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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 23, 1999
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GoodNoise Corporation
(Exact name of Company as specified in charter)
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Florida 0-24671 65-0207877
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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719 Colorado Ave., Palo Alto, CA 94303
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code (650) 322-8910
--------------------------------
Not applicable
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On March 23, 1999, the Company completed a private placement of
approximately 118,000 shares of Series B Convertible Preferred Stock (the
"Series B Shares") for aggregate net proceeds of approximately $31 million.
Each Series B Share is initially convertible into 100 shares of the Company's
Common Stock.
Terms of the Series B Shares
The following is a summary of the rights, preferences and privileges of the
Series B Shares and the rights granted pursuant to the holders of the Series B
Shares pursuant to the Company's Restated Articles of Incorporation and that
certain Investor Rights Agreement dated as of March 23, 1999 (the "Financing
Agreements"). Such summary is qualified in full by reference to the full text
of the Financing Agreements which are filed as an exhibit to this Report.
Voting Rights. The holders of the Series B Shares are entitled to a number
of votes equal to the number of shares of Common Stock issuable upon conversion
of the Series B Shares. The holders of the Series B Shares are also entitled to
elect one member of the Board of Directors.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the affairs of the Company, the holder of each Series B Share shall be entitled
to be paid $300 per share (the "Series B Preference Amount"). If the assets of
the Company upon such event are insufficient to make such payment in full, then
the holders of Series B Shares shall be entitled to pro rata distribution of all
the assets of the Company. After payment in full of the liquidation preference
to the holders of Series B Shares, such holders are entitled to no further
distributions.
Dividends. The Series B Shares are entitled to dividends at an annual rate
of 6% of the Series B Preference Amount. The payment of such amounts may be
deferred until the Company completes an initial underwriting public offering, is
sold or until March 31, 2004.
Conversion. Each Series B Shares is initially convertible into 100 shares
of Common Stock at the election of the holder thereof. All Series B Shares are
subject to conversion on the closing of an underwritten public offering with
gross proceeds of $25 million or more at a per share price of $6 or more or the
approval of the holders of 67% of the Series B Shares.
Adjustments to Conversion Rate. The Conversion Rate is subject to
proportional adjustment upon any stock split, stock dividend or other similar
change to the capital stock of the Company and certain other adjustments upon
future issuances of Common Stock or rights to acquire Common Stock at a price
less than $3 per share.
Redemption. In the event of certain defaults by the Company or if the
Series B Shares have not been converted after five years, the holders of the
Series B Shares have the right to require the Company to redeem the Series B
Shares.
Fundamental Changes. Certain corporate actions, as more fully defined in
the Company's Restated Articles of Incorporation, require the approval of the
holders of 67% of the Series B Shares.
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Registration Rights. The Company is obligated to promptly (and in any
event within 120 days of the first sale of the Series B Shares) file a
registration statement (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") to cover the resale of the Company's Common
Stock issuable upon the conversion of the Series B Shares.
Effect on Rights of Existing Security Holders
There is no change to the rights, preferences or privileges of the holders
of the Company's Common Stock as a result of the transactions which are the
subject of the Financing Agreements. However, in addition to the dilutive
impact of the issuance of additional shares of capital stock, the Series B
Shares have a liquidation preference which entitles the holders thereof to
receive payment upon any dissolution or liquidation of the Company in preference
to the holders of Common Stock.
Item 7. Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit No. Description
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3.1 Restated Articles of Incorporation
10.1 Investor Rights Agreement dated March 23, 1999
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOODNOISE CORPORATION
Date: April 2, 1999 By: /s/ Joseph Howell
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Joseph Howell, Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Restated Articles of Incorporation
10.1 Investor Rights Agreement dated March 23, 1999
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Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GOODNOISE CORPORATION
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Pursuant to Section 607.1007 and 1006 of Florida Business Corporation Act
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GoodNoise Corporation, a corporation existing under the laws of the Florida
Business Corporation Act bearing Document Number L13154 (the "Corporation") does
hereby CERTIFY as follows:
1. The name of the Corporation is GoodNoise Corporation.
2. The original Articles of Incorporation of the Corporation were filed
with the Department of State of the State of Florida on August 30, 1989 under
the name of Atlantis Ventures Corp. and were amended pursuant to Articles of
Amendment filed with the Department of State of the State of Florida on October
22, 1998 and pursuant to Articles of Amendment filed with the Department of
State of the State of Florida on March 17, 1999.
