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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
GOODNOISE CORPORATION
(Name of Registrant as Specified In Its Charter)
GOODNOISE CORPORATION
1991 Broadway, 2nd Floor
Redwood City, California 94063
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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GoodNoise Corporation
1991 Broadway, 2nd Floor
Redwood City, California 94063
----------------
Notice of Special Meeting of Shareholders
to be Held July 16, 1999
----------------
The Special Meeting of Shareholders of GoodNoise Corporation (the "Company")
will be held at the offices of Gray Cary Ware & Freidenrich, 400 Hamilton Ave,
Palo Alto, California 94301 on July 16, 1999, at 10 a.m. for the following
purposes:
1. To approve the reincorporation of the Company in the State of Delaware
and other related changes to the rights of shareholders.
2. Subject to the approval of Proposal One, to approve certain additional
anti-takeover measures under the Delaware Charter Documents (as defined
herein) as follows:
A. To approve the elimination of cumulative voting for the election
of directors.
B. To approve a classified board of directors removable only for
cause.
C. To approve the elimination of action by written consent.
D. To approve certain limitations on the ability to call special
meetings.
E. To approve super-majority vote requirements for certain
amendments to the Delaware Charter Documents.
F. To increase the number of shares of Preferred Stock of the
Company authorized for issuance by 19,500,000 shares.
3. To consider and vote upon a proposal to amend the Company's Restated
Articles of Incorporation to change the name of the Company to EMusic.com
Inc.
4. To approve an increase in the number of shares reserved for issuance
under the Company's 1998 Stock Option Plan by three million shares and the
establishment of an annual employee grant limit of 1 million shares.
5. To approve the adoption of the Company's 1999 Employee Stock Purchase
Plan.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement of the meeting.
Only shareholders of record at the close of business on June 21, 1999 will
be entitled to vote at the meeting. Each of these shareholders is cordially
invited to be present and vote at the meeting in person.
By Order of the Board of Directors,
/s/ Robert H. Kohn
_____________________________________
Robert H. Kohn,
Chairman of the Board and Secretary
Palo Alto, California
June 28, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE RETURN ENVELOPE TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IF YOU LATER DESIRE TO
REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS EXERCISED.
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GOODNOISE CORPORATION
1991 Broadway, 2nd Floor
Redwood City, California 94063
----------------
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 16, 1999
----------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the directors of GoodNoise
Corporation, a Florida corporation (the "Company"), for use at a Special
Meeting of Shareholders to be held on July 16, 1999 (the "Meeting") for the
purposes set forth in the accompanying notice and at any adjournment or
postponement of that meeting. The date of this Proxy Statement is June 21,
1999, the approximate date on which this Proxy Statement and accompanying form
of proxy were first sent or given to shareholders.
The shares represented by any proxy in the enclosed form will be voted in
accordance with the instructions given on the proxy if the proxy is properly
executed and is received by the Company prior to the close of voting at the
Meeting or any adjournment or postponement thereof. Proxies received by the
Company on which no contrary instruction has been given will be voted in
accordance with the recommendations of the Board of Directors for each
proposal. A shareholder giving a proxy has the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing with the Secretary of
the Company an instrument revoking it or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if the person
executing the proxy is present at the meeting and votes in person.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names which are
beneficially owned by others (the "Record Holders") to forward to such
beneficial owners. In addition, the Company may reimburse such persons for
their cost of forwarding the solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented, if deemed
desirable or necessary, by one or more of telephone, telegram, facsimile, or
personal solicitation by directors, officers, or employees of the Company. No
additional compensation will be paid for any such services. The Company
reserves the right, if deemed desirable or necessary, to retain a proxy
solicitation firm to deliver soliciting materials to Record Holders for
distribution by them to their principals and to assist the Company in
collecting proxies from such holders. Except as described above, the Company
does not intend to solicit proxies other than by mail.
SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of shares of the Company's Common Stock and Series B Preferred
Stock of record as of the close of business on June 21, 1999 are entitled to
vote at the meeting. On this record date there were issued and outstanding
15,690,879 shares of Common Stock and 117,570 shares of Series B Preferred
Stock. Each share of Common Stock and Series B Preferred Stock is entitled to
one and 100 votes, respectively, on all matters to be voted upon.
The presence, in person or by proxy duly authorized, of the holders of a
majority of the voting shares of capital stock of the Company will constitute
a quorum for the transaction of business at the Meeting and any continuation
or adjournment thereof. Broker non-votes (i.e. shares held by a broker or
nominee which are represented at the Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular purpose) will be
counted in determining whether a quorum is present at the Meeting. All
proposals
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submitted to the shareholders in the enclosed proxy must be approved by the
vote of the holders of a majority of the votes of the shares of the Company's
Capital Stock represented in person or by proxy and entitled to vote at the
Meeting except for the proposal to approve the reincorporation of the Company
in the State of Delaware, the related proposals being considered in connection
therewith and the approval of the anti-takeover measures discussed in Proposal
Two which require the approval of a majority of the voting power of all shares
of the Company's Capital Stock entitled to vote at the Meeting. In determining
whether such proposals have been approved, abstentions and broker non-votes
are not counted as votes for or against the proposal; except that for the
proposal to approve the reincorporation of the Company in the State of
Delaware, the related proposals being considered in connection therewith and
the approval of the anti-takeover measures discussed in Proposal Two,
abstentions and broker non-votes will have the same effect as a negative vote.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder
giving a proxy has a right to revoke it at any time by either (i) a later-
dated proxy, (ii) a written revocation sent to and received by the Secretary
of the Company prior to the Meeting, or (iii) attendance at the Meeting and
voting in person.
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PROPOSAL ONE
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
General
The Board of Directors has unanimously approved a plan of reorganization
(the "Reincorporation") in which the Company's state of incorporation will be
changed from Florida to Delaware. If the shareholders approve the
Reincorporation, and upon receiving approval of the holders of its Series B
Preferred Stock (the "Series B Approval"), the Company intends to merge into
its wholly-owned subsidiary EMusic.com, Inc. ("EMusic"), a Delaware
corporation (the "Merger"). As part of the Reincorporation, each outstanding
share of stock of the Company will be converted into one share of stock of the
same class or series of EMusic (the "Share Conversion"). Upon the
effectiveness of the Merger, the Company's Articles of Incorporation (the
"Florida Articles") and Bylaws (the "Florida Bylaws," and together with the
Florida Articles, the "Florida Charter Documents") will, in effect, be
replaced by EMusic's Certificate of Incorporation (the "Delaware Certificate")
and Bylaws (the "Delaware Bylaws," and together with the Delaware Certificate,
the "Delaware Charter Documents"). Subject to shareholder approval of Proposal
Two, certain additional provisions may be effected in the Delaware Charter
Documents. (See Proposal Two, "ADDITIONAL ANTI-TAKEOVER MEASURES.") A copy of
the form of Agreement and Plan of Merger by and between the Company and EMusic
(the "Agreement and Plan of Merger") is attached to this Proxy Statement as
Appendix A.
Upon consummation of the Merger, shareholders of the Company will become
shareholders of a corporation governed by the Delaware General Corporation Law
(the "Delaware Act") and by new charter documents which will result in changes
to the rights of shareholders. (See "--Changes in the Company's Charter to be
Effected by Reincorporation" and Proposal Two, "ADDITIONAL ANTI-TAKEOVER
MEASURES.") The incumbent officers and directors of the Company will be the
officers and directors of Emusic after the Reincorporation.
Upon the effective date of the Merger, the Company's name will be EMusic.com
Inc. The Reincorporation will not result in any change in the physical
location, business, management, assets, liabilities or net worth of the
Company. The proposed Share Conversion will become effective on the effective
date of the Reincorporation. The Company's transfer agent will act as the
Company's exchange agent (the "Exchange Agent") to act for holders of common
stock, $0.01 par value, of the Company (the "GoodNoise Common Stock") in
implementing the exchange of their certificates. After the Reincorporation,
each holder of record of certificates formerly representing shares of
GoodNoise Common Stock may surrender these certificates to the Exchange Agent
in exchange for certificates representing the number of shares of common
stock, $0.001 par value, of Emusic ("EMusic Common Stock") such shareholder is
entitled to receive as a consequence of the Share Conversion. One share of
EMusic Common Stock will be issued in exchange for one presently issued and
outstanding share of GoodNoise Common Stock. One share of Series B Preferred
Stock, $0.001 par value, of EMusic (the "EMusic Series B Preferred Stock")
will be issued in exchange for one presently issued and outstanding share of
Series B Preferred Stock, $0.01 par value, of the Company (the "GoodNoise
Series B Preferred Stock").
No scrip or fractional share will be issued in connection with the Share
Conversion. Upon completion of the Reincorporation, and subject to approval of
Proposal 2F by the shareholders, the total authorized number of shares of
stock of EMusic will consist of 200,000,000 shares of Common Stock, $0.001 par
value, and 20,000,000 shares of Preferred Stock, $0.001 par value.
If approved by the shareholders, it is anticipated that the Reincorporation
will be completed as promptly as practicable after such approval and the
Series B Approval. The Agreement and Plan of Merger provides that the
Reincorporation may be abandoned by the Board of Directors after approval by
the shareholders of the Company. However, the Board of Directors presently
intends to proceed with the Reincorporation following shareholder approval and
the Series B Approval.
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Holders of GoodNoise Series B Preferred Stock (the "Series B Holders") who
have not consented to the Reincorporation and who comply with the dissenters'
rights provisions of the Florida Business Corporation Act (the "Florida Act")
will have the right to be paid, in cash, the fair value of their GoodNoise
Series B Preferred Stock. (See "DISSENTERS' RIGHTS" and APPENDIX D). If less
than all of the Series B Holders do not consent to the Reincorporation or
otherwise waive their dissenters' rights, the Board of Directors of the
Company may determine not to proceed with the Reincorporation.
Reasons for the Reincorporation
The Board of Directors of the Company believes that the Reincorporation will
provide flexibility for both the management and business of the Company.
Delaware is recognized both domestically and internationally as a favorable
legal and regulatory environment within which to operate. Such an environment
will enhance the Company's operations and its ability to effect acquisitions
and other transactions. For many years, Delaware has followed a policy of
encouraging incorporation in that state and, in furtherance of that policy,
has adopted comprehensive, modern and flexible corporate laws which are
periodically updated and revised to meet changing business needs. In addition,
the Delaware courts have developed considerable expertise in dealing with
corporate issues, and a substantial body of case law has developed in the
construction of Delaware law, resulting in greater predictability with respect
to corporate legal affairs. As such, various major companies have either
incorporated or have subsequently reincorporated in Delaware.
Additionally, reincorporation in Delaware and the adoption of the new
charter documents containing the amendments proposed by Proposal Two may have
the effect of deterring hostile takeover attempts. The Board has proposed the
revision of the Delaware Certificate and Delaware Bylaws to include certain
provisions available to certain public companies under Delaware law which
deter hostile takeover attempts, such as the elimination of cumulative voting,
exclusive right of the Board of Directors to set the number of directors, a
classified board of directors, limitations on the right to remove directors,
the exclusive right of the Board of Directors to fill vacancies on the Board,
authorization of blank check preferred stock, the elimination of the right of
shareholders to act by written consent, the elimination of shareholder rights
to call special meetings, advance notice requirements and super-majority
voting provisions requiring that any amendment of the above provisions
contained in the Delaware Certificate be approved by two-thirds vote of the
outstanding shares, entitled to vote generally in the election of directors
and a provision requiring two-thirds vote for shareholder amendment of the
Delaware Bylaws. Several of these measures are not included in the Florida
Articles. Accordingly, these matters are presented for separate consideration
and vote by the shareholders. Certain disadvantages of anti-takeover measures
generally are also reviewed below. See Proposal Two, "ADDITIONAL ANTI-TAKEOVER
MEASURES."
Certain Differences Between Delaware and Florida Corporation Law
The material differences between the Delaware Act and the Florida Act are
summarized below.
Derivative Actions. The Delaware Act provides that (1) a person may not
bring a derivative action unless the person was a shareholder of the
corporation at the time of the challenged transaction or unless the stock
thereafter devolved on such person by operation of law, (2) a complaint in a
derivative proceeding must allege with particularity the efforts made by a
person, if any, to obtain the desired action from the directors or comparable
authority and the reason for the failure to obtain such action or for not
making the effort, and (3) a derivative proceeding may be settled or
discontinued only with court approval. In addition, under the Delaware Act, a
court may dismiss a derivative proceeding if (a) the court finds that a
committee of independent directors has determined in good faith after
conducting a reasonable investigation that the maintenance of the action is
not in the best interests of the corporation, and (b) the court determines in
its own business judgment that the action should be dismissed. The Florida Act
includes similar requirements, except that (i) a complaint in a derivative
proceeding must be verified and must allege with particularity that a demand
was made to obtain action by the board of directors and that the demand was
refused or ignored, (ii) the court may dismiss a derivative proceeding
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if the court finds that certain independent directors (or a committee of
independent persons appointed by such directors) have determined in good faith
after conducting a reasonable investigation that the maintenance of the action
is not in the best interests of the corporation and (iii) if an action was
brought without reasonable cause, the court may require the plaintiff to pay
the corporation's reasonable expenses.
