Document:

Severance Agreement Between Thomas Klopack and ACLARA BioSciences, Inc.

 
EXHIBIT 10.40

 
March 18, 2003 
 
Mr. Thomas Klopack 
864 Chelsea Lane 
Encinitas, CA 92024

 
Re:    Severance
Agreement 
 
Dear Tom: 
 
ACLARA BioSciences, Inc. (the “Company”) considers
it essential to the best interests of its shareholders to foster the continuous employment of the Company’s key management personnel. In order to induce you to remain in its employ, the Company hereby agrees that after this letter agreement
(this “Agreement”) has been fully executed, you shall receive the severance benefits set forth in this Agreement in the event of a Hostile Takeover (as defined below) or that your employment with the Company is terminated under the
circumstances described below. 
 
1.    Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect so long as you continue to be employed by the Company. 
 
2.    Definitions. 
 
(a)    For purposes of this Agreement,
“Board” shall mean the Board of Directors of the Company. 
 
(b)    For purposes of this Agreement, “Cause” shall mean (i) gross negligence or willful misconduct in the performance of duties to the Company where such gross
negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; (ii) repeated unexplained or unjustified absence from the Company; (iii) a material and willful violation of
any federal or state law which results or is likely to result in substantial and material harm to the company or its standing and reputation; (iv) commission of any act of fraud with respect to the Company; or (v) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board. 
 
(c)    For purposes of this Agreement, a “Change in Control” shall mean (i) an acquisition of any
voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act) (“Beneficial Ownership”) of 15% or more of the combined
voting power of the Company’s then outstanding Voting Securities without the approval of the Board; (ii) a merger or consolidation 
 

that results in more than 50% of the combined voting power of the Company’s then outstanding Voting Securities of the Company or its
successor changing ownership (whether or not approved by the Board); (iii) the sale of all or substantially all of the Company’s assets; (iv) approval by the shareholders of the Company of a plan of dissolution or complete liquidation of the
Company; or (v) the individuals constituting the Board as of the date of this Agreement (the “Incumbent Board”) cease for any reason to constitute at least 1⁄2 of the members of the Board; provided, however, that if
the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of the Incumbent Board, such new director shall be considered a member of the Incumbent Board. 
 
(d)    For purposes of this Agreement,
“Date of Termination” shall mean (i) if your employment is terminated due to your death or Disability, the date of your death or Disability; or (ii) if your employment is terminated for any reason other than death or Disability, the
date specified in the Notice of Termination. 
 
(e)    For purposes of this Agreement, “Disability” shall mean that you have been unable to perform your duties to the Company as described in your offer letter of even date herewith, as the same
may be amended from time to time, as a result of your mental or physical incapacity and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Company and
acceptable to you or your legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days’ written notice by the Company of
its intention to termination your employment as a result of your Disability. In the event that you resume the performance of substantially all of your duties before the termination of your employment becomes effective, the notice of intent to
terminate automatically shall be deemed to have been revoked. 
 
(f)    For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events without your prior written consent, unless the Company fully corrects the
circumstances constituting Good Reason (provided such circumstances are capable of correction) prior to the Date of Termination: 
 
(i)    any material reduction of your duties or level of responsibility or material in the level of
management to which you report (provided, however, that any such changes occurring as a result of the hiring of a Chief Operating Officer by the Company shall not be deemed to constitute Good Reason for purposes of this Agreement). For
purposes of clarification only and without limiting the foregoing, a material reduction in your level of responsibility shall be deemed to have occurred if you are not Chief Executive Officer of the combined or acquiring entity following a Change in
Control; 
 
(ii)    any reduction of your base compensation; or 
 
(iii)    the relocation of the Company’s offices at which you are principally employed to a
location more than 35 miles from such offices. 
 
Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 
 

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(g)    For purposes of this Agreement, a “Hostile Takeover” means a transaction or series of transactions that results in any person acquiring Beneficial Ownership of more than 50% of the combined
voting power of the Company’s then outstanding Voting Securities without the approval of the Board. 
 
(h)    For purposes of this Agreement, “Notice of Termination” shall mean a notice that shall
indicate the specific termination provision in this Agreement (if any) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated.
Any purported termination of your employment by the Company or by you (other than termination due to your death, which shall terminate your employment automatically) shall be communicated by a written Notice of Termination to the other party hereto
in accordance with Section 7. 
 
(i)    For purposes of this Agreement, a “Payment Termination” shall mean (i) the termination of your employment by the Company without Cause or (ii) your voluntary termination of employment for
Good Reason or (iii) your death or Disability. 
 
3.    Accelerated Vesting Upon A Hostile Takeover. Upon a Hostile Takeover during the term of this Agreement, you shall immediately become 100% vested with respect to any options to purchase the
Company’s capital stock that you then hold and/or any restrictions with respect to restricted shares of the Company’s capital stock that you then hold shall immediately lapse. 
 
4.    Compensation Upon Termination Not
in Connection with Change in Control. 
 
(a)    Except as provided for in paragraph 4(d), if your employment with the Company is terminated other than in a Payment Termination, the Company shall pay you your full earned but unpaid base salary, when due,
through the Date of Termination plus all other amounts to which you are entitled under any compensation plan or practice of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement.

