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EXHIBIT 10.35
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
KEITH F. PARK (54275)
TRAVIS E. DOWNS, III (148274)
AMBER L. ECK (177882)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
CAULEY, GELLER, BOWMAN
& COATES, LLP
PAUL J. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone: 561/750-3000
561/750-3364 (fax)
Co-Lead Counsel for Plaintiffs
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN DIEGO
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E. PAUL LARRET, Derivatively on Behalf of ) Lead Case No. GIC 754696
MP3.COM, INC., ) (CONSOLIDATED)
)
Plaintiff, ) (Derivative Action)
)
vs. ) Assigned To:
) Judge Raymond F. Zvetina
MICHAEL L. ROBERTSON, et al., ) STIPULATION OF SETTLEMENT
)
Defendants, )
)
- and - )
)
MP3.COM, INC., a Delaware corporation, )
)
Nominal Defendant. ) DEPT: 67
) DATE ACTION FILED: 9/14/00
STIPULATION OF SETTLEMENT
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This Stipulation of Settlement dated as of March 20, 2001 (the
"Stipulation") is made and entered into by and among the following Settling
Parties (as defined further in Section IV hereof): (i) the Representative
Plaintiffs (on behalf of themselves and derivatively on behalf of MP3.com, Inc.
("MP3.com"), by and through their counsel of record in the Derivative Actions;
and (ii) the Defendants identified below, by and through their counsel of record
in the Derivative Actions. The Stipulation is intended by the Settling Parties
to fully, finally and forever resolve, discharge and settle the Released Claims
(as defined in P. 1.9), upon and subject to the terms and conditions hereof.
1. THE LITIGATION
On or after September 14, 2000, the following derivative actions were
filed in the Superior Court of the State of California for the County of San
Diego (the "Court") on behalf of MP3.com:
1. Larret v. Robertson, et al, Case No. GIC754696 (filed September
14, 2000);
2. Vaus v. Robertson, et al., Case No. GIC754744 (filed September
15, 2000);
3. Ivanhoff v. Robertson, et al, Case No. GIC754869 (filed
September 18, 2000);
4. Hildebrand v. Robertson, et al., Case No. GIC756899 (filed
October 25, 2000); and
5. Calvin v. Robertson, et al., Case No. GIC756958 (filed October
26, 2000).
These actions (collectively, the "Derivative Actions") were consolidated by
Order dated November 15, 2000 under the caption Larret v. Robertson, et al.,
Case No. GIC 754696.
The operative complaint (the "Complaint") in the Derivative Actions is
plaintiffs' First Amended Consolidated Shareholder Derivative Complaint dated
January 16, 2001. The Complaint alleges causes of action for breach of fiduciary
duty, abuse of control and unjust enrichment.
On and after September 19, 2000, actions were filed in the United States
District Court for the Southern District of California (the "Federal Court") as
securities class actions on behalf of
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persons who purchased common stock of MP3.com.
By Order dated October 31, 2000 the Federal Court actions were
consolidated for all purposes as In re MP3.com, Inc. Securities Litigation,
Master File No. 00-CV-1873-K(NLS) (the "Federal Class Actions").
The Federal Class Actions allege violations of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The Federal Class Actions are brought on behalf of a class consisting of all
persons who purchased the common stock of MP3.com between January 13, 2000 and
September 7, 2000.
The Federal Class Actions and the Derivative Actions are collectively
referred to as the "Litigation."
2. DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY
The Defendants have denied and continue to deny each and all of the
claims and contentions alleged by the Representative Plaintiffs in the
Derivative Actions. The Defendants expressly have denied and continue to deny
all charges of wrongdoing or liability against them arising out of any of the
conduct, statements, acts or omissions alleged, or that could have been alleged,
in the Derivative Actions. The Defendants also have denied and continue to deny,
inter alia, the allegations that the Representative Plaintiffs or MP3.com or
MP3.com stockholders have suffered damage, that the price of MP3.com common
stock was artificially inflated by reasons of alleged misrepresentations,
non-disclosures or otherwise, or that the Representative Plaintiffs or MP3.com
or its stockholders were harmed by the conduct alleged in the Derivative
Actions. The Defendants have further asserted that at all relevant times, they
acted in good faith, and in a manner they reasonably believed to be in the best
interests of MP3.com and MP3.com stockholders.