Distributions and Redemptions. A Delaware corporation may pay dividends out
of surplus or, if there is no surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. A
Delaware corporation is generally prohibited from redeeming any of its capital
stock if the redemption would result in an impairment of the corporation's
capital. A Florida corporation may make distributions to shareholders as long
as, after giving effect to such distribution, (1) the corporation would be
able to pay its debts as they become due in the usual course of business, and
(2) the corporation's total assets would not be less than the sum of its total
liabilities plus (unless the articles of incorporation permit otherwise, which
the Florida Articles do not) the amount that would be needed if the
corporation were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution. Under the Florida
Act, a corporation's redemption of its own capital stock is deemed to be a
distribution.
Shareholder Inspection of Books and Records. The Delaware Act permits any
shareholder the right, during usual business hours, to inspect and copy the
corporation's stock ledger, shareholder list and other books and records for
any proper purpose upon written demand under oath stating the purpose thereof.
Under the Florida Act, a shareholder is entitled to inspect and copy the
articles of incorporation, bylaws, certain board and shareholder resolutions,
certain written communications to shareholders, a list of the names and
business addressees of the corporation's directors and officers, and the
corporation's most recent annual report, during regular business hours if the
shareholder gives at least five business days' prior written demand to the
corporation. In addition, a shareholder of a Florida corporation is entitled
to inspect and copy certain other books and records of the corporation during
regular business hours if the shareholder gives at least five business days'
prior written demand to the corporation and (1) the shareholder's demand is
made in good faith and for a proper purpose, (2) the demand describes with
particularity its purpose and the records to be inspected or copied and (3)
the requested records are directly connected with such purpose. The Florida
Act also provides that a corporation may deny certain demand for inspection if
such demand was made for an improper purpose or if the demanding shareholder
has, within two years preceding such demand, sold or offered for sale any list
of shareholders of the corporation or any other corporation, has aided or
abetted any person in procuring a list of shareholders for such purpose or has
improperly used any information secured through any prior examination of the
records of the corporation or any other corporation.
Dissenters' Rights. A shareholder of a Delaware corporation generally is
entitled to dissenters' rights in the event that the corporation is a party to
certain mergers or consolidations to which the shareholder did not consent. A
Delaware corporation's certificate of incorporation may also provide that
dissenters' rights are available with respect to any amendment to the
certificate of incorporation or any sale of all or substantially all of the
corporation's assets. The Delaware Certificate does not contain such a
provision. Similar (but not identical) to the Florida Act, dissenters' rights
are not available to a shareholder of a Delaware corporation if his shares, at
the relevant record date, were (1) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. (the "NASD"),
or (2) held of record by more than 2,000 shareholders. Notwithstanding the
foregoing, however, under the Delaware Act, a shareholder does have
dissenters' rights with respect to such shares if the shareholder is required
by the terms of the agreement of merger or consolidation to accept anything
for his shares other than (a) shares of stock of the corporation surviving or
resulting from the merger or consolidation, (b) shares of stock of any other
corporation which is listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system by NASD
or held of record by more than 2,000 shareholders, (c) cash in lieu of
fractional shares or (d) any combination of the foregoing.
A shareholder of a Florida corporation, with certain exceptions, has the
right to dissent from, and obtain payment of the fair value of his shares in
the event of (1) a merger or consolidation to which the corporation is a
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party, (2) a sale or exchange of all or substantially all of the corporation's
property other than in the usual and ordinary course of business, (3) an
approval of a control share acquisition, (4) a statutory share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, (5) an amendment to the articles of incorporation if the shareholder
is entitled to vote on the amendment and the amendment would adversely affect
the shareholder and (6) any corporate action taken to the extent that the
articles of incorporation provide for dissenters' rights with respect to such
action. The Florida Act provides that, unless a corporation's articles of
incorporation otherwise provide, which the Florida Articles do not, a
shareholder does not have dissenters' rights with respect to a plan of merger,
share exchange or proposed sale or exchange of property if the shares held by
the shareholder are, on the record date, either registered on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by 2,000 or more
shareholders.
Quorum for Shareholder Meetings. Under Delaware Act, unless otherwise
provided in a corporation's certificate of incorporation or bylaws, a majority
in voting power of shares entitled to vote on a matter constitutes a quorum at
a meeting of shareholders, but in no event may a quorum consist of less than
one-third of the voting power of the shares entitled to vote on such matter.
The Delaware Charter Documents do not include a provision altering the
shareholder quorum requirement. The Florida Act is similar to the Delaware
Act, except that the shareholder quorum requirement may be altered by a
provision in the articles of incorporation (but not its bylaws). The Florida
Articles do not include a provision altering the shareholder quorum
requirement. Thus, the applicable quorum provisions will not be changed
substantially by the Reincorporation.
Shareholder Voting Requirements. Under both the Delaware Act and the Florida
Act, directors are generally elected by a plurality of the votes cast by the
shareholders entitled to vote at a shareholders' meeting at which a quorum is
present, unless a greater number of affirmative votes is required by the
certificate of incorporation or bylaws (in the case of a Delaware corporation)
or the articles of incorporation (in the case of Florida corporation). With
respect to matters other than the election of directors, unless otherwise
provided by the Delaware Act or a Delaware corporation's certificate of
incorporation or bylaws, if a quorum exists, action on a matter generally is
approved by the affirmative vote of a majority in voting power of the shares
represented at a meeting and entitled to vote on the matter. Accordingly,
under the Delaware Act, abstentions have the same effect as votes against a
matter. Under the Florida Act, unless otherwise provided by the Florida Act or
a Florida corporation's articles of incorporation (but not its bylaws), if a
quorum exists, action on any matter generally is approved by the shareholders
if the votes cast by the holders of the shares represented at the meeting and
entitled to vote on the matter favoring the action exceed the votes cast
opposing the action. Accordingly, under the Florida Act, abstentions have no
impact on the outcome of a vote. The Florida Charter Documents do not contain
a provision requiring a greater vote on any matter than required by the
Florida Act. Subject to shareholder approval of Proposal 2E, the Delaware
Charter Documents will contain provisions requiring super-majority vote
requirements for certain amendments to the Delaware Charter Documents.
Action by Written Consent of Shareholders. The Delaware Act and the Florida
Act provide that unless otherwise provided for in a corporation's charter,
actions which would be required or permitted to be taken at an annual or
special meeting of shareholders may be taken by the written consent of the
holders of shares holding not less than the minimum number of votes that would
be necessary to take such action at a meeting of shareholders. The Florida
Bylaws do not contain provisions providing that corporate action may be taken
by written consent of shareholders. Subject to shareholder approval of
Proposal 2C, the Delaware Charter Documents will contain provisions limiting
action by written consent.
Board Vacancies. The Delaware Act provides that, unless otherwise provided
in the certificate of incorporation or bylaws, a vacancy or newly-created
directorship on the board of directors may be filled by a majority of the
remaining directors, even though less than a quorum. The Delaware Charter
Documents do not alter this provision. Under the Florida Act, a vacancy on the
board of directors generally may be filled by an affirmative vote of a
majority of the remaining directors or by the shareholders, unless the
articles of incorporation provide otherwise. The Florida Articles do not alter
this provision.
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Removal of Directors. The Delaware Act provides that, except with respect to
corporations with classified boards or cumulative voting, a director may be
removed, with or without cause, by the holders of the majority in voting power
of the shares entitled to vote at an election of directors. In the event the
corporation's board of directors is classified, shareholders may effect such
removal only for cause, unless the certificate of incorporation otherwise
provides. The Delaware Act also provides that whenever the holders of any
class or series are entitled to elect one or more directors by the certificate
of incorporation, the vote required, in respect of the removal without cause
of a director or directors so elected, is the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. The Florida Act provides that, except with
respect to corporations with directors elected by a voting group of
shareholders or cumulative voting, shareholders may remove one or more
directors with or without cause unless the articles of incorporation provide
that directors may be removed only for cause.
Amendments to Charter. A Delaware corporation's certificate of incorporation
generally may be amended only if approved by a majority in voting power of the
outstanding stock entitled to vote thereon. An amendment to a Florida
corporation's articles of incorporation must be approved by the corporation's
shareholders, except that certain immaterial amendments specified in the
Florida Act may be made by the board of directors. Unless a specific section
of the Florida Act or a Florida corporation's articles of incorporation
require a greater vote, an amendment to a Florida corporation's articles of
incorporation generally must be approved by a majority of the votes entitled
to be cast on the amendment. Subject to shareholder approval of Proposal 2E,
the Delaware Charter Documents will contain provisions requiring super-
majority vote requirements for certain amendments to the Delaware Charter
Documents.
Special Meetings of Shareholders. Special meetings of the shareholders of a
Delaware corporation may be called by the board of directors or by the persons
authorized in the corporation's certificate of incorporation or bylaws.
Subject to shareholder approval of Proposal 2D, the Delaware Bylaws will
provide that a special meeting may be called by the President, Chairman of the
Board or the Board of Directors. Special meetings of a Florida corporation's
shareholders may be called by its board of directors, by the persons
authorized to do so in its articles of incorporation or bylaws or by the
holders of not less than 10% of all votes entitled to be cast on any issue
proposed to be considered at the special meeting, unless a greater percentage,
not to exceed 50%, is required by the articles of incorporation. The Florida
Charter Documents do not alter the Florida Act's requirement for the calling
of special meetings by the shareholders.
Affiliated Transactions. The Delaware Act generally prohibits a shareholder
owning 15% or more of a Delaware corporation's outstanding voting stock (an
"interested shareholder") from engaging in certain business combinations
involving the corporation during the three years after the date the person
became an interested shareholder unless, among other things, (1) prior to such
date, the board of directors approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, (2) upon the consummation of the transaction which resulted in
the shareholder becoming an interested shareholder, the shareholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced (excluding certain shares), or (3) at or subsequent to such time the
business combination is approved by the board of directors and authorized at
an annual or special meeting of shareholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding voting stock
which is not owned by the interested shareholder. Such prohibition, however,
does not apply to a corporation if, inter alia, (i) the corporation's original
certificate of incorporation provides that the corporation shall not be
governed by the interested shareholder statute, (ii) a majority of shares
entitled to vote to approve an amendment to the corporation's certificate of
incorporation or bylaws expressly electing not to be governed by the statute
(but such amendment may not be effective until one year after it was adopted
and may not apply to any business combination between the corporation and any
person who became an interested shareholder on or prior to such adoption) or
(iii) a shareholder becomes an interested shareholder inadvertently and as
soon as practicable divests itself of ownership of sufficient shares so that
the shareholder ceases to be an interested shareholder. These business
combinations include, with certain exceptions, mergers, consolidations, sales
of assets and transactions benefiting the interested shareholder.
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The Florida Act contains an affiliated transactions statute which provides
that certain transactions involving a corporation and a shareholder owning 10%
or more of the corporation's outstanding voting shares (an "affiliated
shareholder") must generally be approved by the affirmative vote of the
holders of two-thirds of the voting shares other than those owned by the
affiliated shareholder. The transactions covered by the statute include, with
certain exceptions, (1) mergers and consolidations to which the corporation
and the affiliated shareholder are parties, (2) sales or other dispositions of
substantial amounts of the corporation's assets to the affiliated shareholder,
(3) issuances by the corporation of substantial amounts of its securities to
the affiliated shareholder, (4) the adoption of any plan for the liquidation
or dissolution of the corporation proposed by or pursuant to an arrangement
with the affiliated shareholder, (5) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated shareholder and (6) the receipt by the affiliated shareholder of
certain loans or other financial assistance from the corporation. These
special voting requirements do not apply in any of the following
circumstances: (a) if the transaction was approved by a majority of the
corporation's disinterested directors, (b) if the corporation did not have
more than 300 shareholders of record at any time during the preceding three
years, (c) if the affiliated shareholder has been the beneficial owner of at
least 80% of the corporation's outstanding voting shares for the past five
years, (d) if the affiliated shareholder is the beneficial owner of at least
90% of the corporation's outstanding voting shares, exclusive of those
acquired in a transaction not approved by a majority of disinterested
directors or (e) if the consideration received by each shareholder in
connection with the transaction satisfies the "fair price" provisions of the
statute. This statute applies to any Florida corporation unless the original
articles of incorporation or an amendment to the articles of incorporation or
bylaws contain a provision expressly electing not to be governed by this
statute. Such an amendment to the articles of incorporation or bylaws must be
approved by the affirmative vote of a majority of disinterested shareholders
and is not effective until 18 months after approval.