 
(b)    Except as provided
for in paragraph 5(c), if you incur a Payment Termination more than three (3) months prior to or more than twelve (12) months following a Change in Control, then, in lieu of any severance benefits to which you may otherwise be entitled under any
severance plan or program of the Company, you shall be entitled to the benefits provided below: 
 
(i)    the Company shall, at the time specified in Section 4(c), pay to you your full earned but
unpaid base salary, when due, through the Date of Termination plus all other amounts to which you are entitled under any compensation plan or practice of the Company at the time such payments are due; 
 
(ii)    you shall be
entitled to receive, at the times specified in Section 4(c), severance pay in an amount equal to the sum of 
 

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(A)    your annual base salary as in effect
immediately prior to delivery of the Notice of Termination, plus 
 
(B)    your targeted annual bonus for the year in which the Date of Termination occurs assuming that the bonus targets are satisfied; 
 
(iii)    the Company shall
provide you with outplacement services in an amount not to exceed $15,000; 
 
(iv)    for the period beginning on the Date of Termination and ending on the date which is 12 full months following the Date of Termination, the Company shall pay for and provide
you and your dependents with the same medical benefits and life insurance coverage to which you would have been entitled had you remained continuously employed by the Company during such period. At the termination of the benefits coverage under the
first sentence of this Section 4(b)(v), you and your dependents shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”), Sections 601-608 of the Employee Retirement
Income Security Act of 1974, as amended, and under any other applicable law, to the extent required by such laws, as if you had terminated employment with the Company on the date such benefits coverage terminates; and 
 
(v)    the vesting of any
options to purchase the Company’s capital stock that you then hold and/or any restrictions with respect to restricted shares of the Company’s capital stock that you then hold shall be accelerated to the extent such options and/or
restrictions would have vested or lapsed had you remained continuously employed by the Company for a period of one year following such Payment Termination. 
 
(c)    The payments provided for in Sections 4(b)(i) and (ii) shall be paid in a lump sum within five (5) days of the
Date of Termination. 
 
5.    Termination in Connection with Change in Control. 
 
(a)    In the event a Payment Termination occurs within the period beginning three (3) months prior to or twelve (12)
months following a Change in Control, then, in lieu of any severance benefits to which you may otherwise be entitled under any severance plan or program of the Company, you shall be entitled to the benefits provided below: 
 
(i)    the Company shall,
at the time specified in Section 5(b), pay to you your full earned but unpaid base salary, when due, through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled
under any compensation plan or practice of the Company at the time such payments are due; 
 
(ii)    you shall be entitled to receive, at the times specified in Section 5(b), severance pay in an
amount equal to the sum of 
 
(A)    the greater of (x) your annual base salary as in effect immediately prior to delivery of the Notice of Termination or (y) your annual base salary as in effective immediately prior to the Change in Control,
plus 
 

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(B)    the greater of (x) your targeted annual bonus for the year in which the Date of Termination occurs or (y) your targeted annual bonus for the year in which the Change in Control occurs, in each case assuming
that the bonus targets are satisfied; and 
 
(iii)    the Company shall provide you with outplacement services in an amount not to exceed $15,000; 
 
(iv)    for the period beginning on the Date of Termination and ending on the date which is 12 full
months following the Date of Termination, the Company shall pay for and provide you and your dependents with the same medical benefits and life insurance coverage to which you would have been entitled had you remained continuously employed by the
Company during such period. At the termination of the benefits coverage under the first sentence of this Section 4(b)(v), you and your dependents shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of
1986, as amended (the “Code”), Sections 601-608 of the Employee Retirement Income Security Act of 1974, as amended, and under any other applicable law, to the extent required by such laws, as if you had terminated employment with the
Company on the date such benefits coverage terminates; and 
 
(v)    you shall immediately become 100% vested with respect to any options to purchase the Company’s capital stock that you then hold and/or any restrictions with respect to
restricted shares of the Company’s capital stock that you then hold shall immediately lapse. 
 
(b)    The payments provided for in Sections 5(a)(i) and (ii) shall be paid in a lump sum within five (5) days of the
Date of Termination. 
 
(c)    In the event of a Change in Control, if the Company requests that you remain employed by the Company following the Change in Control upon written notice to you within twenty (20) days following such Change
in Control, you agree to do so for a period of time to be mutually determined by the Company in consultation with you but not to exceed six (6) months (the “Transition Period”). During the Transition Period you shall continue in the
Company’s employment as a senior executive for the purpose of facilitating the transition of the Company to new management. During the Transition Period, the Company shall continue to pay your compensation at the rate in effect at the time of
the Change in Control. The benefits payable pursuant to Section 5(a) above shall not be paid until the completion of the Transition Period, if any. At the end of the Transition Period, you shall be entitled to the benefits described in Section 5(a)
above; provided, however, that any accelerated vesting to which you are entitled pursuant to Section 5(a)(v) shall be effective immediately upon the commencement of the Transition Period. In the event of a Payment Termination during
the Transition Period, you shall be entitled to the benefits described in Section 5(a) above; provided, however, that your acceptance of a reduced or different role with the Company during the Transition Period shall not alone
constitute “Good Reason.” If the Company requests that you remain employed by the Company during the Transition Period, Section 6 of this Agreement shall not apply until the termination of the Transition Period. 
 

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(d)    For the period beginning three (3) months prior to and ending twelve (12) months following a Change of Control, in the event of a Payment Termination, benefits shall be payable to you only pursuant to this
Section 5 and you shall not be entitled to any benefits pursuant to Section 4 (including, without limitation, Section 4(d)). 
 