Nonetheless, the Defendants have concluded that further conduct of the
Derivative Actions would be protracted and expensive, and that it is desirable
that the Derivative Actions be fully and finally settled in the manner and upon
the terms and conditions set forth in this Stipulation. The
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Defendants also have taken into account the uncertainty and risks inherent in
any litigation, especially in complex cases like these Derivative Actions. The
Defendants have, therefore, determined that it is desirable and beneficial that
the Derivative Actions be settled in the manner and upon the terms and
conditions set forth in this Stipulation.
3. CLAIMS OF THE REPRESENTATIVE PLAINTIFFS AND BENEFITS OF SETTLEMENT
The Representative Plaintiffs believe that the claims asserted in the
Derivative Actions have merit. However, counsel for the Representative
Plaintiffs recognize and acknowledge the expense and length of continued
proceedings necessary to prosecute the Derivative Actions against the Defendants
through trial and through appeals. Counsel for the Representative Plaintiffs
also have taken into account the uncertain outcome and the risk of any
litigation, especially in complex actions such as these Derivative Actions, as
well as the difficulties and delays inherent in such litigation. Counsel for the
Representative Plaintiffs also are mindful of the inherent problems of proof
under and possible defenses to the claims asserted in the Derivative Actions.
Counsel for the Representative Plaintiffs believe that the settlement set forth
in this Stipulation confers substantial benefits upon MP3.com. Based on their
evaluation, counsel for the Representative Plaintiffs have determined that the
settlement set forth in the Stipulation is in the best interests of the
Representative Plaintiffs, MP3.com and MP3.com Stockholders.
4. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Representative Plaintiffs (for themselves and derivatively on behalf of MP3.com)
and the Defendants, by and through their respective counsel or attorneys of
record, that, subject to the approval of the Court, the Derivative Actions and
the Released Claims shall be finally and fully compromised, settled and
released, and the Derivative Actions shall be dismissed with prejudice,
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as to all Settling Parties, upon and subject to the terms and conditions of the
Stipulation, as follows.
1. Definitions
As used in the Stipulation the following terms have the meanings
specified below:
0.1 "Defendants" means MP3.com and any of its subsidiaries (as a nominal
defendant), Michael L. Robertson, Robin D. Richards, Mark A. Stevens, David E.
Easterly, Theodore W. Waitt, and Lawrence F. Probst III.
0.2 "Effective Date" means the first date by which all of the events and
conditions specified in P. 6.1 of the Stipulation have been met and have
occurred.
0.3 "Final" means: (a) the date of final affirmance on an appeal of the
Judgment, the expiration of the time for a petition for or a denial of a writ of
review to review the Judgment and, if the writ is granted, the date of final
affirmance of the Judgment following review pursuant to that grant; or (b) the
date of final dismissal of any appeal from the Judgment or the final dismissal
of any proceeding on writ of review to review the Judgment; or (c) if no appeal
is filed, the expiration date of the time for the filing or noticing of any
appeal from the Court's Judgment approving the Stipulation substantially in the
form of Exhibit B attached hereto; i.e., thirty (30) days after entry of the
Judgment. Any proceeding or order, or any appeal or petition for a writ of
review pertaining solely to any plan of allocation and/or application for
attorneys' fees, costs or expenses, shall not in any way delay or preclude the
Judgment from becoming Final.
0.4 "MP3.com Stockholders" means all record owners of MP3.com common
stock as of March 20, 2001.
0.5 "Judgment" means the judgment to be rendered by the Court,
substantially in the form attached hereto as Exhibit B.
0.6 "Person" means an individual, corporation, limited liability
corporation, professional corporation, partnership, limited partnership, limited
liability partnership, association, joint stock company, estate, legal
representative, trust, unincorporated association, government or any political
subdivision or agency thereof, and any business or legal entity and their
spouses, heirs, predecessors,
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successors, representatives, or assignees.
0.7 "Plaintiffs' Settlement Counsel" means Co-Lead Counsel for
plaintiffs in the Derivative Actions Cauley, Geller, Bowman & Coates, LLP, Paul
J. Geller, One Boca Place, Suite 421A, 2255 Glades Road, Boca Raton, FL 33431,
Telephone: (561) 750-3000; and Milberg Weiss Bershad Hynes & Lerach, LLP,
William S. Lerach, Keith F. Park, Travis E. Downs, III, 600 West Broadway, Suite
1800, San Diego, CA 92101, Telephone: (619) 231-1058.
0.8 "Related Persons" means each of a Defendant's past or present
directors, officers, managers, employees, partners, members, principals, agents,
underwriters, controlling shareholders, attorneys, accountants or auditors,
banks or investment banks, associates, personal or legal representatives,
predecessors, successors, parents, subsidiaries, divisions, joint ventures,
assigns, spouses, heirs, related or affiliated entities, any entity in which a
Defendant has a controlling interest, any members of their immediate families,
or any trust of which any Defendant is the settlor or which is for the benefit
of any Defendant and/or member(s) of his or her family.