Control Share Acquisitions. The Florida Act also contains a control share
acquisition statute which provides that a person who acquires shares in an
issuing public corporation in excess of certain specified thresholds will
generally not have any voting rights with respect to such shares unless the
voting rights are approved by a majority of the shares entitled to vote,
excluding interested shares. This statute does not apply to acquisitions of
shares of a corporation if, prior to the pertinent acquisition of shares, the
corporation's articles of incorporation or bylaws provide that the corporation
shall not be governed by the statute. This statute also permits a corporation
to adopt a provision in its articles of incorporation or bylaws providing for
the redemption by the corporation of such acquired shares in certain
circumstances. Unless otherwise provided in the corporation's articles of
incorporation or bylaws prior to the pertinent acquisition of shares, in the
event that such shares are accorded full voting rights by the shareholders of
the corporation and the acquiring shareholder acquires a majority of the
voting power of the corporation, all shareholders who did not vote in favor of
according voting rights to such acquired shares are entitled to dissenters'
rights. Delaware does not have any provision comparable to Florida's control
share acquisition statute.
Other Constituencies. The Florida Act provides that directors of a Florida
corporation, in discharging their duties to the corporation and in determining
what they believe to be in the best interests of the corporation, may, in
addition to considering the effects of any corporate action on the
shareholders and the corporation, consider the effects of the corporate action
on employees, suppliers and customers of the corporation or its subsidiaries
and the communities in which the corporation and its subsidiaries operate.
Delaware does not have a comparable statutory provision.
Changes in the Company's Charter to be Effected by Reincorporation
The following discussion summarizes certain material differences between the
charter documents of the Company and EMusic. The Delaware Certificate which
will be in effect upon consummation of the Merger is included as part of the
form of Agreement and Plan of Merger attached as Appendix A to this Proxy
Statement and the Delaware Bylaws are attached as Appendix B to this Proxy
Statement. All statements herein concerning such documents are qualified by
reference to the exact provisions thereof. The shareholders of the Company
will
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become subject to the Delaware Charter Documents upon the effectiveness of the
proposed Reincorporation. In the event any of the separate proposals for
additional anti-takeover measures are approved by the requisite vote of
shareholders, the Delaware Certificate and the Delaware Bylaws will make
provision for such measures as set forth in the Merger Agreement and exhibits
thereto. See Proposal Two, "ADDITIONAL ANTI-TAKEOVER MEASURES."
1. Indemnification. The Florida Act and the Delaware Act are generally
similar with respect to indemnification of directors and officers. (See "--
Limitation of Liability and Indemnification"). For example, both jurisdictions
allow a corporation to include in its bylaws, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that otherwise provided by law.
The Delaware Bylaws provide that: (i) EMusic is required to indemnify its
officers and directors to the fullest extent permitted by law, including those
circumstances in which indemnification would otherwise be discretionary; (ii)
EMusic is required to advance expenses to its officers and directors as
incurred, including expenses related to obtaining a determination that such
officers and directors are entitled to indemnification, provided that they
undertake to repay the amount advanced if it is ultimately determined that
they are not entitled to indemnification; (iii) an officer or director may
bring suit against EMusic if a claim for indemnification is not timely paid;
(iv) EMusic is authorized to enter into indemnification agreements with its
officers and directors; and (v) EMusic may not retroactively amend the
Indemnification Provision in its Bylaws in a way which is adverse to its
officers or directors or former officers or directors. Emusic intends to enter
into indemnity agreements with its officers and directors. (See "--Approval
and Ratification of Indemnity Agreement").
The Florida Charter Documents authorize indemnification to the fullest
extent as may be determined to be in the best interest of the corporation. The
Company currently has indemnification agreements in place with certain of its
officers and directors of the Company.
2. Duty of Care for Directors. Under the Delaware Act, EMusic is permitted
to adopt, and its Certificate of Incorporation includes, a provision which
eliminates a director's liability for monetary damages for a breach of such
director's duty of care to EMusic or its shareholders (the "Delaware Duty of
Care Provision"). As a result of the Delaware Duty of Care Provision, no
director of Emusic will be liable for monetary damages for negligence or gross
negligence occurring after the Reincorporation. The directors will continue to
be subject to claims for equitable remedies although such remedies in some
circumstances may not be available as a practical matter. In addition, under
Delaware law, each director will remain liable for engaging in a transaction
from which such director derives an improper personal benefit, for engaging in
intentional misconduct or a knowing violation of law, or for the wrongful
payment of a dividend or repurchase of shares by the Company where such
dividend or repurchase was willfully or negligently caused by such director.
The Delaware Duty of Care Provision will also not limit a director's liability
for violations of the federal securities laws.
Under the Florida Act, the Company was permitted to adopt a provision
substantially similar to the Delaware Duty of Care Provision. However, the
Florida Charter Documents did not include such a provision. In addition,
Delaware law permits the limitation of directors' liability in a broader range
of circumstances than does the Florida Act. In particular, the Florida Act
expressly prohibits elimination of liability for acts or omissions that: (i)
constitute a violation of criminal law, unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful, (ii) in a derivative action or an action by a
shareholder, constitute conscious disregard for the best interests of the
corporation or willful misconduct or (iii) in a proceeding other than a
derivative action or an action by a shareholder, constitute recklessness or
were committed in bad faith or with malicious purpose or in a manner
exhibiting wanton and willful disregard of human rights, safety or property.
Delaware law does not expressly prohibit limitation of liability in such
circumstances. Emusic intends to eliminate personal liability for its
directors to the fullest extent permitted under Delaware law.
3. Number of Directors. The number of directors of EMusic will be initially
set at five (5). The Delaware Charter Documents permit the Board of Directors
to change the authorized number of directors from time to time, without
further shareholder approval. The Florida Bylaws presently fix the number of
directors at five (5).
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4. Filling Vacancies on the Board of Directors. The Delaware Charter
Documents provide that a vacancy on the Board of Directors occurring during
the course of the year may be filled only by the remaining directors unless
the vacancy is the result of a removal of a director by the shareholders.
Vacancies on the Board resulting from removal by the shareholders may be
filled by a majority of the directors then in office, though less than a
quorum, or by the shareholders. These provisions further provide that any
directors so appointed will serve for the remainder of the full term for which
elected, and no decrease in the number of directors shall reduce the term of
any incumbent. Under the Delaware Act, however, if, at the time of filling any
vacancy or newly created directorship, the directors then in office constitute
less than a majority of the entire Board of Directors (as constituted
immediately prior to any such increase), the Delaware Court of Chancery may,
under certain circumstances, order an election to be held to fill any such
vacancies or newly created directorships or to replace the directors chosen by
the directors then in office.
The Florida Act provides that a vacancy on the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by the shareholders, unless the articles of incorporation provide otherwise.
The Florida Charter Documents do not alter this provision of the Florida Act.
5. Blank Check Preferred Stock. The Florida Articles authorize the issuance
of Preferred Stock. Effective upon the Reincorporation, the Delaware
Certificate will authorize the issuance of Preferred Stock and will provide
that the Board of Directors is entitled to set the rights, preferences,
privileges and restrictions of such authorized and unissued stock. By issuing
Preferred Stock with particular rights, the Company may be able to deter a
hostile acquisition. For example, the Company may issue shares of Preferred
Stock with extraordinary voting rights or liquidation preferences to make it
more difficult for a hostile acquiror to gain control of the Company.
Subject to the approval of Proposal Two by the shareholders and the Series B
Approval, certain additional changes will be effected in the Delaware Charter
Documents. See Proposal Two, "ADDITIONAL ANTI-TAKEOVER MEASURES."
Limitation of Liability and Indemnification
Liability of Directors. The Delaware Act provides that a corporation's
certificate of incorporation may contain a provision which eliminates or
limits the personal liability of a director to the corporation or its
shareholders for monetary damages for a breach of fiduciary duty as a
director, except for a breach (1) which constitutes a breach of the director's
duty of loyalty to the corporation or its shareholders, (2) which constitutes
an act or omission not in good faith or which involves intentional misconduct
or a knowing violation of law, (3) which is covered by Section 174 of the
Delaware Act or (4) which relates to a transaction from which the director
derived an improper personal benefit. The Delaware Certificate includes such a
provision. The Florida Act provides that a director is not personally liable
for monetary damages to the corporation or any other person for any act or
omission as a director unless the director breached or failed to perform his
statutory duties as a director and such breach or failure (a) constitutes a
violation of criminal law, unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (b) constitutes a transaction from which the director derived an
improper personal benefit, (c) results in an unlawful distribution, (d) in a
derivative action or an action by a shareholder, constitutes conscious
disregard for the best interests of the corporation or willful misconduct or
(e) in a proceeding other than a derivative action or an action by a
shareholder, constitutes recklessness or an act or omission which was
committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property.
Indemnification. Under both the Florida Act and the Delaware Act, a
corporation may generally indemnify its officers, directors, employees and
agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement of any proceedings (other than derivative actions),
if they acted in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in derivative actions,
except that indemnification may be made only for expenses
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(including attorneys' fees), provided that in the event the person seeking
indemnification has been adjudicated liable, such indemnification shall only
be for amounts deemed proper, fair and reasonable by the appropriate court
upon application thereto. In addition, the Delaware Act and the Florida Act
provide that to the extent that present or former directors or officers under
the Delaware Act and present or former directors, officers, employees or
agents under the Florida Act, have been successful in defense of any
proceeding, they must be indemnified by the corporation against expenses
actually and reasonably incurred in connection therewith. The Florida Act
further provides that, unless a corporation's articles of incorporation
provide otherwise, if a corporation does not so indemnify such persons, they
may seek, and a court may order, indemnification under certain circumstances
even if the board of directors or shareholders of the corporation have
determined that the persons are not entitled to indemnification. The Delaware
Bylaws provide that directors and officers will be indemnified to the fullest
extent permitted by law.
Approval and Ratification of Indemnity Agreement
General. The Company believes that intense competition will characterize the
emerging internet record industry and will greatly expand the challenges and
risks facing the officers and directors of such businesses. Therefore, in
order to provide its directors and officers with increased protection from the
risk of litigation and other liabilities and to ensure that the Company can
continue to attract and retain qualified directors and officers, the Board of
Directors determined it to be in the best interests of the Company and its
shareholders to enter into indemnity agreements with its officers and
directors.
The Board of Directors has directed the submission to a vote of the
shareholders of a proposal to approve and ratify the form of agreement (the
"Delaware Indemnity Agreement") to be entered into between EMusic and its
directors, officers and key employees and the directors, officers and key
employees of its subsidiaries (the "Indemnified Parties") in the form attached
hereto as Appendix C.
The Board of Directors recently approved the form of Delaware Indemnity
Agreement and such agreement will indemnify the Indemnified Parties against
certain liabilities arising out of their service in such capacities.
Although shareholder ratification and approval of the Delaware Indemnity
Agreement is not required by law, it is considered appropriate to submit the
Delaware Indemnity Agreement to the shareholders of the Company for their
approval because the members of the Board of Directors will be parties to, and
therefore the beneficiaries of the rights contained in, certain of the
Indemnity Agreements. If the shareholders fail to approve and ratify the
Delaware Indemnity Agreement, the Board of Directors will reexamine the issue
of indemnification and determine whether the Company should enter into the
Delaware Indemnity Agreements in the future.
The enforceability of certain of the provisions of the Delaware Indemnity
Agreement have not been tested in court and remains subject to considerations
of state law and public policy. Shareholders will not be estopped from later
challenging the validity or enforceability of the Delaware Indemnity
Agreements following shareholder approval of the Delaware Indemnity Agreement;
however, following such approval, shareholders would not be able to invalidate
such agreements solely because the directors benefit from the agreements.
Principal Terms of the Delaware Indemnity Agreements.
1. The following analysis summarizes principal terms of the form of Delaware
Indemnity Agreement. This analysis is a summary only and is qualified in its
entirety by reference to the form of Delaware Indemnity Agreement attached to
this Proxy Statement as Appendix C, which you are urged to read and consider
carefully. Indemnification rights may be provided under the Delaware Indemnity
Agreement to a person in his capacity as a present or former director,
officer, employee or other agent of EMusic, a subsidiary, or a predecessor
corporation (the "Indemnitee") in connection with a threatened, pending or
completed proceeding, whether civil, criminal, administrative or
investigative. Indemnification rights are also provided to an Indemnitee's
heirs, executors and administrators to the same extent they would be provided
to the Indemnitee were he or she still alive.
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2. EMusic must maintain in effect directors' and officers' liability
insurance naming the Indemnitee as an insured unless such insurance is not
available on reasonable terms.
3. EMusic must indemnify against all expenses reasonably incurred by an
Indemnitee to the extent he or she has been successful in the defense of any
proceeding (including an action by or in the right of the EMusic, such as a
derivative action).
4. EMusic is required to indemnify against any expenses (including
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) reasonably incurred by an Indemnitee in connection with any
proceeding (other than an action by or in the right of EMusic), provided the
Indemnitee's actions met the required standard of conduct.
5. In connection with proceedings brought by or in the right of EMusic
against the Indemnitee (including derivative actions), EMusic is required to
indemnify against expenses actually and reasonably incurred by the Indemnitee,
judgments, fines, and ERISA excise taxes and penalties, and amounts paid in
settlement provided his or her actions met the required standard of conduct.