6.    Post-Termination Consulting. In the event you resign (other than for Good Reason, in which case this
Section 6 shall not apply and you shall be entitled to the benefits set forth in Section 4(b) or Section 5(a), as applicable) at any time after one (1) year following commencement of your employment with the Company, you may elect upon written
notice to the Company within ten (10) days following such resignation, or, if you do not so elect, the Company may elect upon written notice to you within twenty (20) days following such resignation to require you, to consult for the Company for up
to two (2) days per week for a six (6) month period following such resignation, during normal business hours, upon reasonable advance notice from the Company and, to the extent requested by the Company, on site at the Company’s facilities in
the San Francisco Bay Area. In the event of such an election, during such six (6) month period, you will consult on such transitional matters as are reasonably requested by the Company, you will be paid a consulting fee of $11,500 per month (paid on
regular company pay days, subject to normal withholdings, and regardless of whether consulting services are actually performed), the provisions of paragraph 8(b) of your offer letter of even date herewith between you and the Company will remain in
effect and you will not knowingly assist any person or organization in competing with the Company, in preparing to compete with the Company or in hiring any employees of the Company. Such consulting arrangement may be terminated at any time by
either you or the Company, but if the Company terminates such arrangement without Cause or you terminate for Good Reason, the Company will pay you in a lump sum on the date of such termination the remaining amount of the consulting fee you would
have earned had you continued such arrangement for the entire six (6) month period; provided, however, that your acceptance of a reduced or different role with the Company during the consulting period and the Company’s requirement
that you work at the Company’s facilities in the San Francisco Bay Area during the consulting period shall not alone constitute “Good Reason.” 
 
7.    Successors; Binding Agreement. 
 
(a)    The Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Unless expressly provided otherwise, “Company” as used herein shall mean the Company as defined in this Agreement and any successor to its business and/or assets as aforesaid.

 
(b)    This Agreement shall
inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you
hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate.

 

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(c)    You shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by you as the result of employment by another employer or self-employment, by retirement benefits, by offset against any amounts (other than loans or advances to you by the Company) claimed to be owed
by you to the Company, or otherwise. 
 
8.    Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by
United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention
of its Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 
 
9.    Parachute Payments.
Notwithstanding anything contained in this Agreement to the contrary, in the event that the benefits provided for in this Agreement to you together with all other payments and the value of any benefit received or to be received by you: 
 
(a)    constitute “parachute
payments” within the meaning of Section 280G of the Code, and 
 
(b)    but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then your benefits pursuant to the terms of this Agreement shall be payable either: 
 
(i)    in full, or

 
(ii)    as
to such lesser amount which would result in no portion of such benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the
excise tax imposed by Section 4999, results in the receipt by you on an after-tax basis, of the greatest amount of benefits under this Agreement, notwithstanding that all or some portion of such benefits may be subject to the excise tax imposed
under Section 4999 of the Code. Unless the Company and you otherwise agree in writing, any determination required under this Section 9 shall be made in writing by the Company’s independent public accountants serving immediately before the
Hostile Takeover or Change in Control (the “Accountants”), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this Section 9, the
Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company shall cause the
Accountants to provide detailed supporting calculations of its determinations to you and the Company. You and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 9. 
 

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10.    Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without regard to its conflicts of law principles. All
references to sections of the 1934 Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local
law. The obligations of the Company under Sections 4, 5 and 6 shall survive the expiration of this Agreement. The section headings contained in this Agreement are for convenience only, and shall not affect the interpretation of this Agreement.

 
11.    Severability.
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 
 
12.    Counterparts. This Agreement
may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 
 
13.    Entire Agreement. This Agreement and the offer letter between you and the
Company of even date herewith set forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative of any party hereto, and any prior agreement of the parties hereto in respect of the subject matter contained herein, including, without limitation, any prior severance
or change in control agreements, is hereby terminated and cancelled. Any of your rights hereunder shall be in addition to any rights you may otherwise have under benefit plans or agreements of the Company (other than severance plans or agreements)
to which you are a party or in which you are a participant, including, but not limited to, any Company sponsored employee benefit plans and stock options plans. The provisions of this Agreement shall not in any way abrogate your rights under such
other plans and agreements. 
 
14.    At-Will Employment. Nothing contained in this Agreement shall (a) confer upon you any right to continue in the employ of the Company, (b) constitute any contract or agreement of employment, or (c)
interfere in any way with the at-will nature of your employment with the Company. 
 
If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which shall then constitute our agreement on this subject.

 

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	 Sincerely,
  
 ACLARA BIOSCIENCES, INC.

	
	 By:
	 	  
 /s/    Kevin Tang        

	 Its:
	 	 For the Board of Directors

 
Agreed and
Accepted, 
this 19 day of March, 2003. 
 

	
	  
 /s/    Thomas Klopack        

	 Thomas Klopack

 

9<PAGE>
                                                                   Exhibit 10.57

                            ASSET PURCHASE AGREEMENT

     This Asset Purchase Agreement (hereinafter "Agreement"), having an
Effective Date of September 27, 2002, is entered into by Liquid Audio, Inc., a
Delaware corporation (hereinafter "Liquid Audio"), and Microsoft Corporation, a
Washington corporation (hereinafter "Microsoft").

     Whereas Liquid Audio is the owner of full right and title (both legal and
equitable) to certain inventions, patents, and applications, defined herein as
"Liquid Audio Patents"; and

     Whereas Microsoft is desirous of acquiring the entire domestic and foreign
right title and interest in and to such Liquid Audio Patents.

