<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1999
Registration No. 333-83685
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EMUSIC.COM INC.
(Exact name of registrant as specified in its charter)
Delaware 3652 94-3290594
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification No.)
organization)
Classification Code
Number)
1991 Broadway, 2nd Floor
Redwood City, California 94063
(650) 216-0200
(Address and telephone number of principal executive offices)
----------------
Gene Hoffman, Jr.
President and Chief Executive Officer
EMusic.com Inc.
1991 Broadway, 2nd Floor
Redwood City, California 94063
(650) 216-0200
(Name, address and telephone number of agent for service)
Copies to:
Bruce Schaeffer, Esq Warren Lazarow, Esq.
Andrew Zeif, Esq. Armando Castro, Esq.
Craig Malina, Esq. Vahe H. Sarrafian, Esq.
Gray Cary Ware & Freidenrich LLP Andrew R. Hull, Esq.
400 Hamilton Avenue Brobeck, Phleger & Harrison LLP
Palo Alto, California 94301-1825 Two Embarcadero Place
(650) 833-2000 2200 Geng Road
Palo Alto, California 94303
(650) 424-0160
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Amendment No. 2 to the Form S-1 Registration Statement is being filed
for the sole purpose of filing one additional exhibit and one revised exhibit.
<PAGE>
Part II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law permits indemnification of
officers, directors and other corporate agents under certain circumstances and
subject to certain limitations. The Registrant's Amended and Restated
Certificate of Incorporation and Bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant intends to enter into separate indemnification
agreements (Exhibit 10.1) with its directors and officers which would require
the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct of a culpable nature). The
Registrant also intends to continue to maintain director and officer liability
insurance, if available on reasonable terms. These indemnification provisions
and the indemnification agreements may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities
Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions to be paid by the Registrant, in connection with this
offering. All amounts shown are estimates except for the registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 35,532
NASD filing fee....................................................... 13,281
Nasdaq National Market listing fee.................................... 94,000
Blue Sky fees and expenses............................................ 5,000
Printing and engraving expenses....................................... 150,000
Legal fees and expenses............................................... 250,000
Accounting fees and expenses.......................................... 200,000
Transfer Agent and Registrar fees..................................... 10,000
Miscellaneous expenses................................................ 92,187
--------
Total............................................................... $850,000
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities
On May 6, 1998, we issued 2,500,000 shares of our common stock and warrants to
purchase a total of 500,000 shares of our common stock at an exercise price of
$1.00 per share to accredited investors in exchange for $500,000.00 in reliance
on Rule 504 of Regulation D promulgated under the Securities Act. Warrants to
purchase 200,000 shares of common stock were exercised at the time of their
issuance.
On May 11, 1998, we acquired all of the outstanding shares of GoodNoise
Corporation, a Delaware corporation, in exchange for 11,015,300 shares of our
common stock in reliance on Section 4(2) of the
II-1
<PAGE>
Securities Act. On the same date, we assumed options to purchase 1,722,500
shares of the Delaware corporation's common stock, which were automatically
converted into options to purchase 2,032,550 shares of our common stock at a
weighted average exercise price of approximately $0.03 per share.
On July 29, 1998, we issued 170 shares of our common stock to a consultant in
exchange for consulting services in reliance on Section 4(2) of the Securities
Act.
On August 10, 1998, investors exercised warrants to purchase 300,000 shares of
our common stock in exchange for $300,000. These warrants had been issued as a
part of the private placement which occurred on May 6, 1998.
On October 28, 1998, we issued 500 shares of our Series A Preferred Stock and a
warrant to purchase 100,000 shares of our common stock at an exercise price of
$7.91 to an investor in reliance on Regulation D.
On December 16, 1998, we issued 10,000 shares of our common stock to an
employee upon exercise of an employee stock option in reliance on Rule 701.
On February 24, 1999, we acquired all of the outstanding shares of Creative
Fulfillment, Inc. in exchange for 630,179 shares of our common stock in
reliance on Section 4(2) of the Securities Act.
On March 23, 1999, we issued 117,570 shares of our Series B Preferred Stock to
accredited investors in exchange for $32,523,900.00 in cash, cancellation of
debt of $1,777,250 and conversion of the outstanding shares of our Series A
Preferred Stock in reliance on Rule 506 of Regulation D promulgated under the
Securities Act.
On April 27, 1999, we issued 665,188 shares of our common stock in
consideration of the acquisition of certain music rights in reliance on Section
4(2) of the Securities Act.
On June 11, 1999, we issued 448,000 shares of our common stock in exchange for
all of the outstanding shares of Internet Underground Music Archive, Inc. in
reliance on Section 4(2) of the Securities Act.
On June 10, 1999 we granted warrants for the purchase of 1,607,800 shares
solely to accredited investors in reliance on Regulation D.
From May 11, 1998 through September 20, 1998, we granted options to purchase
435,000 shares of our common stock at a weighted average exercise price of
approximately $5.07 per share. These options were granted to our employees and
consultants in exchange for services rendered in transactions exempt from
registration under the Securities Act under Rule 701. From September 21, 1998
through July 15, 1999, we granted options to purchase 4,186,000 shares of our
common stock at a weighted average purchase price of approximately $7.078 per
share. These options were granted to our employees and consultants in exchange
for services rendered in transaction exempt from registration under the
Securities Act under Section 4(2) thereof.
There were no underwriters employed in connection with any of the above
transactions.
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<PAGE>
Item 27. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
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<C> <S>
1.1 Form of Underwriting Agreement
2.1(a) Agreement and Plan of Reorganization by and among GoodNoise
Corporation, Atlantis Ventures Corp., GN Acquisition Corp and certain
other parties dated as of May 11, 1998
2.2(a) Agreement and Plan of Reorganization by and among GoodNoise
Corporation, Creative Fulfillment, Inc., GN Acquisition Corp and
certain other parties dated as of October 8, 1998
2.3* Agreement and Plan of Reorganization by and among Goodnoise
Corporation, GNA Corporation, Internet Underground Music Archive, Inc.
and certain shareholders of Internet Underground Music Archive, Inc.
dated as of May 16, 1999
2.4(b) Agreement and Plan of Merger by and between EMusic.com Inc., a Florida
corporation, and EMusic.com Inc., a Delaware corporation, dated as of
July 21, 1999
3.1 Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
10.1* Form of Indemnity Agreement
10.2(a) Stock Purchase Agreement dated as of March 30, 1998 with Gary
Culpepper
10.3(a) 1998 Stock Option Plan
10.4* 1998 Nonstatutory Stock Option Plan
10.5* 1999 Employee Stock Purchase Plan
10.6* Form of Amendment to Investor Rights Agreement dated July 19, 1999
21* Subsidiaries
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
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* Previously filed.