However, no indemnification is required in such proceeding to the extent the
Indemnitee is finally adjudged liable to EMusic unless the court determines
that, in view of all the circumstances, the Indemnitee is fairly and
reasonably entitled to indemnification. Unlike the Florida Indemnity
Agreement, this provision of the Delaware Indemnity Agreement requires no
court approval for indemnification against amounts paid in settlement unless
the Indemnitee has been finally adjudged liable by a court of competent
jurisdiction. The Company believes that this provision of the Delaware
Indemnity Agreement is consistent with Section 145, which provides for
statutory indemnification of officers and directors, except that it expands
upon Section 145 by providing for indemnification for additional types of
expenses and for amounts paid in settlement.
6. Even if the Indemnitee is not entitled to indemnification against the
total amount of his or her expenses or liabilities in connection with a
proceeding, EMusic must indemnify him or her against any portion to which he
or she is entitled.
7. EMusic is required to advance expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding, provided that the Indemnitee undertakes to repay any amounts for
which he or she is ultimately determined not to be entitled to
indemnification. This provision of the Delaware Indemnity Agreement expands
upon Section 145, which is silent on advances of expenses incurred in
connection with investigation, settlement and appeal.
8. The Delaware Indemnity Agreement provides certain notice procedures in
the event of a threat or commencement of a proceeding and provides that EMusic
may assume the defense of the proceeding under certain conditions.
9. Notwithstanding the other provisions of the Delaware Indemnity Agreement,
no indemnification or advancement of expenses is required if (i) an Indemnitee
initiates a lawsuit against EMusic (with certain specified exceptions); (ii) a
court determines that, with respect to actions instituted to enforce or
interpret the Indemnity Agreement, the action was not in good faith or was
frivolous; or (iii) the claim is for an amount paid in a settlement without
EMusic's consent.
10. The Delaware Indemnity Agreement provides that its indemnification and
expense advancement provisions are not exclusive of any other rights the
Indemnitee may have.
11. The Indemnitee may enforce in court any right to indemnification or
advances granted by the Indemnity Agreement if (i) his or her claim is denied
in whole or in part, or (ii) no disposition of his or her claim is made within
90 days of his or her request therefor. If successful in an enforcement
action, the Indemnitee is entitled to be paid the expenses of prosecuting his
or her claim.
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Summary of Federal Tax Consequences of the Reincorporation
The reincorporation is intended to be a reorganization under the Internal
Revenue Code of 1986, as amended. Generally, for federal income tax purposes,
no gain or loss should be recognized by holders of the Company capital stock
as a result of the reincorporation and no gain or loss should be recognized by
the Company or EMusic.
Each former holder of GoodNoise capital stock should have the same basis in
the EMusic capital stock received pursuant to the Reincorporation as such
shareholder had in the GoodNoise capital stock held by such shareholder at the
time of consummation of the Reincorporation. A shareholder's holding period
with respect to the EMusic capital stock received in the Reincorporation
should include the period during which the shareholder held the corresponding
shares of GoodNoise capital stock; provided that the shares of GoodNoise
capital stock were held by the shareholder as capital assets at the time of
consummation of the Reincorporation. Tax provisions are complex and subject to
change and this summary does not purport to be a complete discussion of all
the possible tax consequences of the reincorporation under federal laws. The
Company has not obtained a ruling from the Internal Revenue Service or an
opinion of legal or tax counsel with respect to the consequences of the
reincorporation.
EACH SHAREHOLDER SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
Vote Required for Reincorporation and Board of Directors' Recommendation
Approval of the Reincorporation and all related matters discussed in this
Proposal One will require the affirmative vote of a majority of the voting
power of all outstanding capital stock of the Company. Abstentions and broker
non-voter will each have the same effect as a negative vote on this proposal.
The Board of Directors has determined the Reincorporation and all related
matters discussed in this Proposal One is in the best interests of the
shareholders and the Company.
The Board of Directors unanimously recommends a vote FOR approval of this
proposal to reincorporate in Delaware and all related matters discussed in
this Proposal One. A vote for the reincorporation proposal will constitute
approval of the Merger, the Delaware Certificate (without the anti-takeover
measures set forth under Proposal Two unless separately approved by the
shareholders), the Delaware Bylaws (without the anti-takeover measures set
forth under Proposal Two unless separately approved by the shareholders), the
form of Delaware Indemnity Agreement and all other aspects of this Proposal
One.
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RIGHTS OF DISSENTING SHAREHOLDERS
Series B Holders who have not consented to the Reincorporation and who
comply with the dissenters' rights provisions of the Florida Act will have the
right to be paid in cash the fair value of their GoodNoise Series B Common
Stock.
In order to receive cash payment for his GoodNoise Series B Preferred Stock,
a Series B Holder must comply with the procedures specified by Sections
607.1301 to 607.1320 of the Florida Act, which are attached as Appendix D to
this Proxy Statement. Any Series B Holder considering exercising his
dissenters' rights is urged to review Sections 607.1301 and 607.1320
carefully. The following summary of the principal provisions of Sections
607.1301 to 607.1320 is qualified in its entirety by reference to the text
thereof. Further, the following discussion is subject to the possibility that
the Company may abandon the Reincorporation if the Board of Directors
determines that in light of the potential liability of the Company that might
result from the exercise of dissenters' rights, the Reincorporation would be
impracticable, undesirable or not in the best interests of the Company's
shareholders. If the Company abandons the Reincorporation, the rights of
dissenting shareholders would terminate and such dissenters would be
reinstated to all of their rights as shareholders.
Any Series B Holder who wishes to dissent from the Reincorporation and
receive a cash payment for his GoodNoise Preferred Stock, must file with the
Company, prior to the Effective Date, a written objection to the
Reincorporation demanding payment for his GoodNoise Series B Preferred Stock
if the Reincorporation is consummated and setting forth his name, address and
the number of shares of Series B GoodNoise Preferred Stock held by him.
FAILURE TO FILE THE REQUIRED NOTICE OR DEMAND PRIOR TO THE EFFECTIVE DATE
WILL NOT SATISFY THE NOTICE REQUIREMENTS OF SECTION 607.1320 AND WILL RESULT
IN THE FORFEITURE OF DISSENTERS RIGHTS.
COMMUNICATIONS WITH RESPECT TO DISSENTERS' RIGHTS SHOULD BE ADDRESSED TO THE
COMPANY AT 1991 BROADWAY, 2ND FLOOR, REDWOOD CITY, CA 94063, ATTENTION: JOSEPH
HOWELL, CHIEF FINANCIAL OFFICER.
Upon filing a notice of election of dissent a dissenting Series B Holder
will cease to have any of the rights of a shareholder except the right to be
paid the fair value of his GoodNoise Series B Preferred Stock pursuant to
Section 607.1320. If a Series B Holder loses his dissenters' rights, either by
withdrawal of his demand, abandonment of the Reincorporation by the Company or
otherwise, he will not have the right to receive a cash payment for his
GoodNoise Series B Preferred Stock and will be reinstated to all of his rights
as a shareholder as they existed at the time of the filing of his demand.
AT THE TIME OF DEMANDING PAYMENT FOR HIS SHARES OF GOODNOISE SERIES B
PREFERRED STOCK, EACH SERIES B HOLDER DEMANDING PAYMENT SHALL SUBMIT THE
CERTIFICATE OR CERTIFICATES REPRESENTING HIS SHARES OF GOODNOISE SERIES B
PREFERRED STOCK FOR NOTATION THEREON THAT SUCH DEMAND HAS BEEN MADE. FAILURE
TO DO SO SHALL, AT THE OPTION OF THE COMPANY, TERMINATE HIS DISSENTER'S RIGHTS
UNLESS A COURT, FOR GOOD CAUSE, DETERMINES OTHERWISE.
Within 60 days after the Effective Date of the Reincorporation, EMusic, as
successor to the Company, will give written notice thereof to each dissenting
Series B Holder who timely filed a demand and will make a written offer to
each such Series B Holder to pay for his GoodNoise Series B Preferred Stock at
a specified price determined by the Company to be the fair value thereof. If,
within 30 days after the Reincorporation, EMusic and a dissenting Series B
Holder agree upon the price to be paid for his GoodNoise Series B Preferred
Stock, EMusic shall make such payment within 90 days following the Effective
Date of the Reincorporation, upon surrender by such Series B Holder to EMusic
of the certificates representing his GoodNoise Series B Preferred Stock. Upon
payment, the dissenting shareholder shall cease to have any interest in the
GoodNoise Series B Preferred Stock.
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If EMusic and any dissenting Series B Holder fail to agree upon the price to
be paid for his GoodNoise Series B Preferred Stock within the aforementioned
30-day period, then within 30 days after receipt of written demand from any
dissenting Series B Holder given within 60 days after the date the
Reincorporation is effected, EMusic shall, or at any time within such 60-day
period EMusic may, file an action in any court of general civil jurisdiction
in the county of Florida where the registered office of the Company is
located, requesting that the fair value of such GoodNoise Series B Preferred
Stock be found and determined. If EMusic fails to institute the proceeding
within such 60-day period, any dissenting Series B Holder may institute such
proceeding. All dissenting Series B Holders, except those who have agreed on
the price to be paid for their GoodNoise Series B Preferred Stock, are
required to be made parties to such a proceeding.
In any such proceeding, the court, at EMusic's request, will determine
whether or not any particular dissenting Series B Holder is entitled to
receive payment for his GoodNoise Series B Preferred Stock. If EMusic does not
request such a determination or if the court finds that a dissenting Series B
Holder is so entitled, the court, directly or through an appraiser, will fix
the value of the GoodNoise Series B Preferred Stock as of the day prior to the
date the shareholders consented to the Reincorporation, excluding any
appreciation or depreciation directly or indirectly induced by the
Reincorporation or the proposal to authorize it. The expenses of any such
proceeding, as determined by the court, shall be assessed against EMusic,
except that the court may apportion costs to any dissenting Series B Holder
whom it finds to have been acting arbitrarily, vexatiously or otherwise not in
good faith in refusing an offer by EMusic.
THE PROVISIONS OF SECTIONS 607.1301 TO 607.1320 ARE TECHNICAL AND COMPLEX.
IT IS SUGGESTED THAT ANY SERIES B HOLDER WHO DESIRES TO EXERCISE HIS RIGHT TO
DISSENT CONSULT HIS LEGAL COUNSEL, AS FAILURE TO COMPLY STRICTLY WITH SUCH
PROVISIONS MAY LEAD TO A LOSS OF DISSENTERS RIGHTS.
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PROPOSAL TWO
ADDITIONAL ANTI-TAKEOVER MEASURES
As described under Proposal One, "REINCORPORATION IN THE STATE OF DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS," the Board of Directors has
unanimously approved a proposal to change the Company's state of incorporation
from Florida to Delaware. In addition, if Proposal One is approved, the Board
has also proposed, the inclusion in the Delaware Certificate and Delaware
Bylaws of certain provisions available to public companies under Delaware law
that deter hostile take-over attempts, as more particularly described below.
Certain of these measures are not included in the Florida Charter Documents
and many are not applicable to the Company under Florida Law currently.
Accordingly, these matters are presented for separate consideration and vote
by the shareholders.
In considering the proposals, shareholders should be aware that the overall
effect of certain of the proposed provisions is to make it more difficult for
holders of a majority of the outstanding shares of Common Stock to change the
composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with
the performance of the incumbent directors or otherwise desire to make
changes. These provisions, if included in the Company's new charter documents,
could make a proxy contest a less effective means of removing or replacing
existing directors or could make it more difficult to make a change in control
of the Company which is opposed by the Board of Directors. This strengthened
tenure and authority of the Board of Directors could enable the Board of
Directors to resist change and otherwise thwart the desires of a majority of
the shareholders. Because these provisions may have the effect of continuing
the tenure of the current Board of Directors, the Board has recognized that
the individual directors have a personal interest in this provision that may
differ from those of the shareholders. However, the Board believes that these
provisions' primary purpose is to ensure that the Board will have sufficient
time to consider fully any proposed takeover attempt in light of the short and
long-term benefits and other opportunities available to the Company and, to
the extent the Board determines to proceed with the takeover, to effectively
negotiate terms that would maximize the benefits to the Company and its
shareholders.
A hostile takeover attempt may have a positive or a negative effect on the
Company and its shareholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated
or approved by the board of directors of a corporation can seriously disrupt
the business and management of a corporation and generally present to the
shareholders the risk of terms which may be less than favorable to all of the
shareholders than would be available in a Board-approved transaction. Board-
approved transactions may be carefully planned and undertaken at an opportune
time in order to obtain maximum value for the corporation and all of its
shareholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate
assets. In addition, in the case of a proposal which is presented to the Board
of Directors, there is a greater opportunity for the Board to analyze the
proposal thoroughly, to develop and evaluate alternatives, to negotiate for
improved terms and to present its recommendations to the shareholders in the
most effective manner.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to shareholders, providing all shareholders with
considerable value for their shares. However, the Board of Directors believes
that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and its
shareholders. Accordingly, the Board has separately proposed certain measures
for inclusion in the Delaware Certificate or the Delaware Bylaws that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to shareholders
of the changes, shareholders should recognize that one of the effects of such
changes may be to discourage a future attempt to acquire control of the
Company which is not presented to and approved by the Board of Directors, but
which a substantial
16
<PAGE>
number, and perhaps even a majority, of the Company's shareholders might
believe to be in their best interests or in which shareholders might receive a
substantial premium for their shares over the current market price. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so.