     Now, therefore, Liquid Audio and Microsoft hereby covenant, agree and
assign as follows:

1. DEFINITIONS
      1.1. "Liquid Audio Products" shall mean the complete line of products and
           services currently offered by Liquid Audio and future improvements
           and evolutions of those products and services. Liquid Audio Products
           does not include new additions in the product line, merged products
           or services, or other products or services with which Liquid Audio
           Products can be used. Liquid Audio Products comprise two separate
           components; retail integration products and services, and
           client/server products and services.
      1.2. "Liquid Audio Patents" shall mean those patents and applications
           identified as such in Exhibit B, including all U.S. and foreign
           patents and patent applications that claim priority to such
           identified patents and applications and all U.S. and foreign patents
           and applications to which such identified patents and applications
           relate or claim priority.
      1.3. "Subsidiary" shall mean a corporation, company or other entity 1)
           more than fifty percent (50%) of whose outstanding shares or
           securities (representing the right to vote for the election of
           directors or other managing authority) are, now or hereafter, owned
           or controlled, directly or indirectly, by a party hereto, but such
           corporation, company or other entity shall be deemed to be a
           Subsidiary only so long as such ownership or control exists; or 2)
           which does not have outstanding shares or securities, as may be the
           case in a partnership, joint venture or unincorporated association,
           but more than fifty percent (50%) of whose ownership interest
           representing the right to make the decisions for such corporation,
           company or other entity is, now or hereafter, owned or controlled,
           directly or indirectly, by a party hereto, but such corporation,
           company or other entity shall be deemed to be a Subsidiary only so
           long as such ownership or control exists.
2. TRANSFER OF RIGHTS

<PAGE>

      2.1. For good and valuable consideration, the receipt and sufficiency of
           which are hereby acknowledged, Liquid Audio and its Subsidiaries
           hereby assign and transfer to Microsoft and its representatives,
           successors and assigns their full and exclusive right, title and
           interest in and to all Liquid Audio Patents in the U.S. and every
           foreign country, including any parents, provisionals, continuations,
           continuations-in-part, divisions, reissue applications, extensions,
           Patent Cooperation Treaty applications, or derivatives of any of the
           foregoing, both foreign and domestic. Liquid Audio and its
           Subsidiaries also hereby assign and transfer to Microsoft and its
           representatives, successors and assigns their full and exclusive
           right, title and interest in and to all protectable (e.g., as by
           patenting) inventions, in the U.S. and every foreign country,
           described or embodied in the Liquid Audio Patents.
      2.2. Liquid Audio and its Subsidiaries hereby assign and transfer to
           Microsoft and its representatives, successors and assigns the full
           and exclusive right to recover all past damages and other potential
           relief arising from the Liquid Audio Patents assigned by this
           Agreement, including the full and exclusive right to pursue Civil
           Action Number 3:02cv3115, filed in US District Court for the Northern
           District of California (San Francisco), and naming Infosplit, Inc.,
           as defendant (the "Infosplit Suit").
      2.3. Microsoft will indemnify and hold harmless Liquid Audio, its current
           Subsidiaries, and their respective successors and assigns against any
           losses, claims, damages, or liabilities to which they may become
           subject in connection with the Infosplit Suit, insofar as such
           losses, claims, damages, or liabilities (or actions in respect
           thereof) arise out of or are based upon claims relating to the Liquid
           Audio Patents. Notwithstanding the foregoing, Microsoft will not
           indemnify and hold harmless Liquid Audio, its current Subsidiaries,
           or their respective successors and assigns against any losses,
           claims, damages, or liabilities to which they may become subject in
           connection with the Infosplit Suit, insofar as such losses, claims,
           damages, or liabilities (or actions in respect thereof) arise out of
           or are based upon claims relating to Liquid Audio's business
           practices, including as yet unasserted claims relating to any past
           conduct of Liquid Audio in bringing or prosecuting the Infosplit
           Suit.
      2.4. The parties agree to take such steps as may be required to effect a
           substitution of parties in the Infosplit Suit in accordance with the
           Federal Rules of Civil Procedure (the "Substitution") within 45
           business days following the date of this Agreement. Microsoft will
           assume responsibility for all legal fees and expenses incurred in
           connection with the Infosplit Suit after the date of this Agreement.
      2.5. For the purpose of recordation and in accordance with the transfers
           herein, at the same time as this Agreement is executed, Liquid Audio
           shall execute the assignment document attached as Exhibit A listing
           certain specific patents and applications of the Liquid Audio
           Patents.
      2.6. Liquid Audio and its Subsidiaries hereby authorize and request the
           Commissioner of Patents to issue U.S. patents to Microsoft, its
           representatives, successors and assigns relating to the inventions
           and applications conveyed by this Agreement.

<PAGE>

      2.7. Liquid Audio and its Subsidiaries, convey to Microsoft, its
           representatives, successors and assigns, the right to make
           applications on their own behalf for protection of the inventions
           conveyed herein in the U.S. and foreign countries and to claim, under
           United States law, the Patent Cooperation Treaty, the International
           Convention and/or other international arrangements for any such
           application, priority to any earlier application or patent.
      2.8. Liquid Audio shall take reasonable procedural steps to maintain the
           currently extant foreign applications and all of the domestic
           applications listed in Exhibit B in good standing for a period up to
           60 days after the date of the Agreement.
      2.9. Liquid Audio shall pay any maintenance fee, annuity or the like, due
           with respect to any patents listed in Exhibit B, both foreign and
           domestic, up to 60 days after the date of the Agreement.
     2.10. Within 30 days of the Effective Date, Liquid Audio shall i)
           provide a complete and accurate docket identifying the relevant dates
           when any action or response is due within the next 12 months in any
           US and foreign patent offices with respect to the assigned patents
           and applications, and ii) transfer all files maintained by Liquid
           Audio outside counsel and in-house counsel to Microsoft for such
           assigned patents and applications.
3.  LICENSE TO LIQUID AUDIO
      3.1. Subject to the restrictions below relating to No Implied Licenses,
           Microsoft hereby grants to Liquid Audio and its Subsidiaries, a
           non-exclusive, worldwide, royalty-free, perpetual patent license to
           make, use, lease, license, distribute, import, sell or offer for sale
           Liquid Audio Products under the Liquid Audio Patents.
      3.2. This non-exclusive, worldwide, royalty-free, perpetual patent license
           to Liquid Audio and its Subsidiaries is transferable to any third
           party successor in interest to Liquid Audio's rights in and to the
           Liquid Audio Products or either component of the Liquid Audio
           Products, whether by exclusive license or asset sale (either such
           event being referred to hereinafter as a "Technology Transfer"), or
           by tender offer, merger, consolidation, reorganization, or subsidiary
           merger (any such event being referred to hereinafter as a "Change of
           Control"). Such transfer shall be affected by written notice by
           Liquid Audio to Microsoft, and shall have the legal effect of (i)
           granting to the acquiring party a non-exclusive, worldwide,
           royalty-free, perpetual patent license to make, use, lease, license,
           distribute, import, sell or offer for sale the transferred
           component(s) of the Liquid Audio Products under the Liquid Audio
           Patents, and (ii) in the event of a Technology Transfer (but not in
           the event of a Change of Control), terminating the license to Liquid
           Audio and its Subsidiaries with respect to the transferred
           component(s).
      3.3. Notwithstanding the transfer of Liquid Audio's patent license to a
           third party in accordance with Paragraph 3.2, Microsoft shall not
           assert any of the Liquid Audio Patents against Liquid Audio or its
           Subsidiaries during the terms of such patents for Liquid Audio's
           manufacture, use, leasing, licensing, distribution, importation, sale
           or offering for sale of any Liquid Audio Products.
4. NO IMPLIED LICENSES
      4.1. Microsoft does not grant to Liquid Audio or any other entity any
           implied licenses or rights whatsoever under this Agreement. Microsoft
           does not grant to Liquid