0.9 "Released Claims" shall collectively mean all claims (including
"Unknown Claims" as defined in P. 1.14 hereof), or causes of action, that have
been or could have been asserted through March 20, 2001 by the Representative
Plaintiffs, MP3.com or MP3.com Stockholders on behalf of MP3.com, or any of
them, against the Defendants or Released Persons in the Derivative Actions,
including, but not limited to, any claims or causes of action that are based
upon or related to the facts, transactions, events, occurrences, acts,
disclosures, statements, omissions or failures to act which were alleged or
could have been alleged in the Derivative Actions through the date of the
Effective Date.
0.10 "Released Persons" means each and all of the Defendants and the
Related Persons.
0.11 "Representative Plaintiffs" means E. Paul Larret, Steven Vaus,
Peter Ivanhoff, Antonia Hildebrand, and Matthew Calvin.
0.12 "Representative Plaintiffs' Counsel" means counsel who have
appeared for any of the Representative Plaintiffs in the Derivative Actions.
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0.13 "Settling Parties" means, collectively, each of the Defendants and
the Representative Plaintiffs on behalf of themselves and MP3.com and MP3.com
Stockholders.
0.14 "Unknown Claims" means any Released Claim which any Representative
Plaintiff or MP3.com or MP3.com Stockholders does not know or suspect to exist
in his, her or its favor at the time of the release of the Released Persons
which, if known by him, her or it, might have affected his, her or its
settlement with and release of the Released Persons, or might have affected his,
her or its decision not to object to this settlement. With respect to any and
all Released Claims, the Settling Parties stipulate and agree that, upon the
Effective Date, the Representative Plaintiffs and MP3.com shall expressly and
each of the MP3.com Stockholders shall be deemed to have, and by operation of
the Judgment shall have, expressly waived, the provisions, rights and benefits
of California Civil Code Section 1542, which provides:
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.
The Representative Plaintiffs and MP3.com shall expressly and each of the
MP3.com Stockholders shall be deemed to have, and by operation of the Judgment
shall have, expressly waived any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
California Civil Code Section 1542. The Representative Plaintiffs, MP3.com and
MP3.com Stockholders may hereafter discover facts in addition to or different
from those which he, she or it now knows or believes to be true with respect to
the subject matter of the Released Claims, but each Representative Plaintiff and
MP3.com shall expressly and each MP3.com Stockholder, upon the Effective Date,
shall be deemed to have, and by operation of the Judgment shall have, fully,
finally, and forever settled and released any and all Released Claims, known or
unknown, suspected or unsuspected, contingent or non-contingent, whether or not
concealed or hidden, which now exist, or heretofore have existed upon any theory
of law or equity now existing or coming into existence in the future, including,
but not limited to, conduct which is negligent, intentional, with or without
malice, or a breach of any duty, law or rule,
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without regard to the subsequent discovery or existence of such different or
additional facts. The Settling Parties acknowledge, and the MP3.com Stockholders
shall be deemed by operation of the Judgment to have acknowledged, that the
foregoing waiver was separately bargained for and a key element of the
settlement of which this release is a part.
0.15 "Class Action" means the action entitled In re MP3.com, Inc. Sec.
Litig., Master File No. 00-CV-1873-K(NLS), United States District Court for the
Southern District of California.
2. Settlement of the Derivative Claims
0.1 As a result of the pendency and prosecution of the Derivative
Actions, MP3.com's Board of Directors has agreed to adopt and fully implement
the enhanced corporate governance measures set forth below which shall each
remain in effect for at least five years from the date the Stipulation is
approved by the Court unless MP3.com's securities cease to be publicly traded:
0.2 To the extent they do not already exist, within 30 days after the
entry of the Judgment, MP3.com's Board of Directors will adopt resolutions or
amendments to MP3.com's Bylaws to implement the policies.
0.3 With the exception of Justice Howard Weiner, no person who has
reached the age of 72 shall be eligible for election or re-election as a
director of MP3.com.
0.4 By the end of 2000, at least 3 directors and by the end of 2001, at
least 4 directors shall be "independent directors," as defined below.
