 2000, shall
remain in full force and effect. The parties acknowledge that the Letter
Agreement ("Letter Agreement"), dated as of December 4, 2000, as amended,
between MP3.com and HFA, including but not limited to MP3.com's waivers of
Sections 5.1(b) and 5.2(b) of the Settlement Agreement, remains in full force
and effect in its entirety, except that all capitalized terms in the second
paragraph of the Letter Agreement shall have the meaning set forth in the
Settlement Agreement, as modified by this Amendment.

III. Counterparts. This Amendment may be executed in any number of counterparts,
each of which may be executed by less than all of the Parties hereto, and all of
which together shall constitute one instrument. This Amendment may be executed
and delivered by facsimile and the Parties agree that such facsimile execution
and delivery shall have the same force and effect as delivery of an original
document with original signatures, and that each Party may use such facsimile
signatures as evidence of the execution and delivery of this Amendment by all
Parties to the same extent that an original signature could be used.

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               IN WITNESS WHEREOF, the Parties have caused this Amendment to the
Settlement Agreement to be executed by their duly authorized representatives as
of the date first above written.

                                    THE HARRY FOX AGENCY, INC.

                                    By: /s/ ROBERT SHAW
                                       ----------------------------------
                                    Name: Robert Shaw
                                    Title: COO

                                    MPL COMMUNICATIONS, INC.

                                    By: /s/ unreadable
                                       ----------------------------------
                                    Name:
                                    Title:  Vice President

                                    PEER INTERNATIONAL CORPORATION

                                    By: /s/ RALPH PEER II
                                       ----------------------------------
                                    Name: Ralph Peer
                                    Title: Chairman

                                    MP3.COM, INC.

                                    By: /s/ DERRICK OIEN
                                       ----------------------------------
                                    Name: Derrick Oien
                                    Title:  Chief Operating Officer

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