(a) Previously filed as an exhibit to the Registrant's Form 10-SB/A dated
December 24, 1998.
(b) Previously filed as an exhibit to the Registrant's Form 8-K dated July 23,
1999.
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<PAGE>
Item 28. Undertakings
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforcable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final ajudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by EMusic pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
Signatures
In accordance with the requirements of the Securities Act of 1933, EMusic has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, in the City of Redwood City, State of
California, on the 17th day of September, 1999.
EMUSIC.COM INC.
/s/ Joseph H. Howell
By: _________________________________
Joseph H. Howell
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and September 17, 1999
______________________________________ Secretary
Robert H. Kohn
* President, Chief Executive September 17, 1999
______________________________________ Officer and Director
Gene Hoffman, Jr. (Principal Executive
Officer)
/s/ Joseph H. Howell Executive Vice President September 17, 1999
______________________________________ and Chief Financial
Joseph H. Howell Officer (Principal
Financial and Accounting
Officer)
* Director September 17, 1999
______________________________________
Ralph Peer, II
* Director September 17, 1999
______________________________________
Tor Braham
* Director September 17, 1999
______________________________________
Ed Rosenblatt
/s/ Joseph H. Howell September 17, 1999
*By: _________________________________
Joseph H. Howell, attorney-in-fact
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
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<C> <S>
1.1 Form of Underwriting Agreement
2.1(a) Agreement and Plan of Reorganization by and among GoodNoise
Corporation, Atlantis Ventures Corp., GN Acquisition Corp and certain
other parties dated as of May 11, 1998
2.2(a) Agreement and Plan of Reorganization by and among GoodNoise
Corporation, Creative Fulfillment, Inc., GN Acquisition Corp and
certain other parties dated as of October 8, 1998
2.3* Agreement and Plan of Reorganization by and among Goodnoise
Corporation, GNA Corporation, Internet Underground Music Archive, Inc.
and certain shareholders of Internet Underground Music Archive, Inc.
dated as of May 16, 1999
2.4(b) Agreement and Plan of Merger by and between EMusic.com Inc., a Florida
corporation, and EMusic.com Inc., a Delaware corporation, dated as of
July 21, 1999
3.1 Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
10.1* Form of Indemnity Agreement
10.2(a) Stock Purchase Agreement dated as of March 30, 1998 with Gary
Culpepper
10.3(a) 1998 Stock Option Plan
10.4* 1998 Nonstatutory Stock Option Plan
10.5* 1999 Employee Stock Purchase Plan
10.6* Form of Amendment to Investor Rights Agreement dated July 19, 1999
21* Subsidiaries
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
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* Previously filed.
(a) Previously filed as an exhibit to the Registrant's Form 10-SB/A dated
December 24, 1998.
(b) Previously filed as an exhibit to the Registrant's Form 8-K dated July 23,
1999.
<PAGE>
EXHIBIT 1.1
DRAFT
9/14//99
5,480,000 Shares
EMUSIC.COM INC.
COMMON STOCK
UNDERWRITING AGREEMENT
September ___, 1999
CIBC World Markets Corp.
ING Barings LLC
Prudential Securities
Volpe Brown Whelan & Company, LLC
c/o CIBC World Markets Corp.
As Representatives of the Several Underwriters
World Financial Center
New York, New York 10281
On behalf of the Several Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
EMusic.com Inc. a Delaware corporation (the "Company"), and the
stockholders of the Company named on Schedule III to this Agreement (each a
"Selling Stockholder" and collectively, the "Selling Stockholders"), propose to
sell to you and the other underwriters named on Schedule I to this Agreement
(the "Underwriters"), for whom you are acting as Representatives, an aggregate
of 5,480,000 shares (the "Firm Shares") of the Company's Common Stock, (the
"Common Stock"). The Company proposes to issue and sell 5 million shares of its
authorized and unissued Common Stock (the "Company Shares") and the Selling
Stockholders propose to sell an aggregate of 480,000 shares of the Company's
authorized and outstanding Common Stock (the "Selling Stockholders Shares") to
the Underwriters. In addition, the Company proposes to grant to the several
Underwriters, an option to purchase up to an additional 822,000 shares (the
"Option Shares") of Common Stock from them for the purpose of covering over-
allotments in connection with the sale of the Firm Shares. The Firm Shares and
the Option Shares are together called the "Shares."
1. Sale and Purchase of the Shares.
-------------------------------
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
<PAGE>
(a) The Company agrees to sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $_____ per share (the "Initial Price"), the number of Company Shares
set forth opposite the name of such Underwriter on Schedule I to this Agreement.
(b) The Selling Stockholders agrees to sell to each of the
Underwriters, and each of the Underwriters agree, severally and not jointly, to
purchase from the Selling Stockholders at the Initial Price, the number of
Selling Stockholders Shares set forth opposite the name of such Underwriter on
Schedule I to this Agreement.
(c) The Company grants to the several Underwriters an option to
purchase all or any part of the Option Shares at the Initial Price. The number
of Option Shares to be purchased by each Underwriter shall be the same
percentage (adjusted by the Representatives to eliminate fractions) of the total
number of Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only to cover
over-allotments in the sales of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time on or before 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date (as defined
below), and on one or more occasions thereafter within 30 days after the date of
this Agreement, in each case upon written or telegraphic notice, or verbal or
telephonic notice confirmed by written or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City time, on
the business day before the Firm Shares Closing Date or at least two business
days before the Option Shares Closing Date (as defined below), as the case may
be, setting forth the number of Option Shares to be purchased and the time and
date (if other than the Firm Shares Closing Date) of such purchase.