In addition, by increasing the probability that any person or group seeking
control of the Delaware Company would be forced to negotiate directly with the
Board of Directors, the proposed takeover defenses could discourage takeover
bids by means of a hostile tender offer, proxy contest or otherwise without
the approval of the Board. Thus, the principal disadvantages to the
shareholders which result from discouraging such hostile takeover bids would
be to (i) reduce the likelihood that any acquiror would make a hostile tender
offer for the outstanding shares of stock of the Company at a premium over the
market rate and (ii) increase the difficulty of removing the existing Board of
Directors and management even if, in a particular case, removal would be
beneficial to shareholders generally.
It should be noted, however, that the Board of Directors has a fiduciary
duty to the shareholders to negotiate for the best interests of the
shareholders and not for its own interests. Further, while the proposed
takeover defenses may discourage hostile takeover attempts, these provisions
would not prevent a hostile acquisition of the Company.
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the provisions described below
outweigh the possible disadvantages. In particular, the Board believes that
the benefits associated with enabling the Board to fully consider and
negotiate proposed takeover attempts make these proposals beneficial to the
Company and its shareholders.
The proposal to include these anti-takeover provisions as part of the
proposed reincorporation does not reflect knowledge on the part of the Board
of Directors or management of any proposed takeover or other attempt to
acquire control of the Company. Management may in the future propose or adopt
other measures designed to discourage takeovers apart from those proposed in
this Proxy Statement, if warranted from time to time in the judgment of the
Board of Directors, although the Board has no such intention at the present
time.
17
<PAGE>
Summary of Additional Anti-Takeover Measures.
The separate proposals are summarized in the chart below. The following
chart does not purport to be an exhaustive discussion. It is qualified in its
entity by reference to the Florida Business Corporation Act, the Delaware
General Corporation Law, the Florida Articles and Florida Bylaws and the
Delaware Certificate and Delaware Bylaws. Shareholders are requested to read
the following chart in conjunction with the discussion following the chart and
the Merger Agreement, the Delaware Certificate and Delaware Bylaws attached to
this Proxy Statement. Shareholders should note that each of these measures is
proposed for separate consideration and vote by the shareholders.
<TABLE>
<CAPTION>
Issue Delaware Florida
----- -------- -------
<C> <C> <S>
Cumulative Voting for
Directors.............. Cumulative voting is not Cumulative voting is not
available unless it is provided permitted under Florida law
for in the Certificate of unless it is provided for in
Incorporation; the Board the Articles of Incorporation.
proposes that the Delaware The Florida Articles currently
Certificate not provide for do not provide for cumulative
cumulative voting. voting.
Classified Board........ Delaware law permits the Florida law permits the
adoption of a classified board adoption of a classified board
with staggered terms. The Board with staggered terms. The
proposes that the Delaware Florida Articles and Florida
Certificate and Bylaws provide Bylaws do not provide for a
for a classified Board with classified Board.
three classes of directors,
each with a three year term.
Delaware law permits the Florida law permits the removal
removal of a director on a of a director with or without
classified board only for cause by affirmative vote of a
cause, unless otherwise majority of the outstanding
specified in the Certificate of shares.
Incorporation. The Board
proposes that the Delaware
Certificate and Delaware Bylaws
permit removal of directors
only for cause by affirmative
vote of the majority of the
outstanding shares of voting
stock entitled to vote at an
election of directors.
Action by Written
Consent of Shareholders
in lieu of a
Shareholder vote at a The Board proposes that actions Actions by written consent are
Shareholder Meeting.... by written consent not be permitted by the Florida
permitted under the Delaware Articles and Florida Bylaws.
Certificate. All shareholder
action would take place by a
shareholder vote at a meeting
of shareholders.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Issue Delaware Florida
----- -------- -------
<C> <C> <S>
Call of Special Meetings
by Shareholders........ Special meetings may be called Special meetings may be called
only by the Board or any person by the Board, the holders of 10%
as may be designated in the or more of the outstanding
Certificate of Incorporation or voting power and such other
Bylaws. The Board proposes that persons as may be designated in
the Delaware Certificate and the Articles of Incorporation
Delaware Bylaws provide special or Bylaws. The Florida Bylaws
meetings may be called only by provide special meetings may be
the Board, the Chairman, the called by the Board, the
President or the Chief President or the holders of 10%
Executive Officer. or more of the outstanding
voting power.
Amendment of Certificate
and Bylaws............. The Board proposes that Generally, amendments of the
amendments of certain Articles of Incorporation
provisions or the Delaware require approval by the Board
Certificate require approval by and a majority of the
two-thirds of the voting stock outstanding voting shares.
and a majority of the voting Unless otherwise provided for
stock for certain provisions, in the Articles of
and that the Delaware Bylaws Incorporation, the Bylaws can
could be amended by the Board be amended by the Board or the
or by the holders of two-thirds holders of a majority of the
of the outstanding voting outstanding voting shares,
shares. except that the Board may not
fix a greater quorum or voting
requirement for shareholder.
Increase in Number of
Authorized Shares of
Preferred Stock........ Delaware law permits amending Florida law permits amending
the Certificate of the Articles of Incorporation
Incorporation to increase the to increase the number of
number of authorized shares of authorized shares of Preferred
Preferred Stock. The Board Stock.
proposes to increase the number
of authorized shares of
Preferred Stock from 500,000 to
20,000,000.
</TABLE>
19
<PAGE>
PROPOSAL 2A
ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS
Concurrent with the reincorporation proposal described above, the Board of
Directors has proposed the adoption of certain additional measures designed to
protect shareholder interests in the event of hostile takeover attempts
against the Company. The Board believes that these measures will enable it to
more effectively consider any proposed takeover attempt and to negotiate terms
that maximize the benefit to the Company and its shareholders. The elimination
of cumulative voting for directors is one such measure.
Cumulative voting permits the holder of each share of stock entitled to vote
in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes
represented by a share to a single candidate or may allocate those votes among
as many candidates as he chooses. Thus, a shareholder with a significant
minority percentage of the outstanding shares may be able to elect one or more
directors if voting is cumulative. In contrast, the holder or holders of a
majority of the shares entitled to vote in an election of directors are able
to elect all the directors in the absence of cumulative voting.
Cumulative voting is not available under either Florida or Delaware law
unless so provided in the corporation's Certificate of Incorporation. The
Florida Articles currently do not provide for cumulative voting. The Board of
Directors has proposed to eliminate cumulative voting by not including it in
the Delaware Certificate.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company, with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a
basis which some shareholders might deem favorable.
In the event this proposal is not approved by the requisite vote of
shareholders or the Series B Approval is not obtained, the Delaware
Certificate will provide for cumulative voting in the election of directors.
In the event this proposal is approved, the provision regarding cumulative
voting of directors will not be included in the Delaware Certificate.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the proposed provision regarding the elimination of
cumulative voting under the Delaware Certificate is in the best interest of
the shareholders and the Company for the reasons stated above. Therefore, the
board of directors unanimously recommends a vote FOR approval of this
proposal.
20
<PAGE>
PROPOSAL 2B
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. A classified Board
of Directors removable only for cause is another such measure.
A classified Board provides directors to be divided into two or three
"classes" elected for staggered "terms" of two or three years. The
classification system of electing directors may tend to maintain the
incumbency of the Board as it generally enables it more difficult for
shareholders to change a majority of the directors. A classified Board may
also contribute to the continuity and stability of leadership and policy.
Classification of the Board of Directors might make it more difficult for a
person acquiring shares to take immediate control of the Board of Directors.
Both Delaware and Florida law permits the adoption of a classified Board of
Directors with staggered terms. A maximum of three classes of directors is
permitted by Delaware and Florida law, with members of one class to be elected
each year for a maximum term of three years. The Florida Articles currently do
not provide for a classified Board of Directors. The Board of Directors has
proposed the inclusion in the Delaware Certificate and Delaware Bylaws of
certain provisions establishing a classified Board of Directors removable only
for cause, as discussed below (the "Classified Board Provisions").
The directors of the Company will also be the directors of Emusic if the
reincorporation proposal is approved. Under the Classified Board Provisions,
the Board of Directors will be divided into three classes, designated Class I,
Class II and Class III, on the effective date of the Reincorporation (the
"Reincorporation Effective Date"). The directors in Class I, Robert Kohn and
Tor Braham, will hold office until the first annual meeting of shareholders
following the Reincorporation Effective Date; the director in Class II, Gene
Hoffman, Jr., will hold office until the second annual meeting of shareholders
following the Reincorporation Effective Date; and the director in Class III,
Ralph Peer, II, will hold office until the third annual meeting of
shareholders following the Reincorporation Effective Date (and, in each case,
until their successors are duly elected and qualified or until their earlier
resignation, removal from office or death). After each such election, the
directors shall then serve in succeeding terms of three years and until their
successors are duly elected and qualified.
The Classified Board only applies to the directors elected by the holders of
the Company's Common Stock. The Series B Holders are entitled to elect one
member of the Board of Directors separately as a class. That member currently
is Eddie Rosenblatt.
Under Florida law, a director may be removed with or without cause by the
affirmative vote of a majority of the outstanding shares. Under Delaware law,
a director on a classified board of directors can be removed from office
during his term by shareholders only for cause unless the Certificate of
Incorporation provides otherwise. The Board of Directors has proposed that the
Delaware Certificate provide that the Company's directors may be removed from
office only for cause by the affirmative vote of the holders of a majority of
the voting power of the then outstanding shares of voting stock of the Company
entitled to vote in the election of directors.
With the Classified Board Provisions proposed for inclusion in the Delaware
Certificate and Delaware Bylaws, unless directors are removed for cause, it
will require at least two annual meetings of shareholders for a majority of
shareholders to make a change in control of the Board of Directors, since only
a portion of the directors will be elected at each meeting. A significant
effect of a classified Board of Directors may be to deter hostile takeover
attempts because an acquirer would experience delay in replacing a majority of
the directors. However, a classified Board of Directors also makes it more
difficult for shareholders to effect a change in control of the Board of
Directors, even if such a change in control is sought due to dissatisfaction
with the performance of the Company's directors.
21
<PAGE>
In the event this proposal is not approved or the Series B Approval is not
obtained, all directors of the Company will be elected at each annual meeting.
In the event this proposal is approved and the Company obtains the Series B
Approval, the Delaware Certificate and Delaware Bylaws will include the
Classified Board Provisions.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the Classified Board Provisions proposed for
inclusion in the Delaware Certificate and Delaware Bylaws are in the best
interest of the shareholders and the Company for the reasons stated above.
Therefore, the board of directors unanimously recommends a vote FOR approval
of this proposal.
22
<PAGE>
PROPOSAL 2C
ELIMINATION OF ACTION BY WRITTEN CONSENT
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. The elimination of
action by written consent of the shareholders is another such measure.
Under Delaware and Florida law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both Florida and Delaware
law permit a corporation to eliminate such actions by written consent in its
charter. The Florida Articles do not eliminate the ability of shareholders to
act by written consent. The Board of Directors proposes to include a provision
in the Delaware Certificate and a corresponding provision in the Delaware
Bylaws, which would eliminate the right of shareholders to act by written
consent of shareholders.
Elimination of such shareholders' right to act by written consent may
lengthen the amount of time required to take shareholder actions because
certain actions by written consent are not subject to the minimum notice
requirement of a shareholders' meeting. The elimination of shareholders' right
to act by written consent may deter hostile takeover attempts because of the
lengthened shareholder approval process. Without the ability to act by written
consent, a holder or group of holders controlling a majority in interest of
the Delaware Company's capital stock will not be able to amend the Delaware
Bylaws or remove directors pursuant to a written consent. Any such holder or
group of holders would have to wait until a shareholders' meeting was held to
take any such action. The Board believes this provision would enhance the
Board's and shareholders' opportunity to fully consider shareholder proposals
at a meeting where all views can be heard.
In the event this proposal is not approved by the requisite vote of the
shareholders or the Series B Approval is not obtained, the Delaware
Certificate and Delaware Bylaws will provide for action by written consent by
the shareholders. In the event the proposal is approved and the Company
obtains the Series B Approval, the Delaware Certificate and the Delaware
Bylaws will include a provision which eliminates the shareholders' right to
act by written consent.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the proposed provisions under the Delaware
Certificate and Delaware Bylaws regarding the elimination of action by written
consent is in the best interest of the shareholders and the Company for the
reasons stated above. Therefore, the board of directors unanimously recommends
a vote FOR approval of this proposal.
23
<PAGE>
PROPOSAL 2D
LIMITATION ON ABILITY TO CALL SPECIAL MEETINGS
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. Limiting the manner
in which special meetings are called is another such measure.
Under Florida law, special meetings of shareholders may be called by the
Board, the holders of 10% or more of the outstanding voting power and such
other persons as may be designated in the Articles of Incorporation or Bylaws
of a company. The Florida Bylaws provide special meetings may be called by the
Board, the President or the holders of 10% or more of the outstanding voting
power.