3. Pursuant to authority conferred upon the Corporation's Board of
Directors by the Articles of Incorporation, as heretofore amended, the
Corporation, the Board of Directors of the Corporation at a meeting duly held,
adopted resolutions (i) authorizing a series of the Corporation's previously
authorized preferred stock, par value $0.01 per share (the "Preferred Stock"),
and (ii) providing for the Amendment and Restatement of the Corporation's
Articles of Incorporation, as follows:
RESOLVED, that the Corporation is authorized to issue 120,000 shares
of Preferred Stock par value $0.01 per share to be designated as the
Series B Preferred Stock, and amend and restate the Corporation's
-----------------
Articles of Incorporation to provide the designation and number of
shares of Common Stock and Series B Preferred Stock, and fix the
relative rights, privileges, preferences and restrictions of the
Series B Preferred Stock and to eliminate the Series A Preferred
Stock.
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4. The text of the Corporation's Articles of Incorporation, as heretofore
amended, is hereby restated and further amended to increase its authorized
capital stock so as to read as set forth in full herein:
ARTICLE I
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NAME
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The name of the Corporation is GoodNoise Corporation.
ARTICLE II
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NATURE OF THE BUSINESS
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The Corporation shall have the power to transact or engage in any business
permitted under the laws of the United States of America and of the State of
Florida.
ARTICLE III
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AUTHORIZED CAPITAL STOCK
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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 $0.01 per share (the "Common Stock"), and (ii) FIVE HUNDRED
THOUSAND (500,000) shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock").
I. COMMON STOCK
Section 1
Voting Rights
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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
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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.
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Section 3
Dividends
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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
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Series B Preferred Stock. There is hereby designated a series of preferred
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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
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(a) Series B Preferred Stock Liquidation Rights.
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(i) Liquidation. In the event of any liquidation, dissolution or
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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 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
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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.
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(b) Consolidation, Merger, Sale of Assets. Unless waived by the holders of
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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
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The holders of the Series B Preferred Stock shall have the conversion
rights as follows (the "Conversion Rights"):
(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:
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(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
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
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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;
(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;
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(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
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Stock.
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(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 (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 such 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
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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 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
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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
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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 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:
Conversion Price x + y times Applicable Conversion Price = Applicable
----- immediately prior to issuance after issuance
z
(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:
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(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 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,
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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,
-10-
<PAGE>
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
Corporation 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 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
-11-
<PAGE>
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 distribution.
(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:
(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 n 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.
-12-
<PAGE>
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 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:
-13-
<PAGE>
(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
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.
-14-
<PAGE>
(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, 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)
-15-
<PAGE>
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.
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)
-16-
<PAGE>
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.
ARTICLE IV
----------
REGISTERED OFFICE; REGISTERED AGENT
-----------------------------------
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Florida is 3260 Baldwin
Drive West, Tallahassee, FL
-17-
<PAGE>
32308; and the name of the registered agent of the Corporation in the State of
Florida at such address is Florida Filing & Search Services, Inc.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
The Corporation shall have power to indemnify and advance expenses to any
person to the full extent permitted from time to time by the Florida Business
Corporation Act.
The indemnification and advancement of expenses provided by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE VI
----------
FLORIDA STATUTES
----------------
The Corporation expressly elects not to be governed by the provisions of
Sections 607.108 and 607.109 Florida Statutes.
-18-
<PAGE>
(i) IN WITNESS WHEREOF, the undersigned being the president of the
Corporation, has hereunto signed this Amended and Restated Articles of
Incorporation this 23rd day of March, 1999.
