Exhibit 10.18
EMPLOYMENT
AGREEMENT
This Employment Agreement (the
“ Agreement ”) is entered into as of
March 22, 2006 (the “ Effective Date ”),
between Digital Music Group, Inc., a Delaware corporation (“
DMGI ”), and Karen B. Davis, a resident of California
(the “ Executive ”).
In consideration of the promises and
the terms and conditions set forth in this Agreement, the parties
agree as follows:
1. Position and Duties
. During the term of this
Agreement, DMGI will employ Executive, and Executive will serve
DMGI as its Chief Financial Officer and Secretary. As such,
Executive shall have such responsibilities, duties and authority as
reasonably accorded to and expected of a Chief Financial Officer
and Secretary. This will include day-to-day responsibility for
financial matters involving DMGI, including ultimate responsibility
for staffing of and managing the personnel within the finance,
treasury, taxation, accounting, information systems and investor
relations functions and for establishing and monitoring the
corporate internal control environment and external and internal
financial and tax reporting by DMGI. It will also include
maintaining professional relationships and serving as a principal
contact with commercial lenders, investment bankers, investors and
the investment community, and external auditors of DMGI, and
maintaining corporate records, including the Minute Book for
meetings of the Board of Directors. Additional or different duties,
titles or positions may from time to time be assigned to or taken
from Executive by the Chief Executive Officer and/or the Board of
Directors of DMGI, provided that any such changes are consistent
and compatible with Executive’s experience, background and
managerial skills; refer to Sections 7.5 and 8.4 hereof for
additional rights of the Executive in the event of such a change in
her title, duties or responsibilities. Executive will report
directly to the Chief Executive Officer of DMGI and will also have
certain reporting responsibilities to and interaction with the
Chairman of DMGI’s Audit Committee and the Chairman of
DMGI’s Board of Directors.
2. Performance of Duties
. Executive will be based
at and perform her duties under this Agreement primarily at the
corporate offices of DMGI. Executive hereby represents and warrants
that she is free to enter into and fully perform this Agreement and
the agreements referred to herein without breach of any agreement
or contract to which she is a party or by which she is bound.
Executive hereby further represents and warrants that she has
provided DMGI with copies of any employment, confidentiality,
non-competition or non-solicitation agreements currently binding
upon her.
3. Exclusive Service
. Executive shall devote
her full time and efforts (from a business perspective) exclusively
to this employment and apply all her skills, effort and experience
to the performance of her duties and advancing DMGI’s
interests. Executive shall not be engaged in any other business
activity pursued for salary, fees, profit, gain or other pecuniary
advantage if such activity interferes with Executive’s duties
and responsibilities hereunder. Executive will not engage in any
professional consulting activity nor serve on any corporate boards
except with the prior written approval of DMGI’s Board of
Directors, or at the direction of DMGI’s Board of Directors,
and Executive will otherwise refrain from engaging in any
activities inconsistent or in conflict with the performance of her
duties hereunder. However, the foregoing limitations shall not be
construed as prohibiting Executive from making personal
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investments in a passive form or manner that
will not require her services in the operation or affairs of the
companies or enterprises in which such investments are
made.
4. Compliance with
Policies . DMGI has
established policies, procedures and practices, and Executive will
comply with and be bound by all such policies, procedures and
practices from time to time in effect during Executive’s
employment. Executive will be employed in a position of leadership
within DMGI and will be expected to faithfully adhere to, execute
and fulfill all corporate policies established by DMGI, now and in
the future, in addition to monitoring compliance with such policies
by other officers, employees and directors, particularly
DMGI’s Code of Business Conduct.
5. Confidential or Proprietary
Information and Inventions .
5.1 Company Information
. Executive agrees at all
times during the term of her employment and thereafter, to hold in
strictest confidence and not to use, except for the benefit of
DMGI, or to disclose to any person, firm or corporation (except
within the scope of her employment) without written authorization
of the Chief Executive Officer or Chairman of the Board of
Directors of DMGI, any Confidential Information of DMGI. Executive
understands that “ Confidential Information ”
means any DMGI financial or operating information, contents of
music libraries, data bases, technical data, trade secrets or
know-how, including, but not limited to, research, product plans,
products and processes, services, customer lists, channel partner
lists, target acquisition lists and customers, channel partners and
target acquisitions (including, but not limited to, customers,
channel partners and target acquisitions of DMGI on whom Executive
called or with whom Executive became acquainted during the term of
her employment), market data, software, inventions, music
processing techniques, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing,
financial reports or other business information disclosed to
Executive by DMGI or prepared by Executive during her employment by
DMGI, either directly or indirectly, in writing, orally, by
drawings, or by observation of documents, technology or equipment.
DMGI and Executive acknowledge that Confidential Information does
not include any of the foregoing items which have become publicly
known and made generally available through no wrongful act of
Executive’s or of others who were under confidentiality
obligations as to the item or items involved.
5.2 Third Party
Information . Executive recognizes that DMGI has received and
in the future will receive from third parties (including, but not
limited to, vendors, customers, channel partners and acquisition
targets) their confidential or proprietary information subject to a
duty on DMGI’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes.
Executive agree to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in
carrying out her work for DMGI consistent with DMGI’s
agreement with such third party.
5.3 No Prior Inventions
. Executive represents
that, as of the Effective Date of this Agreement, she has no
inventions, original works of authorship, developments,
improvements or trade secrets which were made by her prior to her
employment with DMGI, which relate to DMGI’s business,
operations, digitization processes, music library or research and
development.