0.5 To be deemed "independent" in any calendar year, a director would
have to satisfy the following qualifications; provided, however, that Justice
Howard Weiner shall be deemed an "independent director" for purposes of this
settlement:
(a) has not been employed by MP3.com or its subsidiaries or
affiliates in an executive capacity within the last five calendar years;
(b) has not received, during the current calendar year or any of
the three immediately preceding calendar years, remuneration, directly or
indirectly, other than de minimis remuneration, as a result of service as, or
being affiliated with an entity that serves as: (i) an advisor,
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consultant, or legal counsel to MP3.com or to a member of MP3.com's senior
management; or (ii) a significant customer or supplier of MP3.com;
(c) has no personal services contract(s) with MP3.com, or any
member of MP3.com's senior management;
(d) is not affiliated with a not-for-profit entity that receives
significant contributions from MP3.com;
(e) during the current calendar year or any of the three
immediately preceding calendar years, has not had any business relationship with
MP3.com for which MP3.com has been required to make disclosure under Item 404 of
SEC Regulation S-K, other than for service as a director or for which
relationship no more than de minimus remuneration was received in any one such
year;
(f) is not employed by a public company at which an executive
officer of MP3.com serves as a director;
(g) has not had any of the relationships described in
subsections (a)-(f) above, with any affiliate of MP3.com;
(h) is not a member of the immediate family of any person
described in subsections (a)-(g) above; and
(i) shall not have received remuneration required to be reported
under Item 404 of SEC Regulation S-K.
0.6 The Board of Directors of MP3.com shall hold an executive session at
least twice each year at which employee directors are not present.
0.7 At least two thirds of the members of the Nominating Committee, and
all members of the Compensation Committee and the Audit Committee of the Board
of Directors of MP3.com shall be independent directors.
0.8 The Nominating Committee shall meet with each prospective new Board
nominee and then shall decide whether or not such individual shall be nominated
for membership to the Board
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of Directors of MP3.com.
0.9 The Compensation Committee shall set annual and long-term
performance goals for the Chairman of the Board and Chief Executive Officer and
evaluate his performance against such goals.
0.10 The Compensation Committee shall meet at least once each calendar
year in executive session, without the Chief Executive Officer.
0.11 The MP3.com Board committees shall have standing authorization, on
their own decision, to retain legal and/or other advisors of their choice, which
advisors shall report directly to the committee.
0.12 The MP3.com Board of Directors shall adopt a resolution setting
forth the following compensation principles:
(a) compensation arrangements shall emphasize pay for
performance and encourage retention of those employees who enhance MP3.com's
performance;
(b) compensation arrangements shall promote ownership of MP3.com
stock to align the interests of management and stockholders;
(c) compensation arrangements shall maintain an appropriate
balance between base salary and long-term and annual incentive compensation;
(d) in approving compensation, the recent compensation history
of the executive, including special or unusual compensation payments, shall be
taken into consideration;
(e) compensation for directors shall promote ownership of
MP3.com stock to align the interests of directors and stockholders; and
(f) the Compensation Committee shall review annually the
compensation of directors.
0.13 The MP3.com Board of Directors shall adopt a resolution broadening
the mandate of the Nominating Committee to make it the Nominating and Corporate
Governance Committee, which committee shall perform the functions specified in
the Nominating and Corporate Governance
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Committee Guidelines, as follows:
(a) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and Chief Executive Officer, shall
be responsible for periodic review and interpretation of MP3.com's Corporate
Governance Policies and the Nominating and Corporate Governance Committee
Guidelines, as well as consideration of other corporate governance issues that
may, from time to time, merit consideration by the entire Board.
(b) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and Chief Executive Officer, shall
consider and make recommendations to the MP3.com Board concerning the
appropriate size and needs of the Board.
(c) The Nominating and Corporate Governance Committee, in
consultation with the Chairman of the Board and Chief Executive Officer, shall
consider candidates to fill vacant Board positions. Candidates shall be selected
for their character, judgment, business experience, time commitment, and acumen.
Final approval of a candidate shall be determined by the full Board.
(d) The Nominating and Corporate Governance Committee shall
consider policies relating to the Board and directors, including committee
structure and size, share ownership, and retirement and resignation.