/s/
----------------------------------------
Gene Hoffman, Jr., President
ATTEST:
/s/
- ------------------------------------
Robert Kohn, Secretary
-19-
<PAGE>
Exhibit 10.1
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is entered into as of the
23rd day of March, 1999, by and among GoodNoise Corporation, a Florida
corporation (the "Company") and the undersigned purchasers of Series B Preferred
Stock of the Company (the "Purchasers").
RECITAL
-------
The Company proposes to sell up to 120,000 shares of Series B Preferred
Stock to the Purchasers pursuant to a Series B Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"). In connection with
this sale, the Company has agreed to grant the Purchasers certain registration
and other rights.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Registration Rights.
-------------------
1.1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission
----------
or any other federal agency at the time administering the Securities Act.
(b) "Conversion Stock" means the Common Stock issued or issuable
----------------
upon conversion of the Series B Preferred Stock.
(c) "Holder" shall mean any shareholder of the Company holding
------
Registrable Securities (including Series B Preferred Stock) and any person
holding Registrable Securities to whom the rights under this Section 1 have been
transferred in accordance with Section 1.8.
(d) "Registrable Securities" means (i) the Conversion Stock, (ii)
----------------------
Common Stock issuable upon exercise of that certain warrant dated October 28,
1998 granted by the Company to HFTP Investment LLC, (iii) Common Stock issuable
upon conversion of the shares of Series B Preferred Stock issuable upon exercise
of that certain warrant for the purchase of Series B Preferred Stock to be
granted to Creative Labs pursuant to that certain Strategic Alliance Agreement
dated as of February 9, 1999; and (iv) stock issued in respect of the stock
referred to in (i), (ii) or (iii) as a result of a stock split, stock dividend,
recapitalization or the like, which has not been sold to the public.
1
<PAGE>
(e) The terms "register," "registered" and "registration" refer to
-------- ---------- ------------
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "Registration Expenses" shall mean all expenses, except as
---------------------
otherwise stated below, incurred by the Company in complying with Section 1.2
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and expenses of one counsel for all of the
selling holders up to a maximum of $15,000.
(g) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(h) "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, all fees and disbursements of any counsel for the
selling Holders other than the up to $15,000 for one counsel paid by the
Company.
(i) "Stock" means and includes all shares of Common Stock issued
-----
and outstanding at the relevant time plus (i) all shares of Common Stock that
may be issued upon exercise of any options, warrants and other rights of any
kind that are then exercisable, and (ii) all shares of Common Stock that may be
issued upon conversion of (A) any convertible securities, including, without
limitation, preferred stock and debt securities then outstanding, which are by
their terms then convertible into or exchangeable for Common Stock (but not
including the Conversion Stock) or (B) any such convertible securities issuable
upon exercise of options, warrants or other rights that are then exercisable.
1.2. Registration.
------------
(a) Not later than one hundred twenty (120) days after the date
of this Agreement, the Company shall file a registration statement with respect
to the Registrable Securities (such registration statement and any successor or
substitute registration statement being referred to in this Section 1.2 as the
"Registration Statement"). The Company shall cause such Registration Statement
to become effective as promptly as practicable and to maintain the effectiveness
of the Registration Statement (and to maintain the current status of any
prospectus contained therein) until the earlier of (i) the date three years from
the date the Registration Statement becomes effective (such period to be
extended by any period during which the Registration Statement is not
effective), or (ii) when all the Registrable Securities have been resold
pursuant to an effective Registration Statement. It shall be a condition
precedent to the right of any Holder to sell Registrable Securities under the
Registration Statement and the obligation of the Company to file the
Registration Statement that such Holder shall have furnished to the Company such
information regarding itself, the Registrable Securities held by it,
2
<PAGE>
the intended method of distribution of such securities and any additional
information as shall be required to be included in the Registration Statement
with respect to such Registrable Securities. The Company shall provide each
Holder with a copy of each Registration Statement, each amendment or supplement
thereto, and any prospectus contained therein (as amended and/or supplemented).
