<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 23, 1999
EMUSIC.COM INC.
(Exact name of registrant as specified in its charter)
____________________
<TABLE>
<S> <C> <C>
Delaware 0-24671 94-3290594
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
1991 Broadway, Suite 200
Redwood City, California 94063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 216-0200
GOODNOISE CORPORATION
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Matters
Effective July 22, 1999 (the "Reincorporation Effective Date"), the
Registrant has changed its state of incorporation from Florida to Delaware. This
change in the Registrants's state of incorporation was approved by the holders
of a majority of the Registrant's outstanding shares of Common Stock and Series
B Preferred Stock at the Registrant's special meeting held on July 16, 1999. At
the time of reincorporation in the State of Delaware, the Registrant merged into
its wholly-owned subsidiary and is continuing its business as a Delaware
corporation. The reincorporation will not result in any change in the
Registrant's business, assets or liabilities, will not cause the Registrant's
corporate headquarters to be moved and will not result in any relocation of
management or other employees. Shareholders of the Registrant will be instructed
on the procedures to exchange shares of the Florida corporation into shares of
the Delaware corporation. As of the Reincorporation Effective Date, certificates
for shares of Common Stock and Series B Preferred Stock of the Florida
Corporation will automatically represent an equal number of corresponding
shares in the Delaware company.
In connection with the reincorporation, the Registrant has changed its name
from GoodNoise Corporation to EMusic.com Inc. This change in the Registrant's
name was approved by the holders of a majority of the Registrant's outstanding
shares of Common Stock and Series B Preferred Stock at the Registrant's special
meeting held on July 16, 1999.
Item 7. Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated July 21, 1999 by and
between EMusic.com Inc., a Florida corporation, and
EMusic.com Inc., a Delaware corporation.
2.2 Amended and Restated Certificate of Incorporation of
EMusic.com Inc. dated July 16, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
EMUSIC.COM INC.
Date: July 23, 1999 By: /s/ Joseph Howell
------------------------------------
Joseph Howell
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated July 21, 1999 by and
between EMusic.com Inc., a Florida corporation, and
EMusic.com Inc., a Delaware corporation.
2.2 Amended and Restated Certificate of Incorporation of
EMusic.com Inc. dated July 16, 1999
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of the 21st day of July, 1999 by and between EMusic.com Inc., a Florida
corporation ("EMusic"), and EMusic.com Inc., a Delaware corporation ("Sub").
WITNESSETH:
WHEREAS, Sub is a corporation duly organized and existing under the laws of
the State of Delaware, having its address at 1991 Broadway, 2nd Floor, Redwood
City, California, 94063;
WHEREAS, EMusic is a corporation duly organized and existing under the laws
of the State of Florida, having its address at 1991 Broadway, 2nd Floor, Redwood
City, California, 94063;
WHEREAS, on the date of this Merger Agreement, Sub has authority to issue
200,000,000 shares of Common Stock, par value $.001 per share (the "Sub Common
Stock"), of which 1,000 shares are issued and outstanding and owned by EMusic
and 20,000,000 shares of Preferred Stock, par value $.001 per share (the "Sub
Preferred Stock"), of which 120,000 shares have been designated as Series B
Preferred Stock (the "Sub Series B Preferred Stock"), none of such shares are
issued and outstanding;
WHEREAS, as of June 21, 1999, the record date for the special meeting at
which the shareholders of EMusic approved a form of this Merger Agreement,
EMusic had authority to issue (i) 200,000,000 shares of Common Stock, par value,
$.01 per share (the "EMusic Common Stock"), of which 15,690,879 shares were
issued and outstanding as of such date and (ii) 500,000 shares of Preferred
Stock, par value $.01 per share, of which 120,000 shares have been designated as
Series B Preferred Stock (the "EMusic Series B Preferred Stock") and 117,570 of
such shares were issued and outstanding as of such date;
WHEREAS, the respective Boards of Directors for Sub and EMusic have
determined that, for the purpose of effecting the reincorporation of EMusic in
the State of Delaware, it is advisable and to the advantage of said two
corporations and their shareholders that EMusic merge with and into Sub upon the
terms and conditions herein provided; and
WHEREAS, the respective Boards of Directors of Sub and EMusic, the
shareholders of EMusic, and the sole stockholder of Sub have adopted and
approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, EMusic and Sub hereby agree to merge as follows:
1. Merger. EMusic shall be merged with and into Sub, and Sub shall
------
survive the merger (the "Merger"), effective upon the date when this Merger
Agreement is made effective in accordance with applicable law (the "Effective
Date").
2. Governing Documents. The Amended and Restated Certificate of
-------------------
Incorporation of Sub shall be the Certificate of Incorporation of the surviving
corporation; and the Amended and Restated Bylaws of Sub shall be the Bylaws of
the surviving corporation.
3. Directors and Officers. The directors and officers of EMusic shall
----------------------
become the directors and officers of Sub upon the Effective Date.
4. Succession. On the Effective Date, Sub shall succeed to EMusic in the
----------
manner of and as more fully set forth in Section 259 of the General Corporation
Law of the State of Delaware.
<PAGE>
5. Further Assurances. From time to time, as and when required by Sub
------------------
or by its successors and assigns, there shall be executed and delivered, on
behalf of EMusic, such deeds and other instruments, and there shall be taken or
caused to be taken by it such further and other action as shall be appropriate
or necessary in order to vest, perfect or confirm, of record or otherwise, in
Sub, the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of EMusic, and
otherwise to carry out the purposes of this Merger Agreement and the officers
and directors of Sub are fully authorized in the name and on behalf of EMusic or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
6. Stock of EMusic. Upon the Effective Date, by virtue of the Merger and
---------------
without any action on the part of the holder thereof, (i) each share of EMusic
Common Stock outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of Sub Common Stock and
(ii) each share of EMusic Series B Preferred Stock outstanding immediately prior
thereto shall be changed and converted into one fully paid and nonassessable
share of Sub Series B Preferred Stock.
7. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates which prior to that time represented shares of EMusic
stock shall be deemed for all purposes to evidence ownership of and to represent
the shares of Sub stock into which the shares of EMusic stock represented by
such certificates have been converted as herein provided. The registered owner
on the books and records of Sub or its transfer agent of any such outstanding
stock certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to Sub or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of Sub stock evidenced by
such outstanding certificate as above provided.
8. Options. Upon the Effective Date, each outstanding option, warrant or
-------
other right to purchase shares of EMusic stock, including those options granted
under the 1998 Stock Option Plan (the "1998 Plan") and the Nonstatutory Stock
Option Plan (the "Nonstatutory Plan") of EMusic, shall be converted into and
become an option, warrant or right to purchase the same number of shares of Sub
stock at a price per share equal to the exercise price of the option, warrant or
right to purchase EMusic stock and upon the same terms and subject to the same
conditions as set forth in the 1998 Plan and the Nonstatutory Plan,
respectively, and other agreements entered into by EMusic pertaining to such
options, warrants or rights. A number of shares of Sub stock shall be reserved
for purposes of such options, warrants and rights equal to the number of shares
of EMusic stock so reserved as of the Effective Date. As of the Effective Date,
Sub shall assume all obligations of EMusic under agreements pertaining to such
options, warrants and rights, including the 1998 Plan and Nonstatutory Plan, and
the outstanding options, warrants or other rights, or portions thereof, granted
pursuant thereto.
9. Other Employee Benefit Plans. As of the Effective Date, Sub hereby
----------------------------
assumes all obligations of EMusic under any and all employee benefit plans in
effect as of said date or with respect to which employee rights or accrued
benefits are outstanding as of said date.
10. Outstanding Common Stock of Sub. Forthwith upon the Effective Date,
-------------------------------
all shares of Sub Common Stock presently issued and outstanding in the name of
EMusic shall be canceled and retired and resume the status of authorized and
unissued shares of Sub Common Stock, and no shares of Sub Common Stock or other
securities of Sub shall be issued in respect thereof.
11. Covenants of Sub. Sub covenants and agrees that it will, on or before
----------------
the Effective Date:
a. Qualify to do business as a foreign corporation in the State of
California, and in all other states in which EMusic is so qualified and in which
the failure so to qualify would have a material adverse impact on the business
or financial condition of Sub. In connection therewith, Sub shall irrevocably
appoint an agent for service of process as required under the provisions of
Section 2105 of the California Corporations Code and under applicable provisions
of state law in other states in which qualification is required hereunder.
2
<PAGE>
b. File any and all documents with the Florida tax authorities
necessary to the assumption by Sub of all of the tax liabilities of EMusic.
12. Book Entries. As of the Effective Date, entries shall be made upon
------------
the books of Sub in accordance with the following:
a. The assets and liabilities of EMusic shall be recorded at the
amounts at which they were carried on the books of EMusic immediately prior to
the Effective Date, with appropriate adjustments to reflect the retirement of
the shares of Sub Common Stock presently issued and outstanding.
b. There shall be credited to the capital stock of Sub the aggregate
amount of the par value of all shares of Sub stock resulting from the conversion
of the outstanding Sub Common Stock pursuant to the Merger.
c. There shall be credited to the capital surplus account of Sub the
aggregate of the amounts shown in the capital stock and capital surplus accounts
of EMusic immediately prior to the Effective Date, less the amount credited to
the common stock account of Sub pursuant to Paragraph (b) above.
d. There shall be credited to the retained earnings account of Sub
an amount equal to that carried in the retained earning account of EMusic
immediately prior to the Effective Date.
13. Conditions. It shall be a condition precedent to the consummation
----------
of the Merger and the other transactions contemplated by this Merger Agreement
that the shares of Sub Common Stock to be issued by Sub shall, upon official
notice of issuance, be listed on the Nasdaq National Market prior to or on the
Effective Date.
14. Amendment. EMusic, at any time, to the fullest extent permitted by
---------
Section 251(d) of the Delaware General Corporation Law, may amend this Merger
Agreement in any manner as may be determined in the judgment of the respective
Boards of Directors of Sub and EMusic to be necessary, desirable or expedient in
order to clarify the intention of the parties hereto or to effect or facilitate
the purposes and intent of this Merger Agreement.
15. Abandonment. At any time before the Effective Date, this Merger
-----------
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either EMusic or Sub or both, notwithstanding approval of this
Merger Agreement by the sole stockholder of Sub and the shareholders of EMusic.
16. Counterparts. In order to facilitate the filing and recording of this
------------
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
3
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolution of the Board of Directors of EMusic and Sub, and subsequently duly
approved by resolution of the shareholders of EMusic and the sole stockholder of
Sub, is hereby adopted, approved, certified executed and acknowledged on behalf
of each of said two corporations by their respective officers thereunto duly
authorized.
Emusic.com Inc., a Florida corporation
By: /s/ Joseph Howell
-----------------------------------------
Joseph Howell, Executive Vice President
ATTEST:
/s/ Peter Astiz
- ---------------------------------
Peter Astiz, Secretary
Emusic.com Inc. a Delaware corporation
By: /s/ Joseph Howell
-----------------------------------------
Joseph Howell, Executive Vice President
ATTEST:
/s/ Peter Astiz
- ---------------------------------
Peter Astiz, Secretary
4
<PAGE>
EXHIBIT 2.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EMUSIC.COM INC.