<PAGE>

           Audio or any other entity any express licenses or rights with respect
           to any patents other than the Liquid Audio Patents. No licenses or
           rights are granted to Liquid Audio or any other entity regarding
           subject matter not invented by employees, contractors or other agents
           of Liquid Audio.
      4.2. By way of example only, the license to Liquid Audio and its
           Subsidiaries does not include any express or implied licenses or
           rights to any enabling technologies that may be required to practice
           the inventions disclosed or claimed in the Liquid Audio Patents.
5.  PAYMENT
      5.1. As consideration for the assignment of rights granted by Liquid Audio
           herein, Microsoft shall pay to Liquid Audio on or prior to the
           Effective Date, the total sum of Seven Million U.S. Dollars
           ($7,000,000.00) (hereinafter referred to as the "Purchase Price").
           The assignment and license provisions set for the herein are
           contingent upon the payment of the foregoing sum to Liquid Audio.
      5.2. Payment under Paragraph 5.1 shall be made by electronic funds
           transfer. Such payment shall be deemed to be made on the date
           credited to the following account:
                Pay to:                         SIL VLY BK SJ
                Routing & Transit #:             121140399
                For Credit Of:                  Liquid Audio, Inc.
                Credit Account #:               3300041101 (SVB Checking)
6.  COVENANTS AND OTHER PROVISIONS
      6.1. Liquid Audio represents and warrants that (a) it is solvent as of the
           execution date of this Agreement, (b) it has the right to assign the
           patents, applications, inventions, and the right to pursue the
           Infosplit Suit which are referred to herein, and (c) it is conveying
           through this Agreement its undivided right, title and interest in and
           to the patents, applications and inventions, and to Liquid Audio's
           right to pursue the Infosplit Suit, as stated herein and that, to its
           knowledge, no other has any right to such property, except as
           explicitly stated herein.
      6.2. Liquid Audio represents and warrants that Exhibit B accurately
           identifies all patents and applications (foreign and domestic) owned
           by or assignable to (in whole or in part) Liquid Audio or any of its
           Subsidiaries. Liquid Audio further represents and warrants that no
           Liquid Audio Patents were withheld from this Agreement.
      6.3. Liquid Audio represents and warrants that no agreements with third
           parties under any of the Liquid Audio Patents prevent Liquid Audio
           from entering into this Agreement. Liquid Audio further represents
           and warrants that no entities have licenses with respect to the
           Liquid Audio Patents, other than licenses of the Liquid Audio
           Products.
      6.4. Liquid Audio represents and warrants that it has taken, and will
           take, no action materially adversely affecting the validity, scope,
           enforceability, patentability or issuance of the Liquid Audio
           Patents.
      6.5. Liquid Audio represents and warrants that, to its knowledge, all of
           the domestic patent applications listed in Exhibit B are in good
           standing and that none of such applications have been abandoned.