(b) Notwithstanding paragraph (a) above, the Company shall be
entitled to postpone the declaration of effectiveness of the registration
statement prepared and filed pursuant to this Section for a reasonable period of
time, but not in excess of sixty (60) calendar days after the date the
Commission has informed the Company that the registration statement will not be
reviewed or that the Commission has no further comments with regard to the
registration statement, if the Board of Directors of the Company, acting in good
faith, determines that there exists material nonpublic information about the
Company which the Board does not wish to disclose in a registration statement
(due to the fact that the Board believes that such disclosure is not in the best
interests of the Company or the Company's shareholders) which information would
otherwise be required by the Securities Act to be disclosed in the registration
statement to be filed pursuant to this Section.
(c) Each Holder acknowledges that the Company may be required to
suspend sales of the Registrable Securities under the Registration Statement in
light of developments affecting the Company until such time as the Company can
make an appropriate filing with the Commission. Holders acknowledge that during
any such period, Holder will not be permitted to sell any Registrable Securities
until the Company notifies the Holders it has made such a filing.
1.3. Expenses of Registration. Unless otherwise stated, all Selling
------------------------
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered. All Registration Expenses incurred in connection with all
registrations pursuant to Section 1.2 shall be borne by the Company.
1.4. Registration Procedures. In the case of any registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and cause such registration statement to become
and remain effective for the period required pursuant to Section 1.2(a) hereof
or until the distribution described in the registration statement has been
completed (or longer if required by Section 1.2 hereof);
(b) Furnish to the Holders (and their counsel) participating in
such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
3
<PAGE>
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement; provided, however, that the
Company shall have the right to delay the preparation of a current prospectus
that complies with the Securities Act on up to two separate occasions for up to
thirty (30) days on each occasion without explanation to such Holder.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing .
1.5. Indemnification; Contribution; Remedies.
---------------------------------------
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such person within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable to any such person in any
such case to the extent that any such claim,
4
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loss, damage, liability or expense arises out of or is based on any untrue
statement or omission (or alleged untrue statement or omission), made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder, controlling person or
underwriter and stated to be specifically for use therein or the preparation
thereby.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or 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, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein or the preparation thereby.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited to an amount equal to the net proceeds received
by such Holder from the sale of Registrable Securities held by such Holder in
such registration.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 1.5, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party to the extent that it may wish, 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, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that if there may be one or more legal or
-------- -------
equitable defenses available to such indemnified party which are materially in
conflict with those available to the indemnifying party, or if the indemnifying
party fails promptly to assume such defense, the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
reasonable fees and expenses of any one counsel (but
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not more than one) retained by the indemnified party which is reasonably related
to the matters covered by the indemnity agreement provided in this Section 1.5.
(d) If the indemnification provided for in this Section 1.5 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
1.6. Information by Holder. The Holders of securities included in any
---------------------
registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 1.
1.7. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) So long as a Purchaser owns any Registrable Securities to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the
6
<PAGE>
Company as the Purchaser may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Purchaser to sell any such
securities without registration.
1.8. Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted to the Purchaser under section 1.2 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by the
Purchaser provided that the transferor provides the Company with written notice
of the proposed transfer and: (i) the transferee acquires all of the
transferor's Registrable Securities not sold to the public; (ii) the transferee
acquires at least 100,000 shares (determined on an as-converted to common stock
basis, and subject to adjustments for stock splits, combinations, dividends or
the like) of the transferor's Registrable Securities not sold to the public; or
(iii) the transferee is a majority-owned subsidiary, constituent partner,
shareholder or affiliate of the Holder.
1.9. Standoff Agreement. Each Holder agrees, upon request of the
------------------
Company or the underwriters managing the first underwritten public offering of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of not to exceed a period commencing upon the effective date of such
registration and ending ninety (90) days thereafter; provided, that the officers
and directors of the Company who own stock of the Company also agree to such
restrictions.
1.10. Termination. Any registration rights granted pursuant to this
-----------
Section 1 shall terminate upon the earlier to occur of (i) three (3) years from
the date of the last sale of the Series B Preferred Stock by the Company, or
(ii) with respect to any Holder, when all remaining Registrable Securities held
or entitled to be held by such Holder may be sold under Rule 144 during any
ninety (90) day period.