2. Delivery and Payment. Delivery by the Company and the Selling
--------------------
Stockholders of the Firm Shares to the Representatives for the respective
accounts of the Underwriters, and payment of the purchase price by wire transfer
payable in same day funds to the Company and the Selling Stockholders, shall
take place at the offices of CIBC World Markets Corp., at CIBC Oppenheimer
Tower, World Financial Center, New York, New York 10281, at 10:00 a.m., New York
City time, on the third full business day following the first day the Shares are
traded, or at such time on such other date, not later than 10 business days
after the date of this Agreement, as shall be agreed upon by the Company and the
Representatives (such time and date of delivery and payment are called the "Firm
Shares Closing Date"); provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 7(a)(v) hereof the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. If
the Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by wire transfer, payable in same day funds to the Company shall take
place at the offices of CIBC World Markets Corp. specified above at the time and
on the date or dates (which may be the same date as, but in no event shall be
earlier than, the Firm Shares Closing Date) specified in the notice referred to
in Section 1(c) (such time
2
<PAGE>
and date of delivery and payment are called the "Option Shares Closing Date").
The Firm Shares Closing Date and the Option Shares Closing Date are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(c) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The Company
------------------------------------------------------
has prepared in conformity with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and the published rules and regulations
thereunder (the "Rules") adopted by the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-83685), including a
preliminary prospectus relating to the Shares, and has filed with the Commission
the Registration Statement (as hereinafter defined) and such amendments thereof
as may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereto) to and of the related
preliminary prospectus have heretofore been delivered by the Company to you.
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date (as hereinafter defined) and the date of this Agreement
as the Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrant to each Underwriter as follows:
(a) If the registration statement relating to the Shares has been
declared effective under the Securities Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if the Representatives, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules pursuant to
subparagraph (1), (4) or (7) of Rule 424(b) of the Rules or as part of a post-
effective amendment to the registration statement (including a final form of
prospectus). If the registration statement relating to the Shares has not been
declared effective under the Securities Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus, or, if the Representatives, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules. The term "Registration Statement" as
used in this Agreement shall mean such
3
<PAGE>
registration statement, including consolidated financial statements, schedules
and exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules, the information deemed to be a part of the registration statement at
the time it became effective pursuant to Rule 430A(b) or Rule 434(d) of the
Rules) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules relating
thereto after the effective date of such registration statement (the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment or
the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules, the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 430A(b) of the Rules); provided, however, that
-------- -------
if in reliance on Rule 434 of the Rules and with the consent of the
Representatives, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Securities Act, the term "Prospectus" shall mean the
"prospectus subject to completion" (as defined in Rule 434(g) of the Rules) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules). Notwithstanding the foregoing, if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Shares that differs from the prospectus
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. If in
reliance on Rule 434 of the Rules and with the consent of the Representatives,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Securities Act, the Prospectus and the term sheet, together,
will not be materially different from the prospectus in the Registration
Statement.
On the Effective Date, the Registration Statement complied, and on the date
of the Prospectus, on the date any post-effective amendment to the Registration
Statement shall become effective, on the date any supplement or amendment to the
Prospectus is filed with the Commission and on each Closing Date, the
Registration Statement and the Prospectus (and any amendment thereof or
supplement thereto) will comply, in all material respects, with the applicable
provisions of the Securities Act and the Rules and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder; the Registration Statement did not, as of the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated
4
<PAGE>
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and on the other dates
referred to above neither the Registration Statement nor the Prospectus, nor any
amendment thereof or supplement thereto, will contain any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus as amended or
supplemented complied in all material respects with the applicable provisions of
the Securities Act and the Rules and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty as to the statements
contained under the caption "Underwriting" in the Prospectus. The Company
acknowledges that the statements referred to in the previous sentence constitute
the only information furnished in writing by the Representatives on behalf of
the several Underwriters specifically for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus.
(b) The consolidated financial statements of the Company and its
subsidiaries (including all notes and schedules thereto) included in the
Registration Statement and Prospectus present fairly, in all material respects,
the financial position, the results of operations and cash flows and the
stockholders' equity and the other information purported to be shown therein of
the Company and its subsidiaries at the respective dates and for the respective
periods to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of the results for such periods have been made. The selected and
summary consolidated financial and operational data included in the Registration
Statement present fairly, in all material respects, the information shown
therein and have been compiled on a basis consistent with the audited financial
statements. No other financial statements or schedules are required to be
included in the Registration Statement.
(c) PricewaterhouseCoopers LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the periods
covered by their reports, were independent public accountants as required by the
Securities Act and the Rules.
(d) The Company has been duly incorporated and is validly existing
as corporation in good standing under the laws of the State of Delaware and each
of the Company's operating subsidiaries have been duly incorporated and are
validly existing as a corporation in good standing under the laws of the State
of California or Delaware. The Company has no operating subsidiaries or
subsidiaries and does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business organization other
than the subsidiaries listed in Exhibit 21.1 to the Registration Statement. Each
of the Company and its subsidiaries are duly qualified and in good standing as
foreign corporations in each jurisdiction in which the character or location of
its assets or properties (owned, leased or licensed) or the nature of its
businesses makes such qualification necessary except for such jurisdictions
where the failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations or financial condition of
the Company and its subsidiaries, taken as a whole. Except as disclosed in the
Registration Statement and the Prospectus, neither the Company nor its
subsidiaries own, lease or license any asset or property or conduct any
businesses outside the United States of America. Each of the Company and its
subsidiaries have all requisite corporate
5
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power and authority, and all necessary authorizations, approvals, consents,
orders, licenses, certificates and permits of and from all governmental or
regulatory bodies or any other person or entity, to own, lease and license its
assets and properties and conduct its businesses as now being conducted and as
described in the Registration Statement and the Prospectus except for such
authorizations, approvals, consents, orders, material licenses, certificates and
permits the failure to so obtain would not have a material adverse effect upon
the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
a whole, and the Company has all such corporate power and authority, and such
authorizations, approvals, consents, orders, licenses, certificates and permits
to enter into, deliver and perform this Agreement and to issue and sell the
Shares (except as may be required under the Securities Act and state and foreign
Blue Sky laws).
(e) Each of the Company and its operating subsidiaries owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries,
taken as a whole. Neither the Company, nor its subsidiaries have received any
notice of, and neither the Company, nor its subsidiaries has any knowledge of,
any infringement of or conflict with asserted rights of the Company or its
subsidiaries by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights
which, singularly or in the aggregate, might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole; and
neither the Company nor its subsidiaries have received any notice of, and
neither the Company, nor its subsidiaries, has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole.