Delaware law, however, provides that special meetings of shareholders may
only be called by the Board or by any other person as may be designated in the
Certificate of Incorporation or Bylaws. The Board of Directors has proposed a
provision in the Delaware Certificate and the Delaware Bylaws providing that
special meetings of shareholders may be called only by the Board of Directors,
the Chairman of the Board or the President and Chief Executive Officer. Such a
provision precludes a shareholder from mounting a proxy contest or taking
action to amend charter documents until the next annual meeting. Such a
provision could have the affect of deterring efforts to seek control of the
Company on a basis which some shareholders might deem favorable.
In the event this proposal is not approved by the requisite vote of the
shareholders or the Series B Approval is not obtained, the Delaware Bylaws
will provide that special meetings of shareholders may be called by the Board
of Directors, the Chairman of the Board, the President, the Chief Executive
Officer or the holders of 10% or more of the outstanding voting power. In the
event this proposal is approved and the Company obtains the Series B Approval,
the Delaware Certificate and Bylaws will provide that special meetings of
shareholders may be called only by the Board of Directors, the Chairman of the
Board, the President and the Chief Executive Officer.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the proposed provisions regarding the limitation on
the ability to call special meetings by the shareholders under the Delaware
Certificate and Delaware Bylaws is in the best interest of the shareholders
and the Company for the reasons stated above. Therefore, the board of
directors unanimously recommends a vote FOR approval of this proposal.
24
<PAGE>
PROPOSAL 2E
SUPER-MAJORITY VOTE REQUIREMENT FOR AMENDMENT OF DELAWARE CERTIFICATE AND
DELAWARE BYLAWS
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. Super-majority vote
requirements for amendments to the Delaware Certificate and Delaware Bylaws
are such measures.
Both Delaware and Florida law permit super-majority voting requirements on
most matters which may be voted upon by shareholders or directors.
Generally, the Florida Articles may be amended following the approval by the
Board of Directors and by a majority of the outstanding shares. The Board has
proposed that the Delaware Certificate include a provision under which the
Delaware Certificate may be amended by action of the Board of Directors with
the affirmative vote of a majority of outstanding shares, provided that for
the following provisions, two-thirds of the outstanding shares would be
required for amendment of the Delaware Certificate, subject, where indicated,
to the separate approval of the inclusion of such provisions in the Delaware
Certificate under Proposals 2A through 2D above: (i) the establishment of a
Classified Board, the terms of office of directors, and restrictions on
removal of directors only for cause (subject to the separate approval of the
shareholders of the Classified Board Provisions set forth in Proposal 2B,
described above); (ii) the exclusive right of the directors to change the
number of authorized directors and to fill vacancies on the Board; (iii) the
percentage of shares necessary to amend certain provisions of the Delaware
Certificate; (iv) the authority of the Board of Directors and the shareholders
to amend the Delaware Bylaws; (v) the elimination of the right of shareholders
to act without a meeting (subject to the separate approval of the shareholders
of the elimination of the right of shareholders to act without a meeting under
Proposal 2C above); (vi) the elimination of the right of shareholders to call
a special shareholders meeting (subject to the separate approval of the
shareholders of the elimination of the right of shareholders to call a special
meeting under Proposal 2D above); and (vii) the elimination of directors'
personal liability for monetary damages arising from their negligence or gross
negligence.
The Florida Bylaws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company, except that the Board of Directors may not fix a greater
quorum or voting requirement for shareholders. The Board has proposed that the
Delaware Bylaws include a provision under which the Delaware Bylaws may be
adopted, amended or repealed by the Board or by the affirmative vote of the
holders of at least two-thirds of the shares of the capital stock of EMusic.
This provision would have the effect of making it more difficult for
shareholders to amend the Delaware Bylaws.
In the event this proposal is not approved by the requisite vote of the
shareholders or the Series B Approval is not obtained, any provision of the
Delaware Certificate may be amended by action of the Board of Directors, with
the affirmative vote of a majority of outstanding shares, and the Delaware
Bylaws may be adopted, amended or repealed by the Board or by the affirmative
vote of the holders of at least a majority of the shares of capital stock of
EMusic. In the event this proposal is approved by the shareholders and the
Company obtains the Series B Approval, the Delaware Certificate and Delaware
Bylaws will include the super-majority provisions.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
25
<PAGE>
The Board believes that the proposed provisions regarding super-majority
voting for the amendment of the Delaware Certificate and Delaware Bylaws is in
the best interest of the shareholders and the Company for the reasons stated
above. Therefore, the board of directors unanimously recommends a vote FOR
approval of this proposal.
26
<PAGE>
PROPOSAL 2F
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES OF
PREFERRED STOCK AUTHORIZED FOR ISSUANCE
Concurrent with the reincorporation proposal, the Company has proposed the
inclusion in its charter documents of certain measures designed to protect
shareholder interests in the event of hostile takeover attempts against the
Company. The Board believes that these measures will enable it to more
effectively consider any proposed takeover attempt and to negotiate terms that
maximize the benefit to the Company and its shareholders. Increasing the
number of shares of Preferred Stock authorized for issuance is one such
measure.
Both Florida and Delaware law permit amending a company's certificate of
incorporation to increase the number of shares of Preferred Stock authorized
for issuance. Generally, the Florida Articles may be amended following the
approval of the Board of Directors and by a majority of the outstanding
shares. The Board of Directors has approved the increase in authorized shares
of EMusic Preferred Stock in order to make additional shares of Preferred
Stock available in the event the Board of Directors determines that it is
necessary or appropriate to issue additional shares to raise additional
capital, to acquire another company or its business or assets, to establish
strategic relationships with corporate partners, to permit future stock
dividends or stock splits, or to provide equity incentives to employees and
officers. The Board of Directors believes it is prudent to increase the number
of authorized shares of Preferred Stock at this time in order to avoid the
expense and delay in seeking shareholder approval at another special
shareholders' meeting held at a later date (except as may be required by
applicable law or regulatory authorities or by the rules of any stock exchange
on which the Company's securities may then be listed) and to provide
flexibility with respect to the above-mentioned matters. In the event this
proposal is approved by the shareholders, the Delaware Certificate will
authorize the issuance of 20,000,000 shares of EMusic Preferred Stock, an
increase of 19,500,000 shares over the amount of authorized shares of
GoodNoise Preferred Stock.
The increase in authorized Preferred Stock will not have any immediate
effect on the rights of existing shareholders. However, the Board of Directors
will have the authority to issue authorized Preferred Stock without requiring
future shareholder approval of such issuances, except as may be required by
applicable law. To the extent that additional authorized shares are issued in
the future, they may decrease the existing shareholders' percentage equity
ownership and, depending on the price at which they are issued, could be
dilutive to the existing shareholders. The current holders of Common Stock and
GoodNoise Series B Preferred Stock have no preemptive rights.
The increase in the authorized number of shares of Preferred Stock, and the
subsequent issuance of such shares, could have the effect of deterring a
hostile of the Company without further action by the shareholders. Shares of
authorized and unissued Preferred Stock could (within the limits imposed by
applicable law) be issued with particular rights such as extraordinary voting
rights or liquidation preferences which may make it more difficult for a
hostile acquiror to gain control of the Company. Currently, the rules of the
Nasdaq Stock Market, on which the Company's Common Stock is listed, prohibit
the Company from issuing shares of its Common Stock without shareholder
approval for such issuance, if the issuance, among other things, (i) would
result in a change of control of the Company, (ii) in connection with an
acquisition of the stock or assets of another company, would result in the
newly issued stock having voting power equal to or in excess of 20% of the
voting power outstanding before the issuance or (iii) in connection with a
transaction other than a public offering, is at a price less than the greater
of book or market value and equals 20% or more of the voting power outstanding
before the issuance. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Common Stock and Preferred Stock and such additional
shares could be used to dilute the stock ownership or voting rights of a
person seeking to obtain control of the Company.
The additional shares of Preferred Stock to be authorized pursuant to this
proposal will have a par value per share of $0.001. The holders of the
GoodNoise Series B Preferred Stock hold certain preemptive rights relating to
such additional shares of Preferred Stock.
27
<PAGE>
The Board of Directors is not currently aware of any attempt to take over or
acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed amendment to increase the authorized Preferred Stock is
not prompted by any specific effort or takeover threat currently perceived by
management.
In the event this proposal is not approved by the requisite vote of the
shareholders or the Series B Approval is not obtained, the Delaware
Certificate will authorize the issuance of 500,000 Shares of Preferred Stock.
In the event this proposal is approved by the requisite vote of the
Shareholders and the Company obtains the Series B Approval, the Delaware
Certificate will authorize the issuance of 20,000,000 shares of Preferred
Stock.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the proposed provisions regarding the increase in
the number of shares of Preferred Stock authorized for issuance is in the best
interest of the shareholders and the Company for the reasons stated above.
Therefore, the Board of Directors unanimously recommends a vote FOR approval
of this proposal.
28
<PAGE>
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION TO
EFFECT NAME CHANGE
The Company is asking the stockholders to vote on a proposal to amend the
Company's Restated Articles of Incorporation (the "Articles") in order to
change the name of the Company to EMusic.com Inc. If the shareholders approve
PROPOSAL ONE and the Reincorporation is completed, this proposal will become
moot. However, if the Reincorporation is not completed, the Board of Directors
still unanimously recommends that the Company change its name and has approved
such an amendment to the Articles. The Company desires to change the name of
the Company from GoodNoise Corporation to EMusic.com Inc. to align the
Company's name with the principal name under which the Company is currently
doing business. Upon consummation of the proposed name change it will not be
necessary to surrender stock certificates. Instead, when certificates are
presented for transfer, new certificates bearing the name EMusic.com Inc. will
be issued. If there exists any circumstance which would make consummation of
the name change inadvisable in the judgment of the Board of Directors, the
proposal to amend the Articles may be terminated by the Board of Directors
either before or after approval of the name change by the shareholders.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal.
The Board believes that the proposed provisions regarding the change in the
Company's name is in the best interest of the shareholders and the Company for
the reasons stated above. Therefore, the Board of Directors unanimously
recommends a vote FOR approval of this proposal.
29
<PAGE>
PROPOSAL FOUR
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER
THE 1998 STOCK OPTION PLAN
General
The Company's 1998 Stock Option Plan (the "1998 Plan") became effective on
March 30, 1998. A reserve of 3,000,000 shares of GoodNoise Common Stock was
originally established for issuance under the 1998 Plan. In June, 1999,
subject to shareholder approval, the Board approved an increase in the number
of shares reserved for issuance under the 1998 Plan to 6,000,000 shares.
The Internal Revenue Code of 1986, as amended (the "Code") limits the amount
of compensation paid to a corporation's chief executive officer and four other
most highly compensated officers which may be deductible as an expense for
federal income tax purposes. To enable the Company to continue to deduct in
full all amounts of ordinary income recognized by its executive officers in
connection with options granted under the 1998 Plan, the Board of Directors
has amended the Option Plan, subject to shareholder approval, to limit to one
million the maximum number of shares for which options may be granted to any
employee in any fiscal year (the "Grant Limit"). However, the Company's stock
option grants typically do not approach this limit.
AT THE SPECIAL MEETING, THE SHAREHOLDERS ARE BEING REQUESTED TO RATIFY THE
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES AUTHORIZED UNDER THE 1998 PLAN
AND THE ESTABLISHMENT OF THE GRANT LIMIT. THE AFFIRMATIVE VOTE OF THE HOLDERS
OF A MAJORITY OF THE SHARES OF THE COMPANY'S CAPITAL STOCK PRESENT, OR
REPRESENTED AND ENTITLED TO VOTE AT THE MEETING, WILL BE REQUIRED TO RATIFY
THESE AMENDMENTS. THE BOARD OF DIRECTORS BELIEVES THAT THESE AMENDMENTS ARE
NECESSARY TO ENABLE THE COMPANY TO PROVIDE MEANINGFUL EQUITY INCENTIVES TO
ATTRACT, MOTIVATE AND RETAIN EMPLOYEES AND RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THESE AMENDMENTS.
Description of Plan
The following summary of the 1998 Plan is qualified in its entirety by the
specific language of the 1998 Plan.