1.11. Other Registration Rights. The Company shall not, without the
-------------------------
prior written consent of the holders of sixty-seven percent (67%) of the Series
B Preferred Stock then outstanding grant any registration rights superior to the
rights granted pursuant to this Section 1.
2. Investor Right of First Refusal Upon Issuance of Securities by the
------------------------------------------------------------------
Company.
- -------
2.1. Right of First Refusal. The Company hereby grants to each
----------------------
Purchaser or any transferees pursuant to Section 2.1(f) hereof (collectively,
hereinafter, the "Rights Holders") the right of first refusal to purchase all or
part of its pro rata share of New Securities (as defined in this Section 2.1)
which the Company may, from time to time, propose to sell and issue. For
purposes of this right of first refusal, a pro rata share for a Rights Holder is
the ratio that the number of shares of Conversion Stock then held by such Rights
Holder bears to the sum of the total number of shares of Conversion Stock and
Stock then outstanding.
(a) "Equity Securities" shall mean any securities having voting
rights in the election of the Board of Directors not contingent upon default, or
any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable for any
7
<PAGE>
shares of the foregoing, or any securities issuable pursuant to any agreement or
commitment to issue any of the foregoing.
(b) Except as set forth below, "New Securities" shall mean any
Equity Securities, whether now authorized or not, and rights, options or
warrants to purchase said Equity Securities. Notwithstanding the foregoing, "New
Securities" does not include (i) securities offered to the public generally
pursuant to a registration statement under the Securities Act; (ii) the
Conversion Stock; (iii) stock issued in connection with any stock split, stock
dividend or recapitalization by the Company, (iv) shares of Common Stock issued
to officers, directors, employees or consultants of the Company pursuant to
stock grants, stock purchase and stock option plans or other stock incentive
programs, agreements or arrangements approved by the Board of Directors, (v)
securities issued pursuant to the acquisition of all or part of another company
by the Company by merger or other reorganization or by purchase of all or part
of the assets of another company (including but not limited to the acquisition
of technology or music rights) which securities do not exceed $40 million in
value; and (iv) securities issued to lenders, lessors, licensors and other
parties in non-equity financing transactions.
(c) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Rights Holder written notice of its
intention, describing the type of New Securities, and the price and terms upon
which the Company proposes to issue the same. Each Rights Holder shall have
fifteen (15) days from the date of receipt of any such notice to agree to
purchase up to its respective pro rata share of such New Securities for the
price and upon the applicable terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(d) In the event a Rights Holder fails to exercise the right of
first refusal within said fifteen (15) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within forty-
five (45) days from the date of said agreement) to sell the New Securities not
elected to be purchased by Rights Holders at the price and upon the terms no
more favorable to the purchasers of such securities than specified in the
Company's notice. In the event the Company has not sold the New Securities
within said ninety (90) day period (or sold and issued New Securities in
accordance with the foregoing within forty-five (45) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities in the manner provided above.
(e) The right of first refusal granted under this Section 2.1
shall expire upon the closing of the earlier of (i) the consummation of a firm
commitment underwritten offering of the Company's securities to the public
pursuant to an effective registration statement under the Securities Act with
gross proceeds to the Company of at least $25,000,000 at a price of not less
than $6 per share, as adjusted for stock splits and the like, (a "Qualified
Public Offering"), and (ii) a statutory share exchange, consolidation or merger
of this Company with or into any other corporation or corporations (other than a
wholly-owned subsidiary) which results in the Company's shareholders immediately
prior to such transaction not holding at least a majority of the voting power of
the surviving or continuing entity, or the sale, transfer or other disposition
of all or substantially all of the assets of this Company.
8
<PAGE>
(f) The right of first refusal hereunder may be assigned to a
transferee or assignee (other than a competitor as reasonably determined by the
Company in good faith) in connection with any transfer or assignment of
Registrable Securities provided that the transferor provides the Company with
written notice of the proposed transfer and (i) the transferee acquires all of
the transferor's Registrable Securities not sold to the public; (ii) the
transferee acquires at least 100,000 shares (determined on an as-converted to
common stock basis, and subject to adjustments for stock splits, combinations,
dividends or the like) of the transferor's Registrable Securities, or (iii) the
transferee is a majority-owned subsidiary, constituent partner, shareholder or
affiliate of the Holder.