(f) Each of the Company and its subsidiaries has good title to
each of the items of personal property which are reflected in the financial
statements referred to in Section 4(b) or are referred to in the Registration
Statement and the Prospectus as being owned by it and valid and enforceable
leasehold interests in each of the items of real and personal property which are
referred to in the Registration Statement and the Prospectus as being leased by
it, in each case free and clear of all liens, encumbrances, claims, security
interests and defects, other than those described in the Registration Statement
and the Prospectus and those which do not and will not have a material adverse
effect upon the assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole.
(g) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
its subsidiaries, any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over
6
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the Company or its subsidiaries, or over their respective officers or properties
or otherwise which (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries, taken as a whole, or might
materially and adversely affect their properties, assets or rights, (ii) might
prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise), of the Company and its subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business; (ii) neither
the Company nor its subsidiaries have sustained any material loss or
interference with its assets, businesses or properties (whether owned or leased)
from fire, explosion, earthquake, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree; and (iii) since the date of the
latest balance sheet included in the Registration Statement and the Prospectus,
except as reflected therein, neither the Company nor its subsidiaries have (a)
issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except such liabilities or obligations incurred
in the ordinary course of business, (b) entered into any transaction not in the
ordinary course of business or (c) declared or paid any dividend or made any
distribution on any shares of its stock or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or otherwise acquire any shares of its
stock.
(i) There is no document or contract required to be described in
the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required. Each
agreement listed in the Exhibits to the Registration Statement is in full force
and effect and is valid and enforceable by and against the Company or its
subsidiaries in accordance with its terms, assuming the due authorization,
execution and delivery thereof by each of the other parties thereto, except (A)
as such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles and (B) to the extent that rights to indemnity or
contribution under this Agreement may be limited by Federal or state securities
laws or the public policy underlying such laws. Except as disclosed in the
Registration Statement, neither the Company nor its subsidiaries, nor to the
best of the Company and its subsidiaries knowledge, is any other party in
default in the observance or performance of any term or obligation to be
performed by it under any such agreement, and no event has occurred which with
notice or lapse of time or both would constitute such a default, in any such
case which default or event would have a material adverse effect on the assets
or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole.
No default exists, and no event has occurred which with notice or lapse of time
or both would constitute a default, in the due performance and observance of any
term, covenant or condition, by the Company or its subsidiaries of any other
agreement or instrument to which the Company or its subsidiaries are a party or
by which it or its properties or business may be bound or affected which default
or event would have a material adverse effect on the assets or
7
<PAGE>
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole.
(j) Neither the Company nor its subsidiaries are in violation of
any term or provision of its respective charter or by-laws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a material adverse effect on the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole.
(k) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the
Company, sale by the Selling Stockholders, of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due under, or
conflict with or result in the breach of any term or provision of, or constitute
a default (or an event which with notice or lapse of time or both would
constitute a default) under, or require any consent or waiver under, or result
in the execution or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or its subsidiaries pursuant to the terms
of, any indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or its subsidiaries are a party or by which it or any of its
properties or businesses is bound, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Company or its
subsidiaries or violate any provision of the charter or by-laws of the Company
or its subsidiaries, except (1) for such consents or waivers which have already
been obtained and are in full force and effect or (2) where the failure to
obtain such consents or waivers, either singly or in the aggregate, would not
have a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole.
(l) The Company has an authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of Common Stock have been duly and validly issued, are fully
paid and nonassessable and were not issued in violation of or subject to any
preemptive rights. None of such Shares were issued in violation of any
preemptive or other similar right. The Shares, when issued and sold pursuant to
this Agreement, will be duly and validly issued, fully paid and nonassessable,
and will not be issued in violation of or subject to any preemptive rights. None
of such Shares will be issued in violation of any preemptive or other similar
rights. Except as disclosed in the Registration Statement and the Prospectus,
there is no outstanding option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to issue, any share of stock
of the Company or any security convertible into, or exercisable or exchangeable
for, such stock. The Common Stock and the Shares conform in all material
respects to all statements in relation thereto contained in the Registration
Statement and the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights. All the outstanding shares of
capital stock of the Company's subsidiaries have been duly and validly
authorized and issued and are fully paid and nonassessable, and, except as
otherwise set forth in the Prospectus, all outstanding shares of
8
<PAGE>
capital stock of the subsidiaries are owned by the Company free and clear of any
security interests, claims, liens or encumbrances.
(m) Each officer and director of the Company, the Selling
Stockholders and each person set forth in Schedule II hereto has agreed in
writing that such person will not, for a period of 90 days from the date that
the Registration Statement is declared effective by the Commission (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or stockholders of such person, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of the Representatives. The
foregoing restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with this restriction.
The Company has provided to counsel for the Underwriters a complete and accurate
list of all securityholders of the Company and the number and type of securities
held by each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any lock-up
agreements currently existing or hereafter effected without the prior written
consent of the Representatives.
(n) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company. This Agreement
has been duly and validly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (A) as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (B) to the extent that rights
to indemnity or contribution under this Agreement may be limited by Federal and
state securities laws or the public policy underlying such laws.
9
<PAGE>
(o) The Company is not involved in any labor dispute nor, to the
knowledge of the Company, is any such dispute threatened, which dispute would
have a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole.
(p) No transaction has occurred between or among the Company and
any of its officers or directors or any affiliate or affiliates of any such
officer or director that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(q) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares.
(r) The Company has filed all Federal, state, local and foreign
tax returns which are required to be filed through the date hereof, or has
received extensions thereof, and has paid all taxes shown on such returns and
all assessments received by it to the extent that the same are material and have
become due, except where the failure to make such filing or payment would not
have a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole.
(s) The Shares have been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System.
(t) Neither the Company nor its subsidiaries do business with the
government of Cuba or with any person or entity located in Cuba.
(u) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries are in compliance with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, except where a
failure to comply with such rules, laws and regulations would not have a
material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole, (ii) neither the Company nor its
subsidiaries have received notice from any governmental authority or third party
of an asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus, (iii) neither the
Company nor its subsidiaries will be required to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, if any, leased or occupied by the Company or its subsidiaries have been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601,
et seq.), or otherwise designated as a contaminated site under applicable
- -- ----
state or local law.