<PAGE>

      6.6. Liquid Audio represents and warrants that all maintenance fees and
           the like due with respect to any domestic patents listed in Exhibit B
           have been paid, and that all attorney's fees, court costs and the
           like due with respect to the Infosplit Suit have been paid.
      6.7. Liquid Audio represents and warrants that, to its knowledge, the
           Liquid Audio Patents are valid and enforceable, and that it is
           unaware of any facts that would render the Liquid Audio Patents
           invalid or un-enforceable.
      6.8. Liquid Audio represents and warrants that it owns the Liquid Audio
           Patents and the right to pursue the Infosplit Suit free and clear of
           any liens, encumbrances, security interests, or other claims except
           for the licenses noted in this Agreement.
      6.9. Liquid Audio shall pay all transfer taxes imposed on the sale of the
           acquired assets, including all sales, gross receipts, excise and
           gross income taxes. At the request of Liquid Audio, Microsoft will
           provide a valid resale certificate to Liquid Audio as soon as
           practicable after the date of the Agreement.
     6.10. Liquid Audio has timely filed (or caused to be filed) all federal,
           state, local and foreign tax returns, reports, elections, and
           information statements required to be filed by it with respect to the
           acquired assets, which returns are true, correct and complete in all
           respects, and paid all taxes required to be paid as shown on such
           returns. All taxes with respect to the acquired assets required to be
           paid for the periods covered by such returns or prior to the date of
           the Agreement have been paid.
     6.11. No deficiencies or adjustments for any tax with respect to the
           acquired assets have been claimed, proposed, assessed or threatened
           and no major stockholder, director or officer of Liquid Audio expects
           any authority to assess any additional taxes with respect to the
           acquired assets for any period for which returns have been filed.
           Except as so disclosed, Liquid Audio is not subject to any pending or
           threatened audit or examination regarding taxes with respect to the
           acquire assets.
     6.12. Liquid Audio covenants and agrees that neither it nor its
           Subsidiaries shall execute any writing or do any act whatsoever
           conflicting with the terms of this Agreement, and that Liquid Audio
           and its Subsidiaries will at any time upon request, without further
           or additional consideration, but at the expense of Microsoft, execute
           such additional assignments or other writings and perform such
           additional acts as Microsoft may deem necessary or desirable to
           perfect Microsoft's enjoyment of this Agreement. Liquid Audio further
           covenants and agrees, at Microsoft's expense, to render all necessary
           assistance in making application for, prosecuting in any patent
           office internationally, and obtaining original, continuation,
           continuation-in-part, divisional, reissued, reexamined, and National
           phase patents of the U.S. or of any and all foreign countries on the
           inventions assigned herein, and in enforcing any rights or choses in
           action accruing as a result of the rights assigned herein, and by
           executing statements and other affidavits, it being understood that
           the foregoing covenant and agreement shall bind, and inure to the
           benefit of, the assigns and representatives of all parties hereto.
     6.13. The parties acknowledge that Liquid Audio will be required to
           disclose the execution and delivery of this Agreement in a press
           release and to file a copy of

<PAGE>

           this Agreement as an attachment to a current report on Form 8-K with
           the Securities and Exchange Commission. The parties agree to issue a
           press release in the form attached as Exhibit C no later than the
           close of business on the date of this Agreement. Nothing in this
           provision shall prohibit the disclosure of this Agreement to the
           extent necessary to comply with any applicable laws or securities
           regulations.
     6.14. This Agreement and all matters relating to this Agreement shall be
           construed and controlled by the laws of the State of Washington.
     6.15. Except as otherwise provided in the Agreement, the parties shall pay
           their respective expenses incurred in connection with the
           preparation, execution, and delivery of this Agreement and the
           consummation of the transactions contemplated hereby.
     6.16. All notices, requests, demands, and other communications hereunder
           shall be deemed to have been duly given on the day they are (i)
           deposited in the U.S. mail, postage prepaid, certified or registered,
           return receipt requested, or (ii) sent by air express courier,
           charges prepaid, and addressed as follows:
   6.16.1. If to Microsoft: Microsoft Corporation, One Microsoft Way,
           Redmond, WA 98052-6399, Attention: Will Poole, with a copy to
           Microsoft Corporation, One Microsoft Way, Redmond, WA 98052-6399,
           Attention: John Weresh.
   6.16.2. If to Liquid Audio: Liquid Audio, Inc., 800 Chesapeake Drive,
           Redwood City, CA 94063, Attention: Robert Flynn; with a copy to
           Perkins Coie LLP, 101 Jefferson Drive, Menlo Park, CA 94025,
           Attention: Mark Albert.
   6.16.3. Such addresses may be changed, from time to time, by means of a
           written notice delivered by the party seeking to change such address
           in the manner provided for in this paragraph.
     6.17. This Agreement shall be binding upon and inure to the benefit of the
           parties and their respective Subsidiaries, successors and assigns.
     6.18. The invalidity or unenforceability of any term or provision, of this
           Agreement or the application of such term or provision to any person
           or circumstance shall not impair or affect the remainder of this
           Agreement or its application to other persons and circumstances, and
           the remaining terms and provisions shall remain in full force and
           effect.
     6.19. This Agreement constitutes the entire agreement between the parties
           and supersedes all prior agreements and understandings, oral and
           written, among the undersigned with respect to the subject matter
           hereof.
     6.20. The representations, warranties and covenants of Liquid Audio set
           forth in this Agreement shall continue until 12 months from the date
           of the Agreement at which time all representations and warranties for
           all causes of action under this Agreement shall expire, provided,
           however, that obligations of Liquid Audio for indemnifiable amounts
           arising out of fraud or willful misstatements or omissions of Liquid
           Audio will have no time limit and will not be subject to the cap on
           indemnification obligations below. With respect to claims by
           Microsoft for indemnification under this paragraph, Liquid Audio's
           aggregate indemnification obligations shall not exceed the Purchase
           Price. Notwithstanding the foregoing, no representation or warranty
           shall expire to the extent Microsoft has provided

<PAGE>

           Company written notice of Microsoft's claim prior to the expiration
           of the applicable survival period.

     In witness whereof, the parties hereto have caused this assignment to be
made and executed by duly authorized officers as of the dates indicated below.

Agreed to:                        Agreed to:
LIQUID AUDIO                      MICROSOFT CORPORATION

By: /s/Gerald Kearby              By:
    -------------                    ---------------------
Name: GERALD KEARBY               Name:
      -------------                    -------------------
Title: CEO                        Title:
       ---                              ------------------
Date: Sept 27, 2002               Date:
      -------------                     -------------------

                                  By:
                                     ----------------------
                                  Name:
                                       --------------------
                                  Title:
                                        --------------------
                                  Date
                                      --------------------

<PAGE>

           Company written notice of Microsoft's claim prior to the expiration
           of the applicable survival period.

     In witness whereof, the parties hereto have caused this assignment to be
made and executed by duly authorized officers as of the dates indicated below.