(g) If the Board of Directors of the Company determines it to be
in the best interests of the Company, it may authorize completion of any
issuance or series of issuances of New Securities without first offering the
Purchasers the opportunity to exercise their rights pursuant to this Section 2
as long as promptly following such issuances the Company offers each Purchaser
the opportunity to purchase such New Securities as it would have been entitled
to purchase pursuant to this Section 2.
3. Information Rights.
------------------
3.1. Annual Financing Information. So long as 20,000 shares of the
----------------------------
Series B Preferred Stock remain outstanding, the Company shall deliver to the
director elected by the Series B Preferred Stock pursuant to the terms of the
Company's Articles of Incorporation, as amended (the "Series B Director"), and
to one other designee selected by INVESCO Private Capital (the "Observer") the
following financial statements:
(a) within 90 days after the end of each fiscal year, income,
shareholders' equity and cash flow statement of the Company for such year, and a
balance sheet of the Company as of the end of such year. Such year-end financial
reports shall be in reasonable detail and shall be prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently applied, and
certified by independent public accountants of national standing selected by the
Company's Board of Directors;
(b) within thirty (30) days after the monthly accounting period
of the Company an unaudited monthly report including a balance sheet, income
statement and cash flow statement; and
(c) no later than thirty (30) days prior to the end of the fiscal
year, the Company's annual financial plan for the next fiscal year on a
month-to-month basis, as approved by the Company's Board of Directors.
3.2. Inspection. So long as 20,000 shares of the Series B Preferred
----------
Stock remain outstanding, the Company shall permit the Series B Director and the
Observer, at such party's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such party.
9
<PAGE>
3.3. Confidentiality of Information. The Purchasers shall keep
------------------------------
confidential and not disclose or divulge any confidential, proprietary or secret
information which such party may obtain from the Company, and which the Company
has prominently marked "confidential," "proprietary" or "secret," pursuant to
financial statements, reports and other materials submitted by the Company as
required hereunder or otherwise are of a character or nature that a reasonable
person would understand to constitute confidential information, unless such
information is or becomes known to such party from a source other than the
Company without violation of any rights of the Company, or is or becomes
publicly known, or unless the Company gives its written consent to such party's
release of such information, except that no such written consent shall be
required (and such party shall be free to release such information to such
recipient) if such information is to be provided (a) to such party's counsel or
accountant (and the provision of such information is directly necessary in order
for such recipient to provide services to such party); or (b) to an officer,
director or partner of such party, provided that such party shall inform the
recipient of the confidential nature of such information, and such recipient
agrees in writing in advance of disclosure to treat the information as
confidential; or (c) otherwise pursuant to or as required by law or judicial or
regulatory process.
3.4. Observation Rights. So long as 20,000 shares of the Series B
------------------
Preferred Stock remain outstanding, the Observer shall have the right to attend
all meetings of Company's Board of Directors and all meetings of Committees of
the Board of Directors, at the Company's reasonable expense, in a non-voting
observer capacity, and, in this respect, the Company shall, at its expense, give
the Observer copies of all notices, minutes, consents and other materials that
it provides to its directors in connection with such Board of Director or
Committee meetings at the same time as such notices are given to Board and
Committee members; provided, however, that the Observer shall agree to hold in
confidence and trust all information so provided to the same extent as if he was
a member of the Company's Board of Directors. Meetings to be held by telephone
conference and actions to be taken by consent shall not be prohibited provided
timely notice and an opportunity to participate is given to the Observer.
4. Covenants.
---------
4.1. Financial Covenant. The Company agrees that so long as 20,000
------------------
shares of the Series B Preferred Stock remain outstanding, it will not incur,
issue, create, assume, become contingently liable for or suffer to exist, or
permit any Subsidiary to incur, issue, create, assume, become contingently
liable for or suffer to exist, any indebtedness for borrowed money or incur,
create or enter into any agreement or other commitment for any capital
expenditures greater than $250,000 unless such incurrence, issuance, creation,
assumption, contingent liability or existence is approved by a Special Majority
of the Board of Directors, (such "Special Majority" shall consist of a majority
of the Board of Directors including the director appointed by the holders of the
Series B Preferred Stock).