(v) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are
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executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) There are no issues related to the Company's, or
subsidiaries', preparedness for the Year 2000 that (i) are of a character
required to be described or referred to in the Registration Statement or by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in a
material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole or that might materially affect their
properties, assets or rights. All internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and its subsidiaries fully comply with Year 2000 Qualification
Requirements. "Year 2000 Qualifications Requirements" means that the internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company and its subsidiaries (i) have
been reviewed to confirm that they store, process (including sorting and
performing mathematical operations, calculations and computations), input and
output data containing date and information correctly regardless of whether the
date contains dates and times before, on or after January 1, 2000, (ii) have
been designated to ensure date and time entry recognition and calculations, and
date data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in a material adverse effect on the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole.
(x) Neither the Company nor its subsidiaries have any knowledge
that any of the activities or types of conduct enumerated below have been or may
have been engaged in, either directly or indirectly, at any time since the
founding of the Company: (a) any bribes or kickbacks to government officials or
their relatives, or any other payments to such persons, whether or not legal, to
obtain or retain business or to receive favorable treatment with regard to
business; (b) any bribes or kickbacks to persons other than government
officials, or to relatives of such persons, or any other payments to such
persons or their relatives, whether or not legal, to obtain or retain business
or to receive favorable treatment with regard to business; (c) any
contributions, whether or not legal, made to any political party, political
candidate or holder of governmental office; (d) any bank accounts, funds or
pools of funds created or maintained
11
<PAGE>
without being reflected on the corporate books of account, or as to which the
receipts and disbursements therefrom have not been reflected on such books; (e)
any receipts or disbursements, the actual nature of which has been "disguised"
or intentionally misrecorded on the corporate books of account of the Company or
its subsidiaries; (f) any fees paid to consultants or commercial agents that
exceeded the reasonable value of the services purported to have been rendered;
or (g) any payments or reimbursements made to personnel of the Company or its
subsidiaries for the purposes of enabling them to expend time or to make
contributions or payments of the kind or for the purpose referred to in subparts
(a)-(f) above.
(y) The Company shall not cause any registration statement with
respect to certain registration rights of holders of the Company's Series B
preferred stock and the holder of a warrant for 100,000 shares of the Company's
common stock to be declared effective by the Securities and Exchange Commission
prior to the effectiveness of the Registration Statement.
5. Each of the Selling Stockholders severally represents and warrants
to each Underwriter that:
(a) The Selling Stockholders now has and on the Firm Share Closing
Date and the Option Share Closing Date (if applicable) will have valid title to
the Shares to be sold by such Selling Stockholders, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest other
than pursuant to this Agreement; and upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the Underwriters
will obtain valid title to the Shares purchased by it from such Selling
Stockholders, free and clear of any pledge, lien, security interest pertaining
to such Selling Stockholders or such Selling Stockholders' property,
encumbrance, claim or equitable interest, including any liability for estate or
inheritance taxes, or any liability to or claims of any creditor, devisee,
legatee or beneficiary of such Selling Stockholders.
(b) All consents, approvals, authorizations and orders required
for the execution and delivery by or on behalf of such Selling Stockholders of
this Agreement and the sale and delivery of the Selling Stockholders Shares
being sold by such Selling Stockholder under this Agreement (other than, at the
time of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Stockholders has full legal right, power and authority to
enter into and perform its obligations under this Agreement and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholders under
this Agreement.
Such Selling Stockholders will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such Selling Stockholders or with respect to which such Selling Stockholders has
or hereafter acquires the power of disposition, otherwise than to Securities (i)
to be sold in the Offering, (ii) transferred as a gift or gifts (provided that
any donee thereof agrees in writing to be bound by the terms hereof), (iii)
transferred or bequested to immediate family members or a trust established for
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<PAGE>
their benefit (provided that any such transferee thereof agrees in writing to be
bound by the terms hereof) or (iv) with the prior written consent of the
Representatives. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the Selling Stockholders. Such prohibited hedging or
other transactions would including, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholders also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholders except in
compliance with this restriction.
(c) Such Selling Stockholders has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(d) Such Selling Stockholders has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(e) All information furnished by or on behalf of such Selling
Stockholders relating to such Selling Stockholders and the Selling Stockholders
Shares that is set forth in the Registration Statement or the Prospectus is, and
at the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date was
or will be, true, correct and complete, and does not, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such information not misleading, in light
of the circumstances under which they were made.
(f) Such Selling Stockholders will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise the Representatives prior to the Closing Date if any statement to be
made on behalf of such Selling Stockholders in the certificate contemplated by
Section 6 would be inaccurate if made as of the Closing Date.
(g) Such Selling Stockholders does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company to the Underwriters pursuant to this Agreement; such Selling
Stockholders does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering made by
the Prospectus, other than such rights of participation as have been satisfied
by the participation of such Selling Stockholders in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and such
Selling Stockholders does not own any warrants, options or similar
13
<PAGE>
rights to acquire, and does not have any right or arrangement to acquire, any
capital stock, rights, warrants, options or other securities from the Company,
other than those described in the Registration Statement and the Prospectus.
6. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 7(a) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the counsel to
the Representatives.
(c) The representations and warranties of the Company, its
subsidiaries and the Selling Stockholders contained in this Agreement and the
representations and warranties of the Company and its subsidiaries in the
certificates delivered pursuant to Section 6(d) shall be true and correct in all
material respects when made and on and as of each Closing Date as if made on
such date, and the Company shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, of
the chief executive or chief operating officer and the chief financial officer
or chief accounting officer of the Company to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made on and as of
the Closing Date and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Securities Act and the Rules and in all material respects conformed to the
requirements of the Securities Act and the Rules, the Registration Statement,
and any amendment or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make
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the statements therein, in light of the circumstances under which they were
made, not misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, since the
Effective Date, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries, taken as a whole, (b) any transaction that is material to the
Company and its subsidiaries, taken as a whole, except transactions entered into
in the ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries, taken as a whole, incurred
by the Company or its subsidiaries, except obligations incurred in the ordinary
course of business, (d) any change in the capital stock or outstanding
indebtedness of the Company or its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or its
subsidiaries, or (f) any loss or damage (whether or not insured) to the property
of the Company or its subsidiaries which has been sustained or will have been
sustained which has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries, taken as a whole.