ARTICLE I
---------
NAME
----
The name of the Corporation is EMusic.com Inc. (hereinafter sometimes
referred to as the "Corporation").
ARTICLE II
----------
NATURE OF BUSINESS
------------------
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE III
-----------
AUTHORIZED CAPITAL STOCK
------------------------
The total number of shares of capital stock which the Corporation has
authority to issue is (i) TWO HUNDRED MILLION (200,000,000) shares of Common
Stock, par value $0.001 per share (the "Common Stock"), and (ii) TWENTY MILLION
(20,000,000) shares of Preferred Stock, par value $0.001 per share (the
"Preferred Stock"). The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in Series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such Series and any
qualifications, limitations or restrictions thereon. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock without a vote of the holders of the
Preferred Stock, or of any Series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the Series of
Preferred Stock.
1
<PAGE>
I. COMMON STOCK
------------
Section 1
---------
Voting Rights
-------------
The holders of shares of Common Stock shall be entitled to one vote for
each share held with respect to all matters voted on by the stockholders of the
Corporation, subject in all cases to Section 4 of Part II of this Article III.
Section 2
---------
Liquidation Rights
------------------
Subject to the prior and superior right of the Preferred Stock upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of Common Stock shall be entitled to receive
that portion of the remaining funds to be distributed. Such funds shall be paid
to the holders of Common Stock on the basis of the number of shares of Common
Stock held by each of them.
Section 3
---------
Dividends
---------
Dividends may be paid on the Common Stock as and when declared by the Board
of Directors; provided, however, no such dividends may be declared or paid if
dividends are not simultaneously declared and paid on the Preferred Stock along
with all dividend payments which have been deferred pursuant to Section 5 of
Part II hereof.
II. PREFERRED STOCK
---------------
The rights, preferences, privileges and restrictions granted to and imposed
upon the Preferred Stock are as follows:
Section 1
---------
Designation
-----------
Series B Preferred Stock. There is hereby designated a Series of preferred
------------------------
stock that shall be known as "Series B Preferred Stock." The number of
authorized shares constituting such Series shall be one hundred and twenty
thousand (120,000). There are no other Series of Preferred Stock.
Section 2
---------
Liquidation Rights
------------------
(a) Series B Preferred Stock Liquidation Rights.
-------------------------------------------
(i) Liquidation. In the event of any liquidation, dissolution
-----------
or winding up of the affairs of the Corporation, each holder of shares of Series
B Preferred Stock shall be entitled to receive: (A) prior and in preference to
any distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock and any other Series or class of
2
<PAGE>
preferred stock which is junior to the Series B Preferred Stock by reason of
their ownership thereof, US$300.00 (subject to adjustment as hereinafter
provided), plus any dividends which, pursuant to Section 5 hereof, have been
declared but remain unpaid at such time on such Series B Preferred Stock
(collectively, the "Series B Preference Amount") or (B) upon written notice of a
holder of Series B Preferred Stock, a pro rata share of the distribution of any
of the assets or surplus funds calculated as if each such holder of Series B
Preferred Stock had converted his shares of Series B Preferred Stock to Common
Stock at the Applicable Conversion Price in effect on the date of the
distribution (the "Series B Participation Amount").
(ii) Pro Rata Distribution. If the assets or surplus funds to
---------------------
be distributed to the holders of the Series B Preferred Stock under subparagraph
(i)(A) of this Section 2(a) are insufficient to permit the payment to such
holders of their full Series B Preference Amount, the assets and surplus funds
legally available for distribution shall be distributed to the holders of Series
B Preferred Stock (to the extent provided in Section 2(a)(i) hereof) in
proportion to the number of shares of Series B Preferred Stock respectively held
by them.
(b) Consolidation, Merger, Sale of Assets. Unless waived by the
-------------------------------------
holders of at least sixty-seven percent (67%) of the outstanding shares of
Series B Preferred Stock (the "Required Holders"), a consolidation or merger of
the Corporation with or into another corporation, or a conveyance of all or
substantially all of the assets of the Corporation, shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of Section 2(a); provided, however, that each holder of Series B
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 3(d)(vii) hereof in lieu of receiving payment in such voluntary
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 2.
(c) Series B Preferred Stock Priority. All of the Series B
---------------------------------
Preference Amount to be paid to the holders of the Series B Preferred Stock
under this Section 2, shall be paid or set apart for payment in accordance with
the provisions of this Section 2 before the payment or setting apart for payment
of any amount for, or the distribution of any assets of the Corporation to, the
holders of the Common Stock and any other Series or class of Preferred Stock
which is junior to the Series B Preferred Stock in connection with such
liquidation, dissolution or winding up. If and to the extent the holders of the
Series B Preferred Stock are entitled by the terms of these Amendment and
Restated Articles to the Series B Participation Amount, the holders of Common
Stock and each holder of the Series B Preferred Stock who elected the Series B
Participation Amount pursuant to Section 2(a)(i)(B) shall share the remaining
assets or surplus funds pro rata as if each holder of Series B Preferred Stock
had converted his shares of Series B Preferred Stock to Common Stock at the
Applicable Conversion Price in effect on the date of the distribution.