4.2. Vesting of Management Stock Options. The Company agrees that any
-----------------------------------
options to purchase the Company's Common Stock granted after the date hereof to
the Company's employees shall vest pro-rata over not less than a three year
period, unless otherwise approved by the Series B Director.
10
<PAGE>
4.3. Key Man Insurance. The Company agrees to obtain, within ninety
-----------------
(90) days of the date of this Agreement, a term life insurance policy (in an
amount determined by and renewable at the request of the Board of Directors) for
Robert Kohn and Gene Hoffman, Jr., naming the Company as sole beneficiary.
4.4. Future Registration Rights. Except for any registration expressly
--------------------------
permitted by this Agreement, the Company will not, without the prior approval of
the holders of sixty-seven percent (67%) of the Series B Preferred Stock, grant
to the holders of any securities issued or to be issued by the Company any
registration rights superior to the rights of the Purchasers under this
Agreement.
5. Voting Agreement.
----------------
5.1. Board of Directors.
------------------
(a) From and after the date of this Agreement and until the
provisions of this Section 5 cease to be effective, each Purchaser shall vote
all shares of Preferred Stock of the Company over which such shareholder has
voting control, and will take all other necessary or desirable actions within
his or its control (whether in his or its capacity as a shareholder, director or
officer of the Company or otherwise), and the Company will take all necessary
and desirable actions within its control, in order to cause:
(i) the election as the Series B Preferred Stock
representative to the Board of Directors of the Company of one (1)
representative designated by INVESCO Private Capital (the "INVESCO
Representative").
(ii) in the event that the INVESCO Representative for any
reason ceases to serve as a member of the Board of Directors during his or her
term of office, the resulting vacancy on the Board of Directors to be filled by
a representative designated as provided in clause (i) above.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by the INVESCO Representative and the Observer in connection with
attending the meetings of the Board of Directors and any committee thereof and
in connection with any projects assigned to such director or the Observer by the
Board of Directors and any committee thereof.
5.2. Application of Agreement to After-Acquired-Shares. All of the
-------------------------------------------------
provisions of this Section 6 shall apply to all of the Series B Preferred Stock
of the Company, whether issued before or after the Closing Date, and all Series
B Preferred Stock issued as a replacement for such shares or with respect to
such shares as a result of any stock dividend, stock split or other similar
event.
5.3. Termination. The provisions of this Section 5 shall terminate on
-----------
the earlier of (a) the consummation by the Company of a Qualified Public
Offering, (b) a statutory share exchange, consolidation or merger of the Company
with or into any other corporation or
11
<PAGE>
corporations which results in the Company's shareholders immediately prior to
such transaction not holding at least a majority of the voting power of the
surviving or continuing entity, (c) the sale, transfer or other disposition of
all or substantially all of the assets of the Company, or (d) the effective time
of the liquidation of the Company.
5.4. Binding Effect on Transferees. This Section 5 and all of the
-----------------------------
terms, covenants, and conditions herein contained shall be binding upon and
inure to the benefit of all of the parties hereto and their respective
transferees, successors, heirs, executors, administrators and assigns.
6. Events of Noncompliance; Remedies.
---------------------------------
6.1. Events of Noncompliance. The following events shall constitute
-----------------------
"Events of Noncompliance":
(a) failure to pay dividends on the Series B Preferred Stock when
due and payable pursuant to the terms of the Company's Articles of
Incorporation, as the same are amended from time to time;
(b) the material breach of any representation, warranty or
covenant contained in this Agreement or the Purchase Agreement;
(c) commencement of any proceeding by or against the Company
under any bankruptcy law;
(d) failure by the Company to obtain the approval of the Holders
of the Series B Preferred to the extent required pursuant to the Company's
Articles of Incorporation for any: merger, consolidation, sale of all or
substantially all of its assets, liquidation, recapitalization or dissolution.