0.14 The MP3.com Board shall designate an independent director to act in
a lead capacity to coordinate the other independent directors, as described
below. The Lead Independent Director is responsible for coordinating the
activities of the independent directors. In addition to the duties of all Board
members (which shall not be limited or diminished by the Lead Independent
Director's role), the specific responsibilities of the Lead Independent Director
are as follows:
(a) advise the Chairman of the Board as to an appropriate
schedule of MP3.com Board meetings, seeking to ensure that the independent
directors can perform their duties responsibly while not interfering with the
flow of MP3.com's operations;
(b) provide the Chairman of the Board with input as to the
preparation of agendas for the Board and Committee meetings;
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(c) advise the Chairman of the Board as to the quality,
quantity, and timeliness of the flow of information from MP3.com's management
that is necessary for the independent directors to effectively and responsibly
perform their duties, and although MP3.com's management is responsible for the
preparation of materials for the Board, the Lead Independent Director may
specifically request the inclusion of certain material;
(d) recommend to the Chairman of the Board the retention of
consultants who report directly to the MP3.com Board;
(e) assist the Board and MP3.com's officers in assuring
compliance with and implementation of the Corporate Governance Policies and be
principally responsible for recommending revisions to the Corporate Governance
Policies;
(f) coordinate, develop the agenda for, and moderate executive
sessions of, the MP3.com's Board's independent directors, and act as principal
liaison between the independent directors and the Chairman of the Board on
sensitive issues;
(g) evaluate, along with the members of the Compensation
Committee and the full MP3.com Board, the Chief Executive Officer's performance
and meet with the Chief Executive Officer to discuss the Board's evaluation; and
(h) recommend to the Chairman of the Board the membership of the
various MP3.com Board committees, as well as selection of the Committee Chairs.
0.15 With respect to MP3.com's recognition of revenues in its financial
statements, any revenue based upon unexpected material revenue adjustments shall
be disclosed in the quarterly statements, in accordance with Generally Accepted
Accounting Principles ("GAAP") and SEC rules.
0.16 At each regularly scheduled MP3.com's Board of Directors meeting
following each quarter end, MP3.com's Chief Financial Officer or his designee
shall provide a report as to MP3.com's financial condition and prospects,
including but not limited to, a discussion of all reasons for material increases
in expenses and liabilities, if any, and material decreases in revenues and
earnings, if any, management plans for ameliorating or reversing such negative
trends and the
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success or failure of any such plans presented in the past.
0.17 The Chief Financial Officer shall be responsible for ensuring that
MP3.com's revenue recognition policy, which conforms to the requirements of GAAP
as currently in effect or as amended, is implemented and utilized throughout
MP3.com. The Chief Financial Officer shall report to the Board of Directors on a
semi-annual basis regarding the implementation and operation of this policy. The
Chief Financial Officer shall ensure that MP3.com's revenue recognition policy
is distributed to each MP3.com employee who records or reviews the recording of
revenue. Any questions regarding that policy, or its application, shall be
directed to MP3.com's Chief Financial Officer.
0.18 So long as MP3.com remains a publicly traded company, it shall
engage an independent auditing firm to perform an annual audit of its financial
statements. A written report of the results of each annual audit, including any
findings, opinions or recommendations by the independent auditor shall be
provided to the Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer and the Audit Committee of the Board of Directors for review
and remedial action, if necessary. At least annually the Audit Committee of the
MP3.com Board of Directors and MP3.com's auditor shall meet in executive session
regarding any material changes in MP3.com's business and financial statements.
0.19 The MP3.com Board of Directors will appoint a senior officer of the
company who will be responsible for effecting compliance with MP3.com's stock
trading and market communications policy. That individual will be designated the
"Trading Compliance Officer," and will be responsible for developing (with Board
involvement), presenting to the Board for approval, monitoring and updating
(with Board involvement and approval) a comprehensive program (the "Trading
Compliance Program") designed to ensure compliance with MP3.com's trading
policies. The MP3.com Board will be responsible for direct oversight of the
Trading Compliance Program and the Trading Compliance Officer, and the outside
director (non-management) members of the MP3.com Board will have direct access
to the Trading Compliance Officer, including the
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opportunity to meet with the Trading Compliance Officer outside the presence of
any other member of management.
0.20 Any director, officer or executive employee of MP3.com who
possesses material inside information, as defined by applicable SEC regulations
and court decisions, concerning MP3.com's financial results shall be prohibited
by MP3.com from trading in MP3.com securities from at least the fifteenth day of
the last month of each quarter through at least the close of trading on the day
of MP3.com's public disclosure of its financial results for that quarter;
provided, however, that such restriction shall not apply if: (a) such director,
officer or executive employee has entered into a trading plan that complies with
the requirements of Rule 10b-5-1(c)(i) under the Securities Exchange Act of 1934
and trades in accordance with such trading plan; or (b) MP3.com publicly
discloses such financial results through a press release disseminated by means
of a nationally recognized wire service, including but not limited to Business
Wire, Inc. or PR Newswire Association, Inc. or through any non-confidential
filing with the SEC, in which event trading may be allowed on the day following
MP3.com's public disclosure of the material inside information.