Section 3
---------
Conversion
----------
The holders of the Series B Preferred Stock shall have the conversion
rights as follows (the "Conversion Rights"):
3
<PAGE>
(a) Right to Convert. Each share of Series B Preferred Stock shall
----------------
be convertible, without the payment of any additional consideration by the
holder thereof, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for the Series B Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing US$300.00 by the Applicable Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. Each share of Series
B Preferred Stock shall be so convertible at any time after the date of issuance
of such share. The price at which shares of Common Stock shall be deliverable
upon conversion of the Series B Preferred Stock without the payment of any
additional consideration by the holder thereof (the "Applicable Conversion
Price") shall initially be US$3.00. Such initial Applicable Conversion Price
shall be subject to adjustment, in order to adjust the number of shares of
Common Stock into which each Series of the Series B Preferred Stock is
convertible, as hereinafter provided.
(b) Automatic Conversion and Conversion on Call. Each share of
-------------------------------------------
Series B Preferred Stock shall automatically be converted into shares of Common
Stock at the then effective Applicable Conversion Price upon:
(i) the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering the offer and the sale
of Common Stock for the account of the Corporation to the public at an aggregate
offering price resulting in gross cash proceeds to the Corporation as seller of
not less than US$25,000,000, before deducting underwriting commissions and other
compensation at a per share offering price of greater than $6.00 (a "Designated
Offering"). In the event of such an offering, the party or parties entitled to
receive the Common stock issuable upon such conversion of the Series B Preferred
Stock shall not be deemed to have converted that Series B Preferred Stock until
immediately prior to the closing of such offering; or
(ii) the written consent of the Required Holders.
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Applicable Conversion Price. Except in the case of a conversion
pursuant to Section 3(b), before any holder of Series B Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series B Preferred Stock,
and shall give written notice to the Corporation at such office that he elects
to convert the same. Upon the date of a conversion pursuant to Section 3(a), any
party entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date, whether or not such holder has surrendered the
certificate or certificates for such holder's shares of Series B Preferred
Stock. A holder surrendering its or his certificate or certificates shall notify
the Corporation of its or his name or names of its or his nominees in which it
or he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter (and, in any
event, within ten (10) days of such surrender), issue and deliver at such office
to such holder of Series B Preferred Stock, or to its or his nominee or
4
<PAGE>
nominees, a certificate or certificates for the number of shares of Common Stock
to which it or he shall be entitled as aforesaid, together with cash in lieu of
any fraction of a share. Except in the case of a conversion pursuant to Section
3(b), such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the party or parties entitled to the shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
Except to the extent prohibited by applicable law, each party who holds of
record Series B Preferred Stock at the time of any conversion pursuant to
Section 3 shall be entitled to any dividends which, pursuant to Section 5
hereof, have been declared but remain unpaid at such time. Subject to the terms
and conditions of Section 5 hereof with respect to the deferral of the payment
of dividends, such dividends shall be paid to all such holders with thirty (30)
days of such conversion in funds of the Corporation. Such holder will receive
the aggregate number of whole shares of Common Stock determined by adding all
shares and fractional shares which the holder is to receive. In lieu of any
remaining fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Common Stock
Value. The "Common Stock Value" as of the date of any conversion shall be the
closing price on the NASDAQ Bulletin Board (or the Nasdaq National Market or
such other principal market on which the Common Stock is then traded) for the
Corporation's Common Stock on the date prior to the date any amount is payable
hereunder. The Corporation warrants and agrees that all Common Stock issued in
such manner will be duly authorized and issued and fully paid and non-assessable
upon issue by the Corporation and free from original issue taxes.
(d) Adjustment to Conversion Price for Diluting Issues:
--------------------------------------------------
(i) Special Definitions. The following definitions shall apply:
-------------------
(1) "Option" shall mean options, warrants and other rights
--------
(other than options and warrants issued under Plans (as defined below)) to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean, with respect to any
---------------------
shares of Series B Preferred Stock, the date on which a share of such Series of
Series B Preferred Stock shall have been issued.
(3) "Convertible Securities" shall mean any evidences of
------------------------
indebtedness, shares of capital stock (other than Common Stock and Series B
Preferred Stock) or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean any or
-----------------------------------
all shares of Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(A) upon conversion of shares of Series B Preferred
Stock in accordance with this Section 3;
5
<PAGE>
(B) upon the exercise of options or warrants granted
prior to the date of filing of these Amended and Restated Articles of
Incorporation;
(C) to employees, officers or directors of, or
consultants to, the Corporation, granted after the date of filing of these
Amended and Restated Articles of Incorporation, pursuant to stock grants, stock
purchase and stock option plans or the like which provide for issuance of such
number of shares of Common Stock as are specified in such plan or plans at such
price per share as is specified therein, provided that each such plan is
approved by a majority of the Board of Directors including the Director
designated by the holders of the Series B Preferred Stock (a "Special Majority")
or approved by the shareholders of the Corporation; all of such plans, options
and grants shall be collectively referred to as the "Plans";
(D) to lenders, lessors, licensors and other parties
in non-equity financing transactions;
(E) securities issued pursuant to any acquisitions by
the Corporation of all or a part of another corporation or entity, by merger or
other reorganization or by the purchase by the Corporation of the assets of
another corporation or entity (including, but not limited to, the acquisition of
technology or music rights) unless approved by a majority of the Board of
Directors of the Corporation, or if the securities issued pursuant to an
acquisition have a value in excess of $40 million, if approved by a Special
Majority of the Board of Directors of the Corporation.