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5.4 Future Inventions
. DMGI shall own all
right, title and interest (including patent rights, copyrights,
trade secret rights, mask work rights, sui generis database
rights and all other intellectual and industrial property rights of
any sort) to any and all inventions (whether or not patentable),
works of authorship, mask works, designs, know-how, ideas and
information made or conceived or reduced to practice, in the whole
or in part, by Executive during the term of her employment with
DMGI to and only to the fullest extent allowed by California Labor
Code Section 2870 (attached hereto as Exhibit A) (collectively
referred to herein as “ Inventions ”). Executive
agrees that she will promptly make full written disclosure to DMGI,
will hold in trust for the sole right and benefit of DMGI, and
hereby assign to DMGI or its designee, all her right, title, and
interest in and to any and all Inventions, except as provided in
Section 5.7 below. To the extent allowed by law, this section
includes all right of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to
as “moral rights” or the like. To the extent Executive
retains any such moral rights under applicable law, Executive
hereby ratifies and consents to any action that may be taken with
respect to such moral rights by or authorized by DMGI and agrees
not to assert any moral rights with respect thereto. Executive will
confirm any such ratifications, consents and agreements from time
to time as requested by DMGI.
5.5 Maintenance of Records
. Executive agrees to
keep and maintain adequate and current written records of all
Inventions made by her (solely or jointly with others) during the
term of her employment with DMGI. The records will be in the form
of notes, sketches, drawings and any other format that may be
specified by DMGI. The records will be available to and remain the
sole property of DMGI at all times.
5.6 Patent and Copyright
Registrations . Executive agrees to assist DMGI, or its
designee, at DMGI’s expense, in every proper way to secure
DMGI’s rights in any Inventions and any copyrights, patents,
mask work rights or other intellectual property rights relating
thereto in any and all countries, including the disclosure to DMGI
of all pertinent information and data with respect thereto, the
execution of all applications, specifications, oaths, assignments
and all other instruments which DMGI shall reasonably deem
necessary in order to apply for and obtain such rights and in order
to assign and convey to DMGI, its successors, assigns and nominees
the sole and exclusive rights, title and interest in and to such
Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. Executive further
agrees that her obligation to execute or cause to be executed, when
it is in her power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If DMGI is unable
because of her mental or physical incapacity or for any other
reason to secure her signature to apply for or to pursue any
application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship
assigned to DMGI as above, then Executive hereby irrevocably
designates and appoints DMGI and its duly authorized officers and
agents as her agent and attorney in fact, to act for and in her
behalf and stead to execute and file any such applications and to
do all other lawfully permitted acts to further the processing and
issuance of letters patent or copyright registrations thereon with
the same legal force and effect as if executed by
Executive.
5.7 Exception to
Assignments . Executive understands that the provisions of
this Agreement requiring assignment of Inventions to DMGI do not
apply to any invention which
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qualifies fully under the provisions
of California Labor Code Section 2870. Executive will advise
DMGI promptly in writing of any Inventions that Executive believes
meet the criteria in California Labor Code
Section 2870.
6. Compensation and
Benefits .
6.1 Base Salary
. Beginning on the
Effective Date, DMGI shall pay Executive a base salary of one
hundred and thirty thousand dollars ($130,000) per year (“
Base Salary ”), payable as earned in accordance with
DMGI’s customary payroll practice. On at least an annual
basis, the Chief Executive Officer and the Compensation Committee
of the Board of Directors will review Executive’s performance
and may make increases to such base salary if, in their sole
discretion, any such increase is warranted. No reductions will be
made to Executive’s base salary unless it is part of a
company-wide expense reduction plan authorized by the Board of
Directors of DMGI, applying ratably to the base salaries of all
executive officers and to the fees earned by directors; refer to
Sections 7.5 and 8.4 hereof for additional rights of the Executive
in the event of such a company-wide reduction in base
salaries.
6.2 Additional Benefits
. Executive will be
eligible to participate in DMGI’s employee benefit plans of
general application in effect from time to time, as amended,
including without limitation, those plans covering pension and
profit sharing, executive perquisites, stock purchases, and those
plans covering life, health, and dental insurance in accordance
with the rules established for individual participation in any such
plan and applicable law. Once Executive is eligible for health and
dental insurance coverage hereunder, Executive’s spouse and
dependents shall also be eligible for such coverage in accordance
with the terms of DMGI’s policies and plans and the contracts
with third party providers. In addition, beginning on the Effective
Date, Executive will receive such other benefits, including
vacation, holidays and sick leave, as DMGI generally provides to
its senior officers.
6.3 Incentive Bonus Plan
. Subject to the terms of
DMGI’s management incentive bonus plan, once created and as
amended from time to time (the “ Bonus Plan ”),
Executive will be eligible to earn cash bonuses on an annual basis,
payable as determined under the Bonus Plan, but not until such time
as the Compensation Committee of the Board of Directors of DMGI
determines the targets, milestones, performance objectives and
measurement criteria to be met each fiscal year and approves the
payment of specific cash bonuses after the end of each fiscal year
based upon the objective calculations and discretionary judgments
as called for in the Bonus Plan.
6.4 Equity Grants and
Awards . On the
Effective Date, Executive shall receive a grant under DMGI’s
Amended and Restated 2005 Stock Plan (the “ Stock Plan
”) of (a) 15,