0.21 The Trading Compliance Program shall contain provisions with
respect to transactions in MP3.com's securities by directors and officers of
MP3.com which are no less restrictive than those set forth in the New York Stock
Exchange Listed Company Manual and shall take into account applicable federal
security laws and regulations.
0.22 Failure to comply with MP3.com's trading policy will result in
appropriate sanctions, as determined by the Board, which may include
disgorgement by the individual to MP3.com of all profits from the transaction,
termination, or other appropriate disciplinary action.
0.23 MP3.com shall use reasonable efforts to ensure that all directors
and officers file all trading forms required by them to be filed with the SEC
concerning trading by directors, officers, and executive employees of MP3.com.
3. Notice Order and Settlement Hearing
0.1 By April 27, 2001, the Settling Parties shall submit this
Stipulation together with its
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Exhibits to the Court and shall apply for entry of an order, substantially in
the form of Exhibit A attached hereto, preliminary approving the Settlement, and
providing for notice to MP3.com Stockholders of the hearing on this settlement
(the "Order Re: Preliminary Approval"). Such order shall specifically include
provisions that will:
(a) preliminary approve this Stipulation and the settlement set
forth herein;
(b) approve the "Notice of Pendency and Settlement of Derivative
Action" (the "Notice"), substantially in the form of Exhibit A-1 attached
hereto, for mailing to MP3.com Stockholders and for publication of a Summary
Notice, substantially in the form of Exhibit A-2 hereto, in Investor's Business
Daily;
(c) find that the notice given pursuant to subparagraph (b)
above constitutes valid, due and sufficient notice to all such Persons;
(d) schedule a hearing (the "Settlement Hearing") to be held by
the Court to determine whether the proposed settlement of the Derivative Actions
as contained in this Stipulation should be approved as fair, just, reasonable
and adequate and the Judgment approving the settlement should be entered;
(e) provide that any objections by MP3.com Stockholders to: (i)
the proposed settlement contained in this Stipulation; or (ii) the entry of the
Judgment approving the settlement, shall be heard and any papers submitted in
support of said objections shall be received and considered by the Court at the
hearing only if, or before a date to be specified in the Notice, Persons making
objections file notice of their intention to appear and copies of any papers in
support of their position with the Clerk of the Court and serve such notice and
papers on counsel as identified in the Notice;
(f) provide that pending final determination of whether the
settlement contained in this Stipulation should be approved, neither the
Representative Plaintiffs, nor any MP3.com Stockholder, either directly,
representatively, derivatively or in any other capacity, shall commence or
prosecute any action or proceeding in any court or tribunal asserting any of the
Released Claims
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against the Released Persons;
(g) provide that the Settlement Hearing may, from time to time
and without further notice to the shareholders of MP3.com, be continued or
adjoined by order of the Court; and
(h) provide that all costs associated with the giving of the
notice provided in subparagraph (b) shall be borne by the Settlement Fund
established in the Federal Class Actions.
4. Releases
0.1 Upon the Effective Date, as defined in P. 1.2, the Representative
Plaintiffs on their own behalf and MP3.com Stockholders (in their capacity as
stockholders only) shall be deemed to have, and by operation of the Judgment
shall have, fully, finally, and forever released, relinquished and discharged
all Released Claims and any and all claims arising out of, relating to, or in
connection with the settlement or resolution of the Derivative Actions against
the Released Persons.
0.2 Upon the Effective Date, as defined in P. 1.2, each of the Released
Persons shall be deemed to have, and by operation of the Judgment shall have,
fully, finally, and forever released, relinquished and discharged each and all
of the Representative Plaintiffs, counsel to the Representative Plaintiffs, and
MP3.com Stockholders from all claims (including Unknown Claims), arising out of,
relating to, or in connection with the institution, prosecution, assertion,
settlement or resolution of the Derivative Actions or the Released Claims.
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5. Representative Plaintiffs' Counsel's Attorneys' Fees and
Reimbursement of Expenses
0.1 As part of the settlement set forth herein, MP3.com agrees to pay
Representative Plaintiffs' Counsel the sum of $900,000 as and for their
attorneys' fees and expenses (the "Fees and Expenses") plus interest thereon
until paid at the same rate as earned on the Settlement Fund established in the
Federal Class Actions. The Fees and Expenses shall be paid to Plaintiffs'
Settlement Counsel within five (5) business days after receiving notice of the
Court's approval of the settlement, to be thereafter distributed to
Representative Plaintiffs' Counsel in such proportions as Plaintiffs' Settlement
Counsel shall in good faith determine represents each such counsel's
contribution to the prosecution and resolution of the Derivative Actions,
subject to the obligation of Representative Plaintiffs' Counsel to repay the
Fees and Expenses plus interest should the Effective Date not occur. Defendants
shall have no responsibility for the allocation of the fee award among
Representative Plaintiffs' Counsel.