(ii) No Adjustment of Conversion Price. Subject to the
---------------------------------
provisions of Section 3(d)(iii)(2) and Section 3(d)(vi) below, no adjustment in
the number of shares of Common Stock into which the Series B Preferred Stock is
convertible shall be made, by adjustment in the Applicable Conversion Price of
the Series B Preferred Stock in respect of the issuance of Additional Shares of
Common Stock or otherwise, (1) unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Applicable Conversion Price in effect on the date
of, or immediately prior to, the issue of such Additional Share of Common Stock
or (2) if the Required Holders waive any such adjustment.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock.
- ------------
(1) Options and Convertible Securities. In the event the
----------------------------------
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options, or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that such Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share
6
<PAGE>
(determined pursuant to Section 3(d)(v) hereof) of such Additional Shares of
Common Stock would be less than the Applicable Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any s uch case in which Additional Shares
of Common Stock are deemed to be issued:
(A) no further adjustment in the Applicable Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon exercise, conversion or exchange thereof, the
Applicable Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustment based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Applicable Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall upon such
expiration, be recomputed as if:
(I) in the case of Convertible Securities or
Options for Common Stock the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(II) In the case of Options for Convertible
Securities only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 3(d)(v) hereof) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment to clause (B) or (C) above shall
have the effect of increasing the Applicable Conversion Price to an amount which
exceeds the lower of (i) the Applicable Conversion Price on the original date on
which an adjustment was
7
<PAGE>
made pursuant to this Section 3(d)(iii)(1), or (ii) the Applicable Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock between such original adjustment date and the date on which a readjustment
is made pursuant to clause (B) or (C) above;
(E) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Applicable Conversion Price shall made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if such record shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Applicable Conversion Price that became
effective on such record date shall be canceled a of the close of business on
such record date, and thereafter the Applicable Conversion Price shall be
adjusted pursuant to this Section 3(d)(iii) only if and as of the actual date of
their issuance, if any.
(2) Stock Dividends, Stock Distributions and Subdivisions.
-----------------------------------------------------
In the event the Corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, Additional
Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close
of business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been paid on the date fixed for the payment thereof, the adjustment
previously made in the Applicable Conversion Price which became effective on
such record date shall be canceled as of the close of business on such record
date, and thereafter the Applicable Conversion Price shall be adjusted pursuant
to this Section 3(d)(iii) only if and as of the time of actual payment of such
dividend, if any.
(iv) Adjustment of Applicable Conversion Price of Series B Preferred
---------------------------------------------------------------
Stock Upon Issuance of Additional Shares of Common Stock. In the event the
- ---------------------------------------------------------
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 3(d)(iii)(1), but
excluding Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(d)(iii)(2), which event is dealt with in Section 3(d)(vi) hereof)
without consideration or for a consideration per share less than the Applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Applicable Conversion Price for Series B Preferred
Stock shall be
8
<PAGE>
reduced concurrently with such issue, to a price (calculated to the nearest
cent) equal to the product of (1) the Applicable Conversion Price immediately
prior to such issuance, multiplied by (2) a fraction the numerator of which is
the sum of the number of shares on a fully diluted basis outstanding before the
issuance ("x") plus the number of shares on a fully diluted basis which would
----
have been issued in such issuance at the Applicable Conversion Price immediately
prior to such issuance ("y") and the denominator of which is the sum of the
number of shares on a fully diluted basis outstanding immediately after the
issuance ("z"). By way of example:
<TABLE>
<S> <C> <C>
Conversion Price x + y times Applicable Conversion Price = Applicable Conversion
----- immediately prior to issuance Price after issuance
Z
</TABLE>
(v) Determination of Consideration. For purposes of this
------------------------------
Section 3(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares of securities or other assets of the
Corporation for a single undivided consideration, be the proportion of such
consideration so received allocable to such Additional Shares of Common Stock,
computed as provided in clauses (A) and (B) above, as determined in good faith
by the Board of Directors.
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 3(d)(iii)(1) shall
be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities; by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a
9
<PAGE>
subsequent adjustment of such number) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Stock Dividends, Stock Distributions,
---------------------------------------------------
Subdivisions, Combinations or Consolidations of Common Stock.
- ------------------------------------------------------------
(1) Stock Dividends, Stock Distributions or Subdivisions.
----------------------------------------------------
In the event the Corporation shall issue Additional Shares of Common Stock
pursuant to Section 3(d)(iii)(2) in a stock dividend, other stock distribution
or subdivision, the Applicable Conversion Price in effect immediately prior to
such stock dividend, stock distribution or subdivision shall, concurrently with
the effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased to adjust equitably for such dividend, distribution or
subdivision.
(2) Combinations or Consolidations. In the event the
------------------------------
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Applicable Conversion Price in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately increased to adjust equitably for such
combination or consolidation.
(vii) Adjustment for Merger or Reorganization, etc. Subject to
--------------------------------------------
Section 2(b) of Part II of these Articles, in case of any consolidation or
merger of the with or into another corporation (in which the Corporation is not
the surviving corporation or any reincorporation of the Corporation under the
laws of another jurisdiction), or any proposed reorganization or
reclassification of the Corporation (except a transaction for which provision
for adjustment is otherwise made in this Section 3), each share of Series B
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger,
conveyance, reorganization or reclassification; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Series B Preferred Stock, to the
end that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Applicable Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
Series B Preferred Stock. The Corporation shall not effect any such
consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor corporation or purchaser, as the case may be,
shall assume by written instrument the obligation to deliver to the holders of
the Series B Preferred Stock such share of stock, securities or assets as, in
accordance with the foregoing provisions, each holder is entitled to receive.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the
10
<PAGE>
Corporation but will at all times in good faith assist in carrying out of all
the provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment. Without limiting the
generality of the foregoing, before taking any action which would result in any
adjustment to the Applicable Conversion Price then in effect below the par value
of the Common Stock, the Corporation will take or cause to be taken any and all
necessary corporate or other action which may be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
such Common Stock upon receipt of such Applicable Conversion Price as so
adjusted. The taking of such corporate or other action shall be a condition
precedent to the Corporation's taking action which would result in such
adjustment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Applicable Conversion Price pursuant to this
Section 3, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) all such adjustments and
readjustments theretofore made, (ii) the Applicable Conversion Price at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at such time would be received upon the conversion
of Series B Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is in the same amount per share as
cash dividends paid in previous quarters, if any) or other distribution, the
Corporation shall mail to each holder of Series B Preferred Stock at least ten
(10) days prior to the date thereof, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distributio n.