Agreed to:                        Agreed to:
LIQUID AUDIO                      MICROSOFT CORPORATION

By:                               By: William Poole
   ---------------------              -------------

Name:                             Name: William Poole
     -------------------                -------------

Title:                            Title: VP Windows
      ------------------                 ----------
Date:                             Date: 9-27-02
      ------------------                -------

                                  By:
                                     ----------------------
                                  Name:
                                       --------------------
                                  Title:
                                        --------------------
                                  Date
                                      --------------------

<PAGE>

           Company written notice of Microsoft's claim prior to the expiration
           of the applicable survival period.

     In witness whereof, the parties hereto have caused this assignment to be
made and executed by duly authorized officers as of the dates indicated below.

Agreed to:                        Agreed to:
LIQUID AUDIO                      MICROSOFT CORPORATION

By:                               By:
   --------------------              ---------------------
Name:                             Name:
     ------------------                -------------------
Title:                            Title:
      -----------------                 ------------------
Date:                             Date:
     ------------------                -------------------

                                  By: /s/ Richard P Emerson
                                      ---------------------
                                  Name: Richard P. Emerson
                                        -------------------
                                  Title: Senior VP, Corporate Dev.
                                         -------------------------
                                  Date Sept. 26, 2002
                                       -------------------

<PAGE>
                      EXHIBIT A TO ASSET PURCHASE AGREEMENT

                                   ASSIGNMENT

     WHEREAS, LIQUID AUDIO, a Delaware Corporation, (hereinafter referred to as
"Assignor") owns all right, title and interest in and to the inventions,
patents and patent applications (hereinafter referred to as the "Intellectual
Property") identified in Exhibit B attached hereto; and

     WHEREAS, MICROSOFT CORPORATION, a Washington Corporation, (hereinafter
referred to as "Assignee"), is desirous of acquiring the entire domestic and
foreign right, title, and interest in and under the Intellectual Property.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor assigns and transfers to
the Assignee and the Assignee's legal representatives, successors and assigns,
pursuant to the terms of a concurrently executed Asset Purchase Agreement, its
full and exclusive rights in and to the Intellectual Property in the U.S. and
every foreign country and its entire right, title, and interest in and to the
Intellectual Property and related applications (e.g., provisional applications,
non-provisional applications, continuations, continuations-in-part, divisionals,
reissues, reexaminations, National phase applications, including petty patent
applications, and utility model applications) that may be filed in the United
States and every foreign country on the Intellectual Property, and extensions or
derivations thereof, both foreign and domestic, that may issue thereon, and we
do hereby authorize and request the Commissioner of Patents to issue U.S.
patents to the above-mentioned Assignee agreeably with the terms of this
assignment document. Further, Assignor assigns and transfers to the Assignee and
the Assignee's legal representatives, successors and assigns the full and
exclusive right to recover all past damages and other potential relief arising
from the Intellectual Property assigned by this Agreement, including the full
and exclusive right to pursue Civil Action Number 3:02cv3115, filed in US
District Court for the Northern District of California (San Francisco), and
naming Infosplit, Inc., as defendant.

     ASSIGNOR HEREBY AUTHORIZES the Assignee to insert in Exhibit B to this
assignment document the filing date and application number of any application if
the date and number are unavailable at the time this document is executed.

     UPON SAID CONSIDERATION, Assignor conveys to the Assignee the right to make
application in its own behalf for protection of the Intellectual Property in the
U.S. and countries foreign to tine U.S. and to claim under the Patent
Cooperation Treaty, the International Convention and/or other international
arrangement for any such application the date of any earlier U.S. application
(or any other application on the invention) to gain priority with respect to
other applications.

<PAGE>

     IN WITNESS WHEREOF, Assignor has caused one of its officers to hereunder
set his hand on the date shown below.

Date Sept 27, 2002
     ------------------------
     /s/ Gerald W. Kearby CEO
     ------------------------
          Title

STATE OF CALIFORNIA       )
         ----------
                          ) SS:
COUNTY OF SAN MATEO       )
          ---------

On this 27th day of September, 2002, before me, a Notary Public in and for
said county, appeared GERALD KEARBY, who is personally proved to me to be the
same person whose name is subscribed to the foregoing assignment document, and
acknowledged that he/she signed and delivered as his/her free and voluntary act
for the uses and purposes therein set forth.

       K. Rathod
       ---------
               Notary Public
 [SEAL]
         My Commission Expires  03/14/2006
                                ----------

<PAGE>

                      EXHIBIT B TO ASSET PURCHASE AGREEMENT

Select Liquid Audio Patents:

US. Patent No. 5,852,800, to Modeste, et al.
Title:  Method and Apparatus for user Controlled Modulation and Mixing for
Digitally Stored Compressed Data
Issued: December 22, 1998

U.S. Patent No. 6,121,904, to Levine, E.
Title:  Lossless Data Compression with Low Complexity
Issued: September 19, 2000

U.S. Patent No. 6,028,541, to Levine, E.
Title:  Lossless Data Compression with Low Complexity
Issued: February 22, 2000

U.S. Patent No. 6,118,392, to Levine, E.
Title:  Lossless Data Compression with Low Complexity
Issued: September 12,2000

U.S. Patent No. 6,043,763, to Levine, E.
Title:  Lossless Data Compression with Low Complexity
Issued: March 28, 2000

U.S. Patent No. 6,125,348, to Levine, E.
Title:  Lossless Data Compression with Low Complexity
Issued: September 26, 2000

U.S. Patent No. 6,330,673, to Levine, E.
Title:  Robust Watermark Method and Apparatus for Digital Signals
Issued: December 11, 2001

U.S. Patent No. 6,209,094, to Levine, E., et al.
Title:  Robust Watermark Method and Apparatus for Digital Signals
Issued: March 27, 2001