0.2 In the even the Stipulation shall terminate, or be canceled, or
shall not become effective for any reason, or if the Judgment shall be reversed
or modified upon appeal, within ten (10) business days after written
notification of such event is sent by counsel for Defendants to Plaintiffs'
Settlement Counsel, the Fees and Expenses (including interest) shall be refunded
by counsel for plaintiffs to MP3.com. Each such Representative Plaintiffs'
Counsel's law firm, as a condition of receiving such fees and expenses, on
behalf of itself and each partner and/or shareholder of it, agrees that the law
firm and its partners and/or shareholders are subject to the jurisdiction of the
Court for the purpose of enforcing the Stipulation. Without limitation, each
such law firm and its partners and/or shareholders agreed that the Court may,
upon application of Defendants on notice to Representative Plaintiffs' Counsel
summarily issue orders, including but not limited to, judgments and attachment
orders, and may make appropriate findings of or sanctions for contempt, against
them or any of them should such law firm fail to timely repay fees and expenses
pursuant to this Stipulation.
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0.3 Defendants and their Related Persons shall have no responsibility
for, and no liability whatsoever with respect to the allocation among
Representative Plaintiffs' Counsel and/or any other Person who may assert some
claim thereto, of any Fee and Expense amount.
6. Conditions of Settlement, Effect of Disapproval, Cancellation or
Termination
0.1 The Effective Date of the Stipulation shall be conditioned on the
occurrence of all of the following events:
(a) the Court has entered the Order Re: Preliminary Approval, as
required by P. 3.1, above;
(b) the Court has entered the Judgment, or a judgment
substantially in the form of Exhibit B attached hereto;
(c) the Judgment has become Final, as defined in P. 1.3, above;
and
(d) the Federal Class Actions have been dismissed with prejudice
and said dismissals have become final and not subject to appeal.
0.2 If all of the conditions specified in P. 6.1 are not met, then the
Stipulation shall be canceled and terminated subject to P. 6.3 unless
Plaintiffs' Settlement Counsel and counsel for Defendants mutually agree in
writing to proceed with the Stipulation.
0.3 In the event that the Stipulation is not approved by the Court or
the settlement set forth in the Stipulation is terminated or fails to become
effective in accordance with its terms, the Settling Parties shall be restored
to their respective positions in the Derivative Actions as of March 19, 2001. In
such event, the terms and provisions of the Stipulation, with the exception of
P. P. 1.1-1.15, 5.2, 6.2-6.4, 7.3-7.13 herein, shall have no further force and
effect with respect to the Settling Parties and shall not be used in the
Derivative Actions or in any other proceeding for any purpose, and any judgment
or order entered by the Court in accordance with the terms of the Stipulation
shall be treated as vacated, nunc pro tunc.
0.4 If the Effective Date does not occur, or if the Stipulation is
terminated pursuant to its
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terms, neither the Representative Plaintiffs nor any of their counsel shall have
any obligation to repay any amounts actually and properly disbursed pursuant to
P. 3.1 hereof. In addition, any expenses already incurred and/or properly
chargeable pursuant to P. 3.1 hereof at the time of such termination or
cancellation but which have not been paid, shall be paid in accordance with the
terms of the Stipulation.
7. Miscellaneous Provisions
0.1 The Settling Parties (a) acknowledge that it is their intent to
consummate this agreement; and (b) agree to cooperate to the extent reasonably
necessary to effectuate and implement all terms and conditions of the
Stipulation and to exercise their best efforts to accomplish the foregoing terms
and conditions of the Stipulation.
0.2 The parties intend this settlement to be a final and complete
resolution of all disputes between them with respect to the Derivative Actions.
The settlement compromises claims which are contested and shall not be deemed an
admission by any Settling Party as to the merits of any claim, allegation or
defense. While retaining their right to deny that the claims advanced in the
Derivative Actions were meritorious, Defendants in any statement made to any
media representative (whether or not for attribution) will not deny that the
Derivative Actions were filed in good faith and are being settled voluntarily
after consultation with competent legal counsel. The final judgment will contain
a statement that during the course of the Derivative Actions, the parties and
their respective counsel at all times complied with the requirements of
California Code of Civil Procedure Sections 128.5 and 128.7.