(h) Common Stock Reserved. The Corporation shall reserve and at all
---------------------
times keep available out of its authorized but unissued Common Stock, free from
preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under any
stock option, conversion option or similar agreement, such number of shares of
Common Stock as shall from time to time be sufficient to effect conversion of
the Series B Preferred Stock.
Section 4
---------
Voting Rights
-------------
(a) Number of Votes. Except as otherwise required by law or in
---------------
these Amended and Restated Articles of Incorporation, the holders of Series B
Preferred Stock and the holders of the Common Stock shall be entitled to notice
of any stockholders' meeting and to vote together as a single class of capital
stock upon any matter submitted to a stockholder for a vote, on the following
basis:
11
<PAGE>
(i) Holders of Common Stock shall have one vote per share; and
(ii) Holders of Series B Preferred Stock shall have that number
of votes per share as is equal to the number of shares of Common Stock into
which each share of Series B Preferred Stock held by such holder is convertible
at the time of such vote.
(b) Election of Directors.
---------------------
(i) So long as twenty thousand (20,000) shares of Series B
Preferred Stock (as adjusted for any consolidations, combinations, stock
distributions, stock dividends or similar events) remain outstanding, in
addition to the rights specified in paragraph (a) of this Section 4, the holders
of the Series B Preferred Stock, voting separately as one class, shall have the
special and exclusive right to elect one (1) of the directors to the Board of
Directors of the Corporation. In any election of directors pursuant to this
paragraph (b)(i), each holder of shares of Series B Preferred Stock entitled to
vote shall be entitled to one vote for each share of Series B Preferred Stock
held and no holder of Series B Preferred Stock shall be entitled to cumulate its
or his votes by giving one candidate more than one vote per share. The
Corporation shall use its best efforts to effectuate the terms and provisions of
this paragraph (b)(i). The special and exclusive voting right of the holders of
the Series B Preferred Stock, voting separately as one class, contained in this
paragraph (b)(i) may be exercised either at a special meeting of the holders of
Series B Preferred Stock called as provided below, or at any annual or special
meeting of the stockholders of the Corporation, or by written consent of such
holders in lieu of a meeting. The directors to be elected pursuant to this
paragraph (b)(i) shall serve for terms extending from the date of their election
and qualification until the time of the next succeeding annual meeting of
stockholders or until their successors have been elected and qualified.
(ii) If any time directorship to be filled by the holders of
Series B Preferred Stock pursuant to paragraph (b)(i) of this Section 4 has been
vacant for a period of 10 days, the Secretary of the Corporation shall, upon the
written request of the holders of record of shares representing at least a
twenty percent (20%) of the voting power of the Series B Preferred Stock then
outstanding, call a special meeting of the holders of Series B Preferred Stock
for the purpose of electing a director to fill such vacancy. Such meeting shall
be held at the earliest practicable date at such place as is specified in or
determined in accordance with the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within 10 days after
receipt of said written request, then the holders of record of shares
representing at least a twenty percent (20%) of the voting power of Series B
Preferred Stock then outstanding may designate in writing one holder to call
such meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for annual meetings of
stockholders and shall be held at such specified place. Any holder of Series B
Preferred Stock so designated shall have access to the stock books of the
Corporation relating to Series B Preferred Stock for the purpose of calling a
meeting of the stockholders pursuant to these provisions.
(iii) At any meeting held for the purpose of electing directors
as provided in paragraph (b)(i) of this Section 4, the presence, in person or by
proxy, of the holders of record of shares representing at least a majority of
the voting power of Series B Preferred
12
<PAGE>
Stock entitled to vote then outstanding shall constitute a quorum of Series B
Preferred Stock for such election. At any such meeting or adjournment thereof,
the absence of a quorum of Series B Preferred Stock, the holders of record of
shares representing at least a majority of the voting power present in person or
by proxy shall have the power to adjourn the meeting for the election of
directors which they are entitled to elect from time to time without notice
other than announcement at the meeting. A vacancy in the directorship to be
elected by the holders of the Series B Preferred Stock pursuant to paragraph
(b)(i) of this Section 4 may be filled out by vote or written consent in lieu of
a meeting of the holders of at least a majority of the voting power of Series B
Preferred Stock.
(c) Quorums. Except as otherwise required by law, the following
-------
shall constitute quorums at meetings of stockholders:
(i) The presence in person or by proxy of the holders of shares
constituting a majority of the votes entitled to vote thereat, calculated in
accordance with section 4(a) hereof, shall constitute a quorum for the purpose
of transaction of business at all meetings of stockholders, except with respect
to election of directors under Section 4(b) hereof.
(ii) For the purpose of electing directors under Section 4(b)
hereof, the presence in person or by proxy of the holders of a majority of the
shares of Series B Preferred Stock entitled to vote thereat shall constitute a
quorum for the purpose of electing that number of directors of the Board of
Directors which such stockholders are entitled to elect pursuant to Section 4(b)
hereof.