(e) The Representatives shall have received on the Effective Date
and on each Closing Date a signed letter from PricewaterhouseCoopers LLP
addressed to the Representatives and dated the Effective Date, and each such
Closing Date, in form and substance reasonably satisfactory to the
Representatives, confirming that they are independent accountants within the
meaning of the Securities Act and the Rules, and shall:
(i) represent that they are independent auditors with respect
to the Company within the meaning of the Securities Act and the applicable
published Rules;
(ii) set forth their opinion with respect to their examination
of the balance sheet of the Company as of June 30, 1999 and related statements
of operations, stockholders' equity, and cash flows for the twelve (12) months
ended June 30, 1999;
(iii) state that PricewaterhouseCoopers LLP has performed the
procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of
PricewaterhouseCoopers LLP as described in SAS 71 on the financial statements
for the first-quarter period ended March 31, 1999 (the "Quarterly Financial
Statements");
(iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications need
to be made to any of the Quarterly Financial Statements in order for them to be
in compliance with generally accepted accounting principles consistently applied
across the periods presented; and
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(v) address other matters agreed upon by
PricewaterhouseCoopers LLP and you. In addition, you shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Company and made available
to you for the use of the Underwriters stating that their review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
financial statements as of June 30, 1999, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the date of
the letter.
(f) The Representatives shall have received on each Closing Date
from Gray Cary Ware & Friedenrich LLP, counsel for the Company, an opinion,
addressed to the Representatives and dated such Closing Date, in the form
attached hereto as Annex A.
-------
To the extent deemed advisable by such counsel, they may rely as to matters
of fact on certificates of responsible officers of the Company and public
officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of California, the General Corporation Law of the State of Delaware
and the Federal laws of the United States. Copies of such certificates and other
opinions shall be furnished to the Representatives and counsel for the
Underwriters.
In addition, such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the Representatives and representatives of the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as specified
in the foregoing opinion), on the basis of the foregoing, no facts have come to
the attention of such counsel which lead such counsel to believe that the
Registration Statement at the time it became effective (except with respect to
the financial statements and notes and schedules thereto and other financial
data, as to which such counsel need express no belief) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus as amended or supplemented (except with respect to the
financial statements and notes schedules thereto and other financial data, as to
which such counsel need make no statement) on the date thereof contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel.
(h) The Representatives shall have received on each Closing Date,
a certificate addressed to each representative, and dated such Closing Date, of
the chief executive officer or president of the Company's subsidiaries to the
effect that the financial statements of
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the Company's subsidiaries (the "Subsidiaries Financial Statements") (i) are in
accordance with the books and records of the Company, on a consolidated basis
(the "Consolidated Company") (ii) are true, correct and complete and present
fairly the financial condition of the Consolidated Company, at the date or dates
therein indicated and the results of operations for the period or periods
therein specified, (iii) disclose all of the Consolidated Company's material
debts, liabilities and obligations of any nature, whether due or to become due,
owing to the operations of the subsidiaries, as of their respective dates
(including, without limitation, absolute liabilities, accrued liabilities and
contingent liabilities) to the extent such debts, liabilities and obligations
are required to be disclosed in accordance with generally accepted accounting
principles, and (iv) have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis, except
for the omission of notes thereto and normal year-end adjustments.
7. Covenants of the Company and the Selling Stockholders.
-- -----------------------------------------------------
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause the
Registration Statement and any amendment thereto, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules as may be required subsequent to the date the Registration Statement is
declared effective to become effective as promptly as possible; the Company will
notify you, promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration Statement
or any abbreviated registration statement has become effective or any supplement
to the Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules, the Company will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules or as part of a post-
effective amendment to such Registration Statement as originally declared
effective which is declared effective by the Commission; if the Company files a
term sheet pursuant to Rule 434 of the Rules, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the reasonable opinion of counsel for the several
Underwriters, may be necessary or advisable in connection with the distribution
of the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the
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Shares is required to be delivered under the Securities Act, any event shall
have occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; in case any Underwriter is required to deliver a prospectus nine (9)
months or more after the effective date of the Registration Statement in
connection with the sale of the Shares, it will prepare promptly upon request,
but at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Securities
Act; and it will file no amendment or supplement to the Registration Statement
or Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing, subject, however, to compliance with the Securities Act and
the Rules and the provisions of this Agreement. The Company shall use its best
efforts to prevent the issuance of any stop order and, if issued, to obtain as
soon as possible the withdrawal thereof.
(ii) The Company will advise you, promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued
(iii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the Securities
Act or the Rules, the Company promptly shall prepare and file with the
Commission, subject to this Section 7, an amendment or supplement which shall
correct such statement or omission or an amendment which shall effect such
compliance. (iv) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not later than 45
days after the end of the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Date occurs (or 90 days if
such 12-month period coincides with the Company's fiscal year), an earning
statement (which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the Securities
Act or Rule 158 of the Rules.
(v) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term sheet
under Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (two of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3)
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of the Securities Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if the Representatives, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(vi) The Company will use its best efforts to cooperate with
the Representatives and counsel for the Underwriters in endeavoring to qualify
the Shares for offering and sale under the securities laws of such jurisdictions
as the Representatives may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be required by the laws of such jurisdiction.
(vii) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to the Representatives, and to each other of the
several Underwriters hereunder, upon request (i) concurrently with furnishing
such reports to its stockholders, statements of operations of the Company for
each of the first three (3) quarters in the form furnished to the Company's
stockholders, (ii) concurrently with furnishing to its stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with statements
of operations, of stockholders' equity, and of cash flows of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to stockholders and (iv) as
soon as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"). During such five (5)
year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiaries
which is not so consolidated.
(viii) Without the prior written consent of the
Representatives, for a period of 90 days after the date of this Agreement, the
Company shall not issue, sell or register with the Commission, (except for any
registration on Form S-8 or on any successor form) or otherwise dispose of,
directly or indirectly, any equity securities of the Company (or any securities
convertible into or exercisable or exchangeable for equity securities of the
Company), except for (i) the issuance of the Shares pursuant to the Registration
Statement, (ii) the issuance of shares or grant of awards pursuant to the
Company's existing stock option plans, stock purchase plans or bonus plans,
(iii) shares or warrants granted to consultants or other parties in connection
with content acquisition or other commercial or strategic transactions,
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<PAGE>
(iv) not more than four million shares issued in connection with asset or
company acquisition agreements. In the event that during this period, (i) any
shares are issued pursuant to the Company's existing stock option plan or bonus
plan or (ii) any registration is effected on Form S-8 or on any successor form,
the Company shall obtain the written agreement of such grantee or purchaser or
holder of such registered securities that, for a period of 90 days after the
date of this Agreement, such person will not, without the prior written consent
of the Representatives, offer for sale, sell, distribute, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for any shares of
Common Stock) owned by such person.