0.3 Neither the Stipulation nor the settlement, nor any act performed or
document executed pursuant to or in furtherance of the Stipulation or the
settlement: (a) is or may be deemed to be or may be used as an admission of, or
evidence of, the validity of any Released Claim, or of any wrongdoing or
liability of the Defendants and the Released Persons; or (b) is or may be deemed
to be or may be used as an admission of, or evidence of, any fault or omission
of any of the Defendants and the Released Persons in any civil, criminal or
administrative proceeding in any court,
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administrative agency or other tribunal. Defendants and the Released Persons may
file the Stipulation and/or the Judgment in any action that may be brought
against them in order to support a defense or counterclaim based on principles
of res judicata, collateral estoppel, release, good faith settlement, judgment
bar or reduction or any other theory of claim preclusion or issue preclusion or
similar defense or counterclaim.
0.4 All agreements made and orders entered during the course of the
Derivative Actions relating to the confidentiality of information shall survive
this Stipulation.
0.5 All of the Exhibits to this Stipulation are material and integral
parts hereof and are fully incorporated herein by this reference.
0.6 The Stipulation may be amended or modified only by a written
instrument signed by or on behalf of all Settling Parties or their respective
successors-in-interest.
0.7 This Stipulation and the Exhibits attached hereto constitute the
entire agreement among the parties hereto and no representations, warranties or
inducements have been made to any party concerning the Stipulation or its
Exhibits other than the representations, warranties and covenants contained and
memorialized in such documents. Except as otherwise provided herein, each party
shall bear its own costs.
0.8 Plaintiffs' Settlement Counsel, derivatively on behalf of MP3.com
and MP3.com Stockholders are expressly authorized by the Representative
Plaintiffs to take all appropriate action required or permitted to be taken
pursuant to the Stipulation to effectuate its terms and also are expressly
authorized to enter into any modifications or amendments to the Stipulation
which they deem appropriate.
0.9 Each counsel or other Person executing the Stipulation or any of its
Exhibits on behalf of any party hereto hereby warrants that such Person has the
full authority to do so.
0.10 The Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument. A complete set of original executed counterparts shall be filed with
the Court.
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0.11 The Stipulation shall be binding upon, and inure to the benefit of,
the successors and assigns of the parties hereto.
0.12 The Court shall retain jurisdiction with respect to implementation
and enforcement of the terms of the Stipulation, and all parties hereto submit
to the jurisdiction of the Court for purposes of implementing and enforcing the
settlement embodied in the Stipulation.
0.13 This Stipulation and the Exhibits hereto shall be considered to
have been negotiated, executed and delivered, and to be wholly performed, in the
State of California, and the rights and obligations of the parties to the
Stipulation shall be construed and enforced in accordance with, and governed by,
the internal, substantive laws of the State of California without giving effect
to that State's choice of law principles.
IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to be
executed, by their duly authorized attorneys, dated as of March 20, 2001.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
KEITH F. PARK
TRAVIS E. DOWNS, III
AMBER L. ECK
/s/ Keith F. Park
-------------------------------------
KEITH F. PARK
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
CAULEY, GELLER, BOWMAN
& COATES, LLP
PAUL J. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone: 561/750-3000
561/750-3364 (fax)
Co-Lead Counsel for Plaintiffs
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McKENNA & CUNEO
ROBERT BREWER
/s/ Robert Brewer
------------------------------------
ROBERT BREWER
750 B Street, Suite 3300
San Diego, CA 92101
Telephone: 619/595-5400
619/595-5450 (fax)
Attorneys for Defendants
Mark A. Stevens, David
E. Easterly, Theodore W. Waitt
and Lawrence F. Probst III
LATHAM & WATKINS
HUGH STEVEN WILSON
/s/ Hugh Steven Wilson
------------------------------------
HUGH STEVEN WILSON
701 B Street, Suite 2000
San Diego, CA 92101
Telephone: 619/236-1234
619/696-7419 (fax)
Attorneys for Defendants
Michael L. Robertson and
Robin D. Richards
WASSERMAN, COMDEN & CASSELMAN, LLP
CLIFFORD M. PEARSON
/s/ Clifford M. Pearson
------------------------------------
CLIFFORD M. PEARSON
5567 Reseda Blvd., Suite 330
Tarzana, CA 91357-7033
Telephone: 818/345-0162
Attorneys for Nominal Defendant
MP3.com, Inc.
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