General. The 1998 Plan provides for the discretionary grant of incentive
stock options within the meaning of section 422 of the Code as well as
nonstatutory stock options. In addition to the 1998 Plan, the Company
maintains the GoodNoise Corporation 1998 Nonstatutory Stock Option Plan (the
"Nonstatutory Plan") pursuant to which an aggregate of 5,000,000 shares of the
Company's Common Stock may be issued. The Nonstatutory Plan provides for the
grant of nonstatutory stock options to employees and consultants of the
Company (excluding officers and directors of the Company), and as of June 21,
1999, no options to purchase shares of Common Stock granted pursuant to the
Nonstatutory Plan had been exercised, options to purchase an aggregate of
3,280,500 shares were outstanding, and 719,500 shares of Common Stock remained
available for future grants under the Nonstatutory Plan,
Shares Subject to Plan. The shareholders have previously approved the
reservation of an aggregate of 3,000,000 shares of the Company's Common Stock
for issuance upon the exercise of options granted under the 1998 Plan. As of
June 21, 1999, a total of 2,946,750 shares were subject to outstanding options
granted under the 1998 Plan, 7,850 shares were available for future grant
under the 1998 Plan and options to purchase 45,400 shares of Common Stock
granted under the 1998 Plan had been exercised. As amended, the maximum number
of authorized but unissued or reacquired shares of GoodNoise Common Stock
available for issuance under the 1998 Plan has been increased, subject to
shareholder approval, to 6,000,000. Appropriate adjustments will be made to
the shares subject to the 1998 Plan, to the Grant Limit and to outstanding
options upon any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change
30
<PAGE>
in the capital structure of the Company. To the extent that any outstanding
option under the 1998 Plan expires or terminates prior to exercise in full,
the shares of Common Stock for which such option is not exercised are returned
to the 1998 Plan and become available for future grant. As restated, the 1998
Plan also provides that if shares issued upon exercise of an option are
repurchased by the Company, the repurchased shares are returned to the 1998
Plan and become available for future grant.
Administration. The 1998 Plan is administered by the Board of Directors or a
duly appointed committee of the Board (hereinafter referred to as the
"Board"). With respect to the participation of individuals whose transactions
in the Company's equity securities are subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the 1998 Plan must be administered
in compliance with the requirements of Rule 16b-3 under the Exchange Act, if
any. Subject to the provisions of the 1998 Plan, the Board determines the
persons to whom options are to be granted, the number of shares to be covered
by each option, whether an option is to be an incentive stock option or a
nonstatutory stock option, the timing and terms of exercisability of each
option or the vesting of shares acquired upon the exercise of an option,
including the effect thereon of an optionee's termination of service, the
exercise price of and the type of consideration to be paid to the Company upon
the exercise of each option, the duration of each option, and all other terms
and conditions of the options. The 1998 Plan also provides, subject to certain
limitations, for indemnification by the Company of any director, officer or
employee against all reasonable expenses, including attorneys' fees, incurred
in connection with any legal action arising from such person's action or
failure to act in administering the 1998 Plan. The Board will interpret the
1998 Plan and options granted thereunder, and all determinations of the Board
will be final and binding on all persons having an interest in the 1998 Plan
or any option.
Eligibility. The 1998 Plan permits the grant of options to employees,
consultants and directors of the Company or of any present or future parent or
subsidiary corporations of the Company. Options may also be granted to
prospective employees, consultants and directors in connection with written
offers of employment or engagement, provided that such options may not become
exercisable prior to the individual's commencement of service. If the Grant
Limit is approved, no employee may be granted options under the 1998 Plan to
purchase more than 1,000,000 shares during any fiscal year. As of June 21,
1999, the Company had approximately 60 employees, including 4 executive
officers, and 5 directors. While any person eligible under the 1998 Plan may
be granted a nonstatutory option, only employees may be granted incentive
stock options.
Terms and Conditions of Options. Each option granted under the 1998 Plan is
evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price per share of each incentive stock option granted under the 1998
Plan must equal at least the fair market value of a share of the Company's
Common Stock on the date of grant and the exercise price per share of each
nonstatutory stock option granted under the 1998 Plan must equal at least 85%
of the fair market value of a share of the Company's Common Stock on the date
of grant. The 1998 Plan provides that any option granted to a person who at
the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company (a "Ten Percent Shareholder") must have
an exercise price equal to at least 110% of the fair market value of a share
of Common Stock on the date of grant. As of June 21, 1999, the closing price
of a share of the Company's Common Stock as reported on the NADAQ National
Market System was $23 5/16.
The option exercise price may be paid in cash, by check, or in cash
equivalent, by the assignment of the proceeds of a sale or loan with respect
to some or all of the shares of Common Stock being acquired upon the exercise
of the option, by means of a promissory note, by any other lawful
consideration approved by the Board, or by any combination thereof. The Board
may nevertheless restrict the forms of payment permitted in connection with
any option grant. The 1998 Plan also authorizes the Company to withhold from
shares otherwise issuable upon the exercise of an option or to accept the
tender of shares of the Company's Common Stock in full or partial payment of
any tax withholding obligations.
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<PAGE>
Options granted under the 1998 Plan become exercisable and vested at such
times and subject to such conditions as specified by the Board. Generally,
options granted under the 1998 Plan become exercisable in installments over a
period of time specified by the Board at the time of grant, subject to the
optionee's continued service with the Company. The 1998 Plan provides that the
maximum term of an option is ten years, although an incentive stock option
granted to a Ten Percent Shareholder has a maximum term of five years. Options
are nontransferable by the optionee other than by will or by the laws of
descent and distribution, and are exercisable during the optionee's lifetime
only by the optionee.
Change in Control. The 1998 Plan provides that, in the event of a "Change in
Control" (as defined below), the acquiring or successor corporation may assume
the Company's rights and obligations under the outstanding options or
substitute substantially equivalent options for such corporation's stock. To
the extent that the options outstanding under the 1998 Plan are not assumed,
substituted for, or exercised prior to the Change in Control, they will
terminate. A "Change in Control" means any of the following events: (i) a sale
or exchange by the shareholders in a single or series of related transactions
of more than 50% of the Company's voting stock, (ii) a merger or consolidation
in which the Company is a party, (iii) the sale, exchange or transfer of all
or substantially all of the assets of the Company, or (iv) a liquidation or
dissolution of the Company wherein, upon any such event, the shareholders of
the Company immediately before such event do not retain, in substantially the
same proportions as their ownership of shares immediately before the
transaction, direct or indirect beneficial ownership of more than 50% of the
total combined voting power of the voting stock of the Company, its successor,
or the corporation to which the assets of the Company were transferred.
Termination or Amendment. The 1998 Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the 1998 Plan have been issued and all
restrictions on such shares under the terms of the 1998 Plan and the option
agreements have lapsed, provided that all options must be granted before March
29, 2008. The Board may terminate or amend the 1998 Plan at any time. However,
without shareholder approval, the Board may not adopt an amendment to the 1998
Plan which would increase the total number of shares of Common Stock issuable
thereunder, change the class of persons eligible to receive incentive stock
options, or otherwise require approval of the Company's shareholders under any
applicable law, regulation or rule. No amendment may adversely affect an
outstanding option without the consent of the optionee, unless the amendment
is required to preserve the option's status as an incentive stock option or is
necessary to comply with any applicable law.
Summary of United States Federal Income Tax Consequences
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the 1998 Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the exercise date and the
option exercise price (not to exceed the gain realized on the sale if the
disposition is a transaction with respect to which a loss, if sustained, would
be recognized) will be taxed as ordinary income at the time of disposition.
Any gain in excess of that amount will be a capital gain. If a loss is
recognized, there will be no ordinary income, and such loss will be a capital
loss. A capital gain or loss will be long-term if the optionee's holding
period is more than 12 months. Any ordinary income recognized by the optionee
upon the disqualifying disposition of the shares generally should be
deductible by the Company for federal income tax purposes, except to the
extent such deduction is limited by applicable provisions of the Code or the
regulations thereunder.
32
<PAGE>
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an incentive stock option is an
adjustment in computing the optionee's alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income
on a subsequent sale of the shares and certain tax credits which may arise
with respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no
taxable income as the result of the grant of such an option. Upon exercise of
a nonstatutory stock option, the optionee normally recognizes ordinary income
in the amount of the difference between the option exercise price and the fair
market value of the shares on the exercise date. If the optionee is an
employee, such ordinary income generally is subject to withholding of income
and employment taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between
the sale price and the fair market value on the exercise date, will be taxed
as capital gain or loss. A capital gain or loss will be long-term if the
optionee's holding period is more than 12 months. No tax deduction is
available to the Company with respect to the grant of a nonstatutory stock
option or the sale of the stock acquired pursuant to such grant. The Company
generally should be entitled to a deduction equal to the amount of ordinary
income recognized by the optionee as a result of the exercise of a
nonstatutory stock option, except to the extent such deduction is limited by
applicable provisions of the Code or the regulations thereunder.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to a vote at the Special Meeting of Shareholders, at which
a quorum representing a majority of all outstanding shares of Common Stock of
the Company is present and voting, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted present for purposes of
determining the presence of a quorum, but will not be counted as having been
voted on this proposal.
The board unanimously recommends a vote FOR approval of an increase in the
number of shares reserved for issuance under the 1998 Plan by 3,000,000 shares
and the establishment of the Grant Limit for the reasons stated above.
33
<PAGE>
PROPOSAL FIVE
APPROVAL OF THE GOODNOISE CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
General.
In June, 1999, the Board of Directors adopted the GoodNoise Corporation 1999
Employee Stock Purchase Plan (the "Purchase Plan"), subject to shareholder
approval, to become effective on the date on which it is approved by the
Company's shareholders. Under the Purchase Plan eligible employees may
purchase shares of the Company's common stock at a discount through payroll
deductions. A total of 250,000 shares of Common Stock will be reserved for
issuance under the Purchase Plan.
The Board of Directors believes that adopting the Purchase Plan will benefit
the Company since providing employees of the Company with an opportunity to
purchase shares of Common Stock pursuant to the Purchase Plan is helpful in
attracting, retaining, and motivating valued employees.
Description of the Purchase Plan.
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, the form of which is attached as
Appendix E.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each offering under the plan (an
"Offering") the right to purchase through accumulated payroll deductions up to
a number of shares of the Common Stock of the Company (a "Purchase Right")
determined on the first day of the Offering. The Purchase Right is
automatically exercised on the last day of each Offering unless the
participant has withdrawn from participation in the Purchase Plan prior to
such date.
Shares Subject to Plan. A maximum of 250,000 of the Company's authorized but
unissued or reacquired shares of Common Stock may be issued under the Purchase
Plan, subject to appropriate adjustment in the event of a stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the Company's capital structure or in
the event of any merger, sale of assets or other reorganization of the
Company. If any Purchase Right expires or terminates, the shares subject to
the unexercised portion of such Purchase Right will again be available for
issuance under the Purchase Plan.
Administration. The Purchase Plan is administered by the Board. Subject to
the provisions of the Purchase Plan, the Board determines the terms and
conditions of Purchase Rights granted under the plan. The Board will interpret
the Purchase Plan and Purchase Rights granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Purchase Plan or any Purchase Rights. The Purchase Plan
provides, subject to certain limitations, for indemnification by the Company
of any director, officer or employee against all reasonable expenses,
including attorney's fees, incurred in connection with any legal action
arising from such person's action or failure to act in administering the plan.
Eligibility. Any employee of the Company or of any present or future parent
or subsidiary corporation of the Company designated by the Board for inclusion
in the Purchase Plan is eligible to participate in an Offering under the
Purchase Plan, so long as the employee is customarily employed for at least 20
hours per week and 5 months per calendar year. However, no employee who owns
or holds options to purchase, or as a result of participation in the Purchase
Plan would own or hold options to purchase, five percent or more of the total
combined voting power or value of all classes of stock of the Company or of
any parent or subsidiary corporation of the Company is entitled to participate
in the Purchase Plan. As of June 21, 1999, approximately 60 employees would be
eligible to participate in the Purchase Plan.
34
<PAGE>
Offerings. Generally, each Offering under the Purchase Plan is for a period
of 6 months (an "Offering Period"). Offering Periods under the Purchase Plan
are sequential, with a new Offering Period beginning every six months. Shares
are purchased on the last day of each Offering ("Purchase Dates"). The Board
may establish the term for each Offering as well as the commencement and
ending dates for an Offering.
Participation and Purchase of Shares. Participation in the Purchase Plan is
limited to eligible employees who authorize payroll deductions prior to the
start of an Offering Period. Payroll deductions may not exceed 10% (or such
other rate as the Board determines) of an employee's compensation for any pay
period during the Offering Period. Once an employee becomes a participant in
the Purchase Plan, that employee will automatically participate in each
successive Offering Period until such time as that employee withdraws from the
Purchase Plan, becomes ineligible to participate in the Purchase Plan, or
terminates employment.
Subject to certain limitations, each participant in an Offering has a
Purchase Right equal to that number of whole shares determined by dividing the
participant's aggregate payroll deductions by the purchase price. However, no
participant may purchase more than 1,000 shares or any Purchase Date. In
addition, no participant may purchase shares under the Purchase Plan having a
fair market value exceeding $25,000 in any calendar year (measured by the fair
market value of the Company's Common Stock on the first day of the Offering
Period in which the shares are purchased).
At the end of each Offering Period, the Company issues to each participant
in the Offering the number of shares of the Company's Common Stock determined
by dividing the amount of payroll deductions accumulated for the participant
during that Offering Period by the purchase price, limited in any case by the
number of shares subject to the participant's Purchase Right for that
Offering. The price per share at which shares are sold at the end of an
Offering Period generally equals 85% of the lesser of the fair market value
per share of the Company's Common Stock on the first day of the Offering
Period or the Purchase Date. On June 21, 1999, the closing price of a share of
the Company's Common Stock was $23 5/16, as reported on the Nasdaq National
Market System. Any payroll deductions under the Purchase Plan not applied to
the purchase of shares will be returned to the participant, unless the amount
remaining is less than the amount necessary to purchase a whole share of
Common Stock, in which case the remaining amount may be applied to the next
Offering Period.