(ix) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and by the
Nasdaq National Market (including any required registration under the Exchange
Act).
(x) The Company intends to apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(xi) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(xii) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholders to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Underwriters shall terminate this Agreement
pursuant to Section 10, the Company will reimburse the several Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(xiii) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you and your counsel concerning the
substance of and, unless advised otherwise by your counsel, disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement
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including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the filing and distribution of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Underwriter's Questionnaire and Power of
Attorney and any instruments related to any of the foregoing; (ii) the issuance
and delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, and the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the various jurisdictions referred to in Section 7(a)(vi), including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such registration and qualification and the preparation, distribution and
shipment of preliminary and supplementary Blue Sky memoranda; (iv) the
furnishing (including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of each preliminary prospectus, the Prospectus and
all amendments or supplements to the Prospectus, and of the several documents
required by this Section to be so furnished, as may be reasonably requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold; (v) the filing fees of the National
Association of Securities Dealers, Inc. in connection with its review of the
terms of the public offering; (vi) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 7(a)(vii); (vii) inclusion of the
Shares for quotation on the Nasdaq National Market; (viii) the fees and
disbursements of counsel for the Company; and (ix) all fees and other charges of
the Company's independent certified public accountants. Subject to the
provisions of Section 10, the Underwriters agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the Company
pursuant to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein or (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement, the electronic
Prospectus or the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Shares to any person by such Underwriter if such untrue
statement or omission or alleged untrue statement or
21
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omission was made in such preliminary prospectus, the Registration Statement or
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company and
the Selling Stockholders may otherwise have.
(b) Each of the Selling Stockholders severally agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act against any and all losses, claims, damages and liabilities,
joint or several (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon (i) any
breach of any representation, warranty, agreement or covenant of the Selling
Stockholders herein or (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement, the electronic Prospectus or the Prospectus or any amendment thereof
or supplement thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
such indemnity shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration Statement or
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company and
the Selling Stockholders may otherwise have. The liability of each of the
Selling Stockholders under the representations, warranties and agreements
contained herein, under the indemnity agreements contained in the provisions of
this Section 8, and otherwise with respect to the transactions and other matters
contemplated by this Agreement shall be limited to an amount equal to the
initial public offering price of the Shares, if any, sold by such Selling
Stockholders to the Underwriters (minus the amount of the underwriting discount
paid thereon to the Underwriters). The Company and the Selling Stockholders may
agree, as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, the Selling Stockholders and each director of the Company and
each officer of the Company who signs the Registration Statement, to the same
extent as the foregoing indemnity from the Company and the Selling Stockholders
to each Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon (i) any breach of any representation,
warranty, agreement or covenant of such Underwriter herein or (ii) any untrue
statement or omission or alleged untrue statement or omission which was made in
any preliminary prospectus, electronic
22
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Prospectus, the Registration Statement or the Prospectus, or any amendment
thereof or supplement thereto, contained in the last paragraph of the cover page
and the statements contained under the caption "Underwriting" in the Prospectus;
provided, however, that the obligation of each Underwriter to indemnify the
Company (including any controlling person, director or officer thereof) shall be
limited to the net proceeds received by the Company from such Underwriter.
(d) Any party that proposes to assert the right to be indemnified
under this Section 8 will, promptly after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a claim is
to be made against an indemnifying party or parties under this Section, notify
each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served. No indemnification provided
for in Section 8(a) or 8(b) shall be available to any party who shall fail to
give notice as provided in this Section 8(d) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section 8, except to the extent the indemnifying
party is prejudiced as a result of any failure or delay in providing such
notice. In case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(e) No indemnification provided for in Section 8(b) by the Selling
Stockholders shall be available to any Underwriter, or any person who controls
any Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (each an "Underwriter Indemnified Party") until
such Underwriter Indemnified Party has first used its best efforts to pursue and
exhaust all remedies (including the enforcement and collection of judgments or
claims against the Company) it may have against the Company under Section 8(a).
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Without limiting the generality of the foregoing, an Unde rwriter Indemnified
Party shall be deemed to have used its best efforts to pursue and exhaust all
remedies it may have against the Company, and may pursue any remedies it may
have against the Selling Stockholders, if (A) such Underwriter Indemnified Party
is in the process of pursuing remedies against the Company and any of the
following events occurs, or, immediately prior to the time at which such
Underwriter Indemnified Party commences the process of pursuing remedies against
the Company, any of the following events has occurred and is continuing: (1) the
Company files a petition, answer or any pleading seeking or acquiescing in any
reorganization, liquidation or other relief under chapter 7 or 11 of the
Bankruptcy Code; (2) the Company seeks or acquiesces in the appointment of a
trustee (other than a trustee appointed solely for purposes of facilitating the
issuance of any debt securities of the Company), receiver or liquidator of all
or part of its assets; or (3) the Company makes a general assignment for the
benefit of its creditors, (B) a court of competent jurisdiction: (1) appoints a
trustee, receiver or liquidator of all or part of the Company's assets; or (2)
determines in any action, suit or proceeding that the Company is insolvent (in
the accounting, bankruptcy, equity or legal definitions), or (C) a court or
arbitration panel of competent jurisdiction enters an order in any action, suit
or proceeding by such Underwriter Indemnified Party for indemnification by the
Company that is adverse to such Underwriter Indemnified Party. Notwithstanding
the foregoing, if, in the reasonable judgment of any Underwriter Indemnified
Party, the applicable statute of limitations for any potential action, suit or
proceeding by such Underwriter Indemnified Party for indemnification against the
Selling Stockholders will expire, such Underwriter Indemnified Party may name
the Selling Stockholders in any action, suit or proceeding to which the Company
is also a party solely for purposes of preserving any rights such Underwriter
Indemnified Party may have to seek indemnification from the Selling Stockholders
after using its best efforts to pursue and exhaust all remedies it may have
against the Company.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Securities Act and the
Exchange Act.
9. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but for any reason is held to be
unavailable from the Company, or the Selling Stockholders or the Underwriters,
the Company, the Selling Stockholders and the Underwriters shall contribute to
the aggregate losses, claims, damages and liabilities (including any
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting any contribution received by the Company or
the Selling Stockholders from persons other than the Underwriters, such as
persons who control the Company within the meaning of the Securities Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company, the
Selling Stockholders and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders
24
<PAGE>
on the one hand and the Underwriters on the other from the offering of the
Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 8 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Stockholders and the Underwriters shall be deemed
to be in the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the Company
and the Selling Stockholders, respectively, as set forth in the table on the
cover page of the Prospectus, bear to (y) the underwriting discounts received by
the Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company and the Selling Stockholders or the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to information
supplied by the Company or the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 9, (i) in no case shall any Underwriter (except as may be provided
in the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, and (ii) the Company and the Selling Stockholders shall
be liable and responsible for any amount in excess of such underwriting
discount; provided, however, that the Selling Stockholders shall not be liable
-------- -------
under this clause (ii) for any amount in excess of the initial public offering
price of the Shares, if any, sold by the Selling Stockholders to the
Underwriters (minus the amount of the underwriting discount paid thereon to the
Underwriters); and provided, further, that no person guilty of fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) in the immediately preceding sentence of this Section 9. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Section, notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this Section, except to the extent the party or parties from whom
contribution is sought have been prejudiced as a result thereof. No party shall
be liable
25
<PAGE>
for contribution with respect to any action, suit, proceeding or claim settled
without its written consent; provided, however, that such written consent shall
-------- -------
not be unreasonably withheld. The Underwriter's obligations to contribute
pursuant to this Section 9 are several in proportion to their respective
underwriting commitments and not joint.
10. Termination. This Agreement may be terminated with respect to the
-----------
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company and the Selling Stockholders at any time:
(a) in the absolute discretion and judgment of the
Representatives at or before any Closing Date: (i) if on or prior to such date,
any domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the future
materially disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with the
offering; (iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make it,
in the judgment of the Representatives, inadvisable or impracticable to market
the Shares; (iv) if trading in the Shares has been suspended by the Commission
or trading generally on the New York Stock Exchange, Inc. or on the American
Stock Exchange, Inc. has been suspended or limited, or minimum or maximum ranges
for prices for securities shall have been fixed, or maximum ranges for prices
for securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any other
governmental or regulatory authority; or (v) if a banking moratorium has been
declared by any state or Federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 6 shall not have been fulfilled when and as required by
this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Stockholders shall be under any liability to
any Underwriter, and no Underwriter shall be under any liability to the Company
or the Selling Stockholders, except that (y) if this Agreement is terminated by
the Representatives or the Underwriters pursuant to this Section 10, the Company
will reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) reasonably incurred by them
in connection with the proposed purchase and sale of the Shares or in
contemplation of performing their obligations hereunder and (z) no Underwriter
who shall have failed or refused to purchase the Shares agreed to be purchased
by it under this Agreement, in circumstances where it was obligated to purchase
such Shares under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
11. Substitution of Underwriters. If one or more of the Underwriters
--- ----------------------------
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 10) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the
26
<PAGE>
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then each of
the nondefaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant
to this Section 11 by more than one-ninth of such number of Shares without the
written consent of such Underwriter; or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
shall be entitled to an additional two business days within which it may, but is
not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the terms set
forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 7, 8, 9
and 10. The provisions of this Section shall not in any way affect the liability
of any defaulting Underwriter to the Company or the nondefaulting Underwriters
arising out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
12. Miscellaneous. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company, its subsidiaries or
any of its officers, the Selling Stockholders and of the Underwriters set forth
in or made pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, the
Selling Stockholders or the Company, or any of their officers, directors or
controlling persons referred to in Sections 8 and 9 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 7(b), 8, 9
and 10 shall survive the termination or cancellation of this Agreement.
27
<PAGE>
This Agreement has been and is made for the benefit of the
Underwriters, the Selling Stockholders and the Company and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC World Markets Corp., One World
Financial Center, New York, New York 10281 Attention: Michael Richter, (b) if to
the Selling Stockholders, to the Company as the Company's address appears on the
cover page of the Registration Statement with a copy to Gray Cary Ware &
Friedenrich LLP, 400 Hamilton Avenue, Palo Alto, California, 94301-1825,
Attention: Bruce Schaefer, Esq. and (c) if to the Company, to its agent for
service as such agent's address appears on the cover page of the Registration
Statement, with a copy to Gray Cary Ware & Friedenrich LLP, 400 Hamilton Avenue,
Palo Alto, California, 94301-1825, Attention: Bruce Schaefer, Esq.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
[Remainder of Page Intentionally Left Blank]
28
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
EMusic.com Inc.
By:
---------------------------------
Name: Gene Hoffman, Jr.
Title: Chief Executive Officer
SELLING STOCKHOLDERS
By:
---------------------------------
Name:
The foregoing Agreement is hereby
confirmed and accepted by the
Representatives as of the date first
above written:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CIBC World Markets Corp. ING Barings LLC
- ----------------------------------- -----------------------------------
<S> <C>
Acting severally on behalf of itself Acting severally on behalf of itself
and as a representative of the several and as a representative of the several
Underwriters named in Schedule I Underwriters named in Schedule I
annexed hereto. annexed hereto.
CIBC World Markets Corp. ING Barings LLC
By By
- --------------------------------- ---------------------------------
Title: Title:
- -------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Prudential Securities Volpe Brown Whelan & Company, LLC
- ----------------------------------- -----------------------------------
<S> <C>
Acting severally on behalf of itself Acting severally on behalf of itself
and as a representative of the several and as a representative of the several
Underwriters named in Schedule I Underwriters named in Schedule I
annexed hereto. annexed hereto.
Prudential Securities Volpe Brown Whelan & Company, LLC
By By
- --------------------------------- ---------------------------------
Title: Title:
- -----------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
SCHEDULE I
Name Number of Firm Shares to be Purchased
- ---- -------------------------------------
Company Shares Selling Stockholders Shares
-------------- ---------------------------
CIBC World Markets Corp.
ING Barings LLC
Prudential Securities
Volpe Brown Whelan & Company, LLC
Total ---------------------------------
---------------------------------
<PAGE>
SCHEDULE II
Stockholders Subject to Lock-Up
<PAGE>
SCHEDULE III
Selling Stockholders
<PAGE>
Exhibit 3.1
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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