(d) Call of Board Meetings. A majority of the members of the Board of
----------------------
Directors then in office can call special meetings of the Board of Directors
upon any required notice to all directors of the Corporation in the manner from
time to time set forth in the Bylaws of the Corporation.
Section 5
---------
Dividend Rights
Dividends on Series B Preferred Stock
-------------------------------------
(a) The holders of the Series B Preferred Stock shall be entitled to
receive, out of funds generally available therefor, cumulative dividends when
and as the same may be declared from time to time by the Board of Directors of
the Corporation at an annual rate per share equal to six percent (6%) of the
Series B Preference Amount (which amount shall be subject to equitable
adjustment whenever there shall be a stock split, combination, reclassification
or other similar event involving the Series B Preferred Stock) from and
including the date of issuance of such Series B Preferred Stock. Such amounts
shall be compounded annually only if such amounts are not paid hereunder when
due. Such dividends shall accrue on the Series B Preferred Stock and be
cumulative from the initial issuance of the Series B Preferred Stock, whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends;
provided, however, that the payment thereof may be deferred by the Corporation
until the earlier of: (i) the closing of a Designated Offering, (ii) a merger,
consolidation or sale of assets permitted by Section 2(b) of this Article, or
March 31, 2004, at which time, subject to Section 8 regarding redemption of the
13
<PAGE>
Series B Preferred Stock, if applicable, all such deferred dividends shall be
paid in full; and any and all dividends accruing thereafter shall be paid
quarterly, in arrears on the last day of each subsequent calendar quarter
through the date of conversion of the Series B Preferred Stock, if any. If such
cumulative dividends in respect of any prior or current annual dividend period
shall not have been declared and paid or if there shall not have been a sum
sufficient for the payment thereof set apart, the deficiency shall first be
fully paid or declared and set apart with respect to such class of the
Corporation's capital stock, now or hereafter outstanding. The date on which the
Corporation initially issues a share of Series B Preferred Stock will be deemed
to be its "date of issuance" regardless of the number of times transfer of such
share of Series B Preferred Stock is made on the stock records of the
Corporation.
(b) Subsequent to the payment of dividends to the holders of Series B
Preferred Stock in the aggregate amount of their cash investment in the
Corporation, dividends, if any, declared by the board of directors, shall be in
an equivalent per share amount for the holders of Series B Preferred Stock and
Common Stock.
(c) Except as expressly provided in this Section 5, the holders of
shares of Series B Preferred Stock are entitled to no dividends thereon.
(d) The term "distribution" as used in Section 6 of these Articles
and in Section 7 shall include the transfer of cash or property without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of Common Stock), or the purchase or redemption of shares of the
Corporation, for cash or property, including such transfer, purchase or
redemption by a subsidiary of the Corporation, except from employees of the
Corporation upon termination of employment or pursuant to a right of first
refusal or any other repurchase approved by the Board of Directors, including
the director elected by the holders of the Series B Preferred Stock. The time of
any distribution by way of dividends shall be the date of declaration thereof,
and the time of any distribution by purchase or redemption of shares shall be
the date on which cash or property is transferred by the Corporation, whether or
not pursuant to a contract of an earlier date; provided that where a debt
security is issued in exchange for shares, the time of the distribution is the
date when the Corporation acquires the shares for such exchange.
Section 6
---------
Covenants
---------
Without limiting the rights of the holders of Series B Preferred Stock to
vote as a class, as required by law and the provisions of Section 4 hereof, so
long as any shares of Series B Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent as
provided by law) of the Required Holders:
(a) pay, set aside for payment or declare any dividend or
distribution in respect of Common Stock or any other equity security junior in
preference to, or on parity with, the Series B Preferred Stock;
(b) create or issue, directly or indirectly, any new class or Series
of securities (i) having preferences prior to the Series B Preferred Stock with
respect to voting, dividends,
14
<PAGE>
redemption or upon liquidation, or (ii) having protective rights superior to the
Series B Preferred Stock;
(c) amend or repeal any portion of these Amended and Restated
Articles of Incorporation or the Corporation's bylaws which amendment or repeal
adversely impacts the rights of the holders of the Series B Preferred Stock as
provided herein;
(d) enter into or effect (i) statutory share exchange, consolidation
or merger of the Corporation with or into any other corporation or corporations,
(ii) a sale, transfer or other disposition of all or substantially all of the
assets of the Corporation, or (iii) any liquidation, dissolution, capitalization
or winding up of the Corporation, unless as a result of (i), (ii), or (iii)
above, the holders of the Series B Preferred Stock shall receive for each share
of Series B Preferred Stock consideration having a value on the date of such
consolidation or merger or sale of assets of at least the greater of (A) US
$600.00 per share of Series B Preferred Stock, or (B) an amount which is equal
to or greater than a forty percent (40%) compounded annualized rate of return on
the purchase price of the Series B Preferred Stock from the date of the initial
purchase of such Series B Preferred Stock;
(e) unless approved by a Special Majority of the Board of Directors
of the Corporation, engage in any other business other than a business directly
or indirectly related to the development, acquisition, marketing and
distribution of music and music rights and other goods and services which may be
developed, acquired, marketed or distributed in connection therewith;
(f) enter into any agreement which, by its terms, restricts the
rights of the Series B Preferred Stock as set forth herein, or restricts the
Corporation's performance of any duties under the terms hereof; or
(g) unless approved by a majority of the Board of Directors of the
Corporation, acquire all or a part of another corporation or entity, by merger
or other reorganization or by the purchase by the Corporation of the assets of
another corporation or entity, or unless approved by a Special Majority of the
Board of Directors of the Corporation, make any such acquisition for aggregate
purchase price consideration of more than $40 million.