U.S. Patent No. 6,345,100, to Levine, E
Title:  Robust Watermark Method and Apparatus for Digital Signals
Issued: February 5, 2002

U.S. Patent No. 6,320,965, lo Levine, E.
Title:  Secure Watermark Method and Apparatus for Digital Signals
Issued: November 20, 2001

U.S. Patent No. 6,219,634, to Levine, E.
Title:  Efficient Watermark Method and Apparatus for Digital Signals
Issued: April 17, 2001

                                       1

<PAGE>

U.S. Patent No. 6,151,631, to Ansell, et al.
Title:  Territorial Determination of Remote Computer Location in a Wide Area
Network for Conditional Delivery of Digitized Products
Issued: November 21, 2000

US Patent No, 6,266,644, to Levine, S.
Title:  Audio Encoding Apparatus and Methods
Issued: July 24, 2001

U.S. Patent No. 6,330,675, to Wiser, et al.
Title:  System and Method for Secure Transfer of Digital Data to a Local
Recordable Storage Medium
Issued: December 11,2001

U.S. Patent No. 6,367,019, to Ansell, et al.
Title:  Copy Security for Portable Music Players
Issued: April 2, 2002

U.S. Patent No. 6,385,596, to Wiser, et al.
Title:  Secure Online Music Distribution System
Issued: May 7,2002

Select Liquid Audio Applications:

U.S. Serial No. 09/522,061, filed March 9,2000, by Wiser, et al.
Title:  Secure Online Music Distribution System
Atty Docket P-2110.01

U.S. Application No. 08/966,072, filed July 11,1997, by Wiser, et al.
Title:  Digital Audio Signal Filtering Mechanism and Method
Atty Docket P-2064

U.S. Application No. 09/289,513, filed April 9,1999, by Wiser, et al.
Title:  Secure Online Music Distribution System
Atty Docket P-2090

U.S. Serial No. 09/551,260, filed April 18, 2000, by Ansell, et al.
Title:  Territorial Determination of Remote Computer Location in a Wide Area
Network for Conditional Delivery of Digitized Products
Atty Docket P-2091.01

U.S. Application No. 09/389,842, filed September 2, 1999, by Levine, E., et al.
Title:  Server Side Watermark Data Writing Method and Apparatus for Digital
Signals
Atty Docket P-2100

U.S. Application No. 09/468,279, filed December 20,1999, by Ansell, et al.
Title:  Adaptable Security Mechanism for Preventing Unauthorized Access of
Digital Data
Atty Docket P-2131

                                       2

<PAGE>

U.S. Application No. 09/645,014, filed August 23, 2000, by Lucas, et al.
Title:  Remote Software Installation and Maintenance
Atty Docket P-2138DI

U.S. Application No 09/645,013, filed August 23, 2000, by Lucas, et al.
Title:  Remote Software Installation and Maintenance
Atty Docket P-2138D2

U.S. Application No. 09/773,256, filed January 30, 2001, by Brownell et al.
Title:  Security Mechanism for Computer Processing Modules
Atty Docket P-2170

U.S. Provisional Application No. 60/353,581, filed January 30, 2002, by
Brownell,et al.
Title:  Digital Rights Management
Atty Docket PR-2219

SELECT LIQUID AUDIO FOREIGN-FILED APPLICATIONS:

EP Application No. EP20000921844, filed April 7,2000, naming Wiser, Cherenson,
Ansell, and Cannon
Title:  Secure Online Music Distribution System
Any Docket P-2090-EP

Japanese Application No. 2000-611,258, filed November 2, 2001, naming Wiser, et
al.
Title:  Secure Online Music Distribution System
Any Docket P-2090-JP

EP Application No. EP19990953187, filed October 15,1999, naming Ansell and
Cherenson
Title:  Territorial Determination of Remote Computer Location in A Wide Area
Network for Conditional Delivery of Digitized Products
Any Docket P-2091-EP

Japanese Application No. 2000-576,334, filed October 15. 1999, naming Ansell,
et al.
Title:  Territorial Determination of Remote Computer Location in A Wide Area
Network for Conditional Delivery of Digitized Products
Atty Docket P-2091-JP

PCT Application No.WO2000USO8118, filed March 24, 2000, naming Ansell,
Cherenson, Paley, Katz, Kelsey, and Schneier
Title:  Copy Security for Portable Music Players
Atty Docket P-2098-PCT

EP Application No. EP20000918450, filed March 24,2000, naming Ansell, Cherenson,
Paley, Katz, Kelsey, and Schneier
Title:  Copy Security for Portable Music Players
Atty Docket P-2098-EP

                                       3

<PAGE>

Japanese Application No. 2000-608,380, filed, naming Ansell, et al.
Title: Copy Security for Portable Music Players
Atty Docket P-2098-JP

PCT Application No. WO2000US28205, filed October 11,2000, naming Ansell, et al.
Title: Adaptable Security Mechanism for Preventing Unauthorized Access of
Digital Data
Atty Docket P-2131-PCT

Japanese Application No. 2001-547,236, filed June 20, 2002, naming Ansell,
et al.
Title: Adaptable Security Mechanism for Preventing Unauthorized Access of
Digital Data
Atty Docket P-213J-JP

EP Application No. EP20000976565, filed October 11, 2000, naming Ansell, et al.
Title: Adaptable Security Mechanism for Preventing Unauthorized Access of
DigitalData
Atty Docket P-2131-EP

PCT Application No. WO2002US01746, filed January 22, 2002, naming Brownell, et
al.
Title: Security Mechanism for Computer Processing Modules
Atty Docket P-2I70-PCT

                                       4

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