6.2. Effect of Noncompliance.
-----------------------
(a) Subject to the terms and conditions of this Section 6.2,
should an Event of Noncompliance occur and not be cured within fifteen (15) days
of written notice thereof to the Company, the Company shall, upon receiving a
written request for the redemption of all of the Series B Preferred Stock under
this subsection (a) signed by the holders of sixty-seven percent (67%) of the
then outstanding shares of Series B Preferred Stock, to the extent that it may
lawfully do so, redeem all of the outstanding shares of Series B Preferred Stock
by paying to the holders the amount payable pursuant to such Holders upon
redemption of the Series B Preferred Stock in accordance with the Company's
Articles of Incorporation (the "Redemption Price"); provided however, that the
Redemption Price shall be payable within ten (10) days of the date notice of
redemption is delivered to the Company and provided further, that such
redemption shall be subject to the notice and opportunity to convert provisions
as set forth in the Articles of Incorporation. The date the Redemption Price is
paid to holders of the Series B Preferred Stock shall be referred to hereafter
as the "Redemption Date."
12
<PAGE>
(b) If the funds of the Company legally available for redemption
of the Series B Preferred Stock for which the Company has received a request to
redeem pursuant to this section are insufficient to redeem the total number of
Series B Preferred Stock outstanding, those funds which are legally available
will be used to redeem the maximum possible number of shares pro rata among
holders of then outstanding Series B Preferred Stock according to the number of
shares of Series B Preferred Stock held by each holder thereof on the applicable
Redemption Date.
(c) The foregoing remedy shall not be exclusive of any other
remedy available to the holders of the Series B Preferred Stock upon the
occurrence of an Event of Noncompliance.
7. Miscellaneous.
-------------
7.1. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to transactions taking place
between California residents and wholly within the State of California.
7.2. Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
7.3. Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.4. Determination of Share Amounts. To determine the number of
------------------------------
Registrable Securities held by a Holder for purposes of this Agreement, all
Registrable Securities held by an affiliate of the Holder shall be deemed held
by such Holder. For purposes of this Section, "affiliate" shall mean a person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Holder.
7.5. Entire Agreement; Amendment. This Agreement constitutes the full
---------------------------
and entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein. With the written consent of the record or beneficial holders
of at least 67% of the Registrable Securities held by the Purchasers, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement. Upon the effectuation of
each such waiver, consent, agreement or amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
This Agreement or any provision hereof may be changed, waived, discharged or
13
<PAGE>
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought, except to
the extent provided in this Section.
7.6. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally, via
facsimile, mailed by first class mail, postage prepaid, or delivered by courier
or overnight delivery, addressed (a) at such Purchaser's address as set forth in
the Company's records, or at such other address or facsimile number as the
Purchaser shall have furnished to the Company in writing or (b) if to the
Company at 719 Colorado Avenue, Palo Alto, California 94303, or such address as
the Company shall have furnished to the Purchaser in writing, with a copy to
Peter M. Astiz, Esq., c/o Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue,
Palo Alto, California 94301. All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally-recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.
7.7. Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any holder of any
Series B Preferred Stock or Conversion Stock, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.9. Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
7.10. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
8. Additional Closings. The parties to this Agreement agree that any
-------------------
parties added to the Purchase Agreement after the date hereof may be added as
parties to this Agreement, with
14
<PAGE>
all the rights and obligations of the Purchasers, without further approval by
the parties to this Agreement.
15
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
GOODNOISE CORPORATION
By: /s/
__________________________________
Gene Hoffman, Jr.,
President and Chief Executive Officer
16
<PAGE>
COUNTERPART SIGNATURE PAGE TO
GOODNOISE CORPORATION RIGHTS AGREEMENT
"Purchaser"
If you are an individual, print your
name and sign below.
_____________________________________
Name (Please Print)
_____________________________________
Signature
If you are signing on behalf of an
entity, please print the name of the
entity and sign below, indicating your
title.
_____________________________________
Name (Please Print)
_____________________________________
Signature
_____________________________________
Title
17