Section 7
---------
Stock Dividends, Stock Distributions,
Subdivisions, Combinations and Consolidations
---------------------------------------------
In the event the Corporation shall issue additional shares of a Series of
Series B Preferred Stock in a stock dividend, other stock distribution or
subdivision, or in the event the outstanding shares of Series B Preferred Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Series B Preferred Stock, the Series B Preference
Amount set forth in subparagraph (a) of Section 2 hereof in effect immediately
prior to such event shall, concurrently therewith, be proportionately decreased
(in the case of a stock dividend, other stock distribution or subdivision) or
increased (in the case of a combination or consolidation into a lesser number of
shares of such Series of Series B Preferred Stock), in each such case to adjust
equitably therefor.
15
<PAGE>
Section 8
---------
Redemption
----------
Subject to the terms and conditions of this Section 8, the Corporation
shall, at any time after March 31, 2004, upon the written request (such request
to be called the "Series B Redemption Notice") of the holders of not less than
sixty-seven percent (67%) of the then outstanding Series B Preferred Stock, the
Corporation shall forthwith send Notice thereof to all holders of Series B
Preferred Stock who have not given Notice of Redemption (the "Non-Participating
Series B Holders"). Each Non-Participating Series B Holder shall have fifteen
(15) days from delivery of the Notice by the Company to notify the Company (the
"Return Notice") of such Non-Participating Series B Holder's election to
participate in such redemption pursuant to this Section 8 or to convert all of
such Holder's shares of Series B Preferred Stock to common stock pursuant to
Section 3 hereof. In the event no Return Notice shall be delivered to the
Company, the Non-Participating Series B Holder shall be deemed to have elected
to Redeem such Holders Shares of Series B Preferred Stock pursuant to this
Section 8 whereupon the Corporation shall redeem all shares of Series B
Preferred Stock at the Series B Redemption Price (as defined below) in twelve
equal quarterly installments (the date of the payment of each such installment
being a "Redemption Date") with the first payment being due on the last business
day of the calendar month immediately following the date of the Series B
Redemption Notice and, thereafter, on the last business day of each of the next
eleven successive calendar quarters. In the event shares of Series B Preferred
Stock scheduled for redemption are not redeemed because of a prohibition under
applicable law, such shares shall be redeemed as soon as such prohibition no
longer exists. The number of shares to be redeemed at the end of any quarter
shall be cumulative, so that any shares subject to redemption at the end of one
quarter and not so redeemed shall be carried forward to the subsequent quarter
and shall be subject to redemption in addition to the shares otherwise
redeemable at the end of such quarter. The Series B Preferred Stock that has
not been redeemed shall remain issued and outstanding until the Series B
Redemption Price has been paid in full and entitled to all rights and
preferences provided herein. Shares of Series B Preferred Stock required to be
redeemed shall be redeemed pro rata from all holders of Series B Preferred Stock
--------
from whom a Series B Redemption Notice has been received. Nothing contained
herein shall restrict the right of the holders of the Series B Preferred Stock
to convert their Series B Preferred Stock pursuant to Section 3 hereof;
provided, that upon any such conversion, all redemption rights under this
- --------
Section 8 pertaining to such shares shall terminate and be of no further force
or effect. On or before each Redemption Date, the holder of the Series B
Preferred Stock being redeemed shall deliver to the Corporation certificates
representing such shares of Series B Preferred Stock of the Corporation to be
redeemed on such Redemption Date in exchange for the Series B Redemption Price.
The redemption price (the "Series B Redemption Price") for each share of
Preferred Stock redeemed pursuant to this Section 8 shall be equal to the Series
B Preference Amount calculated to and including the applicable Redemption Date.
Section 9
---------
Residual Rights
---------------
All rights accruing to the outstanding shares of capital stock of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
16
<PAGE>
ARTICLE IV
----------
MANAGEMENT
----------
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
C. The number of directors shall initially be five (5) and thereafter
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). Upon the effective date of the merger of GoodNoise Corporation, a
California corporation, with and into the Corporation (the "Effective Date") the
directors shall be divided into three classes with the term of office of the
first class to expire at the first annual meeting of the stockholders following
the Effective Date, the term of office of the second class to expire at the
second annual meeting of stockholders held following the Effective Date, the
term of office of the third class to expire at the third annual meeting of
stockholders following the Effective Date, and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
D. Subject to the rights of the holders of any Series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause (including removal from office
by a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, or by sole remaining
director, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
E. Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
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F. Special meetings of stockholders of the Corporation may be called only
by the Board of Directors, the Chairman of the Board of Directors, the President
or the Chief Executive Officer.
ARTICLE V
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BYLAWS
------
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. The stockholders shall also have power to adopt,
amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the stockholders shall require, in
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two thirds percent (66
2/3%) of the voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE VI
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LIMITATION ON LIABILITY
-----------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of the foregoing
provisions of this Article VI by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE VII
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AMENDMENTS
----------
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that, notwithstanding
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any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least sixty-six and two thirds percent (66 2/3%) of the voting
power of all of the then outstanding shares of the capital stock of
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the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal this Article
VII, Article IV, Article V or Article VI.
ARTICLE VIII
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REGISTERED OFFICE; REGISTERED AGENT
-----------------------------------
The address of the registered office of the Corporation in the State of
Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of
Dover, County of Kent. The name of the registered agent at that address is
Incorporating Services, Ltd.
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