A participant may withdraw from an Offering at any time without affecting
his or her eligibility to participate in future Offerings. However, once a
participant withdraws from an Offering, that participant may not again
participate in the same Offering.
Change in Control. The Purchase Plan provides that, in the event of (i) a
sale or exchange by the shareholders of more than 50% of the Company's voting
stock, (ii) a merger or consolidation in which the Company is a party, (iii)
the sale, exchange or transfer of all or substantially all of the assets of
the Company, or (iv) a liquidation or dissolution of the Company wherein, upon
any such event, the shareholders of the Company immediately before such event
do not retain direct or indirect beneficial ownership of at least 50% of the
total combined voting power of the voting stock of the Company, its successor,
or the corporation to which the assets of the Company were transferred (a
"Change in Control"), the acquiring or successor corporation may assume the
Company's rights and obligations under the Purchase Plan or substitute
substantially equivalent Purchase Rights for such corporation's stock. If the
acquiring or successor corporation elects not to assume or substitute for the
outstanding Purchase Rights, the Board may adjust the last day of the Offering
Period to a date on or before the date of the Change in Control. Any Purchase
Rights that are not assumed, substituted for, or exercised prior to the Change
in Control will terminate.
Termination or Amendment. The Purchase Plan will continue until terminated
by the Board or until all of the shares reserved for issuance under the plan
have been issued. The Board may at any time amend or terminate the Purchase
Plan, except that the approval of the Company's shareholders is required
within twelve months of the adoption of any amendment increasing the number of
shares authorized for issuance under the Purchase Plan, or changing the
definition of the corporations which may be designated by the Board as
corporations the employees of which may participate in the Purchase Plan.
35
<PAGE>
Summary of Federal Income Tax Consequences of the Purchase Plan.
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
A participant recognizes no taxable income either as a result of commencing
to participate in the Purchase Plan or purchasing shares of the Company's
Common Stock under the terms of the Purchase Plan.
If a participant disposes of shares purchased under the Purchase Plan within
two years from the first day of the applicable Offering Period or within one
year from the Purchase Date (a "disqualifying disposition"), the participant
will realize ordinary income in the year of such disposition equal to the
amount by which the fair market value of the shares on the Purchase Date
exceeds the purchase price. The amount of the ordinary income will be added to
the participant's basis in the shares, and any additional gain or resulting
loss recognized on the disposition of the shares will be a capital gain or
loss. A capital gain or loss will be long-term if the participant's holding
period is more than 1 year.
If the participant disposes of shares purchased under the Purchase Plan at
least two years after the first day of the applicable Offering Period and at
least one year after the Purchase Date, the participant will realize ordinary
income in the year of disposition equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition over the purchase
price or (ii) 15% of the fair market value of the shares on the first day of
the applicable Offering Period. The amount of any ordinary income will be
added to the participant's basis in the shares, and any additional gain
recognized upon the disposition after such basis adjustment will be a long-
term capital gain. If the fair market value of the shares on the date of
disposition is less than the purchase price, there will be no ordinary income
and any loss recognized will be a long-term capital loss.
If the participant still owns the shares at the time of death, the lesser of
(i) the excess of the fair market value of the shares on the date of death
over the purchase price or (ii) 15% of the fair market value of the shares on
the first day of the Offering Period in which the shares were purchased will
constitute ordinary income in the year of death.
The Company should be entitled to a deduction in the year of a disqualifying
disposition equal to the amount of ordinary income recognized by the
participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed to the Company.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to a vote at the Special Meeting of Shareholders, at which
a quorum representing a majority of all outstanding shares of Common Stock of
the Company is present and voting, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted present for purposes of
determining the presence of a quorum, but will not be counted as having been
voted on this proposal.
The board unanimously recommends a vote FOR approval of the adoption of the
Purchase Plan with a reserve of 250,000 shares.
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<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 15, 1999,
with respect to the beneficial ownership of the Company's capital stock
(determined on an as converted to common stock basis) by (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
capital stock, (ii) each director of the Company, (iii) the Chief Executive
Officer and (iv) all current executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned(2)(3)
--------------------------------
Number of Percentage
Name and Address of Beneficial Owners(1) Shares of Class
- ---------------------------------------- --------------- ------------
<S> <C> <C>
Officers and Directors
Robert H. Kohn, Chairman of the Board and
Secretary................................... 2,979,500 19.0
Gene Hoffman, Jr., President, Chief Executive
Officer and Director........................ 3,658,000(4) 23.3
Ralph Peer, II, Director..................... 308,900(5) 2.0
Tor Braham, Director......................... 35,000(6) *
Eddie Rosenblatt, Director................... 200,000(7) 1.3
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A
GROUP....................................... 9,612,900(6)(7) 61.3
5% Stockholders
Citiventure 96 Partnership, L.P. ............ 1,627,100(6) 10.4
c/o Invesco Private Capital
Attn: Mark Radovanovich, CFO
1166 Avenue of the Americas, 2700
New York, NY 10036
</TABLE>
- --------
* Less than 1%
(1) Except as set forth herein the address of each beneficial owner set forth
in the table is 1991 Broadway, 2nd Floor, Redwood City, California 94063.
(2) Includes shares of Common Stock issuable upon the conversion of the
Company's Series B Preferred Stock. Except as indicated in the footnotes
to this table, the Company believes that the persons named in the table
have sole voting and dispositive power with respect to all shares of
Common Stock and/or Preferred Stock shown as beneficially owned by them,
subject to community property laws, where applicable.
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options.
Calculations of percentages of beneficial ownership assume the exercise by
only the respective named shareholders of all options for the purchase of
Common Stock held by such stockholder which are exercisable within 60 days
of June 15, 1999.
(4) Includes 400,000 shares for which Gene Hoffman has voting rights pursuant
to a voting agreement. Mr. Hoffman disclaims beneficiary ownership of such
shares except to the extent of his pecuniary interest therein.
(5) Includes 100,000 shares of Common Stock which are issuable upon currently
exercisable options. Includes 208,900 shares of Common Stock held by
peermusic III, Ltd., 61,400 of which are issuable upon conversion of
shares of Series B Preferred Stock. Mr. Peer disclaims beneficial
ownership of the shares held by peermusic III, Ltd. except to the extent
of his pecuniary interest therein.
(6) Represents shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock.
(7) Represents shares issuable upon the exercise of outstanding stock options.
37
<PAGE>
EXECUTIVE COMPENSATION
The Company began operations in January 1998. For the period from inception
through June 30, 1998, the compensation payable to Robert H. Kohn, Gene
Hoffman, Gary Culpepper and Joseph Howell (the only officers compensated
during such period) was $25,625, $31,250, $27,917 and $15,625, respectively.
Non-employee directors and members of the Advisory Panel to the Board served
without cash compensation.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the Board of Directors knows of no
other business that will be conducted at this meeting of shareholders other
than as described in this Proxy Statement. If any other matter or matters are
properly brought before the meeting, or any adjournment thereof, it is the
intention of the persons named in the accompanying form of Proxy to vote the
Proxy on such matters in accordance with their best judgment.
By Order of the Board of
Directors,
/s/ Robert H. Kohn
_______________________________
Robert H. Kohn,
Chairman of the Board and
Secretary
June 28, 1999
38
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of the day of July, 1999 by and between GoodNoise Corporation, a
Florida corporation ("GoodNoise"), and Emusic.com Inc., a Delaware corporation
("Sub").
WITNESSETH:
WHEREAS, Sub is a corporation duly organized and existing under the laws of
the State of Delaware, having its address at 1991 Broadway, 2nd Floor, Redwood
City, California, 94063;
WHEREAS, GoodNoise is a corporation duly organized and existing under the
laws of the State of Florida, having its address at 1991 Broadway, 2nd Floor,
Redwood City, California, 94063;
WHEREAS, on the date of this Merger Agreement, Sub has authority to issue
200,000,000 shares of Common Stock, par value $.001 per share (the "Sub Common
Stock"), of which shares are issued and outstanding and owned by
GoodNoise and 20,000,000 shares of Preferred Stock, par value $.001 per share
(the "Sub Preferred Stock"), of which 120,000 shares have been designated as
Series B Preferred Stock (the "Sub Series B Preferred Stock"), none of such
shares are issued and outstanding;
WHEREAS, as of June , 1999 (the "Record Date"), GoodNoise has authority to
issue (i) 200,000,000 shares of Common Stock, par value, $.01 per share (the
"GoodNoise Common Stock") of which shares are issued and outstanding and
(ii) 500,000 shares of Preferred Stock, par value $.01 per share, of which
120,000 shares have been designated as Series B Preferred Stock (the
"GoodNoise Series B Preferred Stock") and 117,570 of such shares are issued
and outstanding;
WHEREAS, the respective Boards of Directors for Sub and GoodNoise have
determined that, for the purpose of effecting the reincorporation of GoodNoise
in the State of Delaware, it is advisable and to the advantage of said two
corporations and their shareholders that GoodNoise merge with and into Sub
upon the terms and conditions herein provided; and
WHEREAS, the respective Boards of Directors of Sub and GoodNoise, the
shareholders of GoodNoise, and the sole stockholder of Sub have adopted and
approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, GoodNoise and Sub hereby agree to merge as follows:
1. Merger. GoodNoise shall be merged with and into Sub, and Sub shall
survive the merger ("Merger") effective upon the date when this Merger
Agreement is made effective in accordance with applicable law (the
"Effective Date").
2. Governing Documents. The Amended and Restated Certificate of
Incorporation of Sub shall be the Certificate of Incorporation of the
surviving corporation; and the Amended and Restated Bylaws of Sub shall be
the Bylaws of the Surviving corporation.
3. Directors and Officers. The directors and officers of GoodNoise shall
become the directors and officers of Sub upon the Effective Date.
4. Succession. On the Effective Date, Sub shall succeed to GoodNoise in
the manner of and as more fully set forth in Section 259 of the General
Corporation Law of the State of Delaware.
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5. Further Assurances. From time to time, as and when required by Sub or
by its successors and assigns, there shall be executed and delivered, on
behalf of GoodNoise, such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other action as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in Sub, the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of GoodNoise, and otherwise to carry out the purposes of this
Merger Agreement and the officers and directors of Sub are fully authorized
in the name and on behalf of GoodNoise or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
6. Stock of GoodNoise. Upon the Effective Date, by virtue of the Merger
and without any action on the part of the holder thereof, (i) each share of
GoodNoise Common Stock outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of Sub
Common Stock and (ii) each share of GoodNoise Series B Preferred Stock
outstanding immediately prior thereto shall be changed and converted into
one fully paid and nonassessable share of Sub Series B Preferred Stock.
7. Stock Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of
GoodNoise stock shall be deemed for all purposes to evidence ownership of
and to represent the shares of Sub stock into which the shares of GoodNoise
stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of Sub or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted
for to Sub or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of Sub stock evidenced by such
outstanding certificate as above provided.
8. Options. Upon the Effective Date, each outstanding option, warrant or
other right to purchase shares of GoodNoise stock, including those options
granted under the 1998 Stock Option Plan (the "1998 Plan") and the
Nonstatutory Stock Option Plan (the "Nonstatutory Plan") of GoodNoise,
shall be converted into and become an option, warrant or right to purchase
the same number of shares of Sub stock at a price per share equal to the
exercise price of the option, warrant or right to purchase GoodNoise stock
and upon the same terms and subject to the same conditions as set forth in
the 1998 Plan and the Nonstatutory Plan, respectively, and other agreements
entered into by GoodNoiise pertaining to such options, warrants or rights.
A number of shares of Sub stock shall be reserved for purposes of such
options, warrants and rights equal to the number of shares of GoodNoise
stock so reserved as of the Effective Date. As of the Effective Date, Sub
shall assume all obligations of GoodNoise under agreements pertaining to
such options, warrants and rights, including the 1998 Plan and Nonstatutory
Plan, and the outstanding options, warrants or other rights, or portions
thereof, granted pursuant thereto.
9. Other Employee Benefit Plans. As of the Effective Date, Sub hereby
assumes all obligations of GoodNoise under any and all employee benefit
plans in effect as of said date or with respect to which employee rights or
accrued benefits are outstanding as of said date.
10. Outstanding Common Stock of Sub. Forthwith upon the Effective Date,
all shares of Sub Common Stock presently issued and outstanding in the name
of GoodNoise shall be canceled and retired and resume the status of
authorized and unissued shares of Sub Common Stock, and no shares of Sub
Common Stock or other securities of Sub shall be issued in respect thereof.
11. Covenants of Sub. Sub covenants and agrees that it will, on or before
the Effective Date:
a. Qualify to do business as a foreign corporation in the State of
California, and in all other states in which GoodNoise is so qualified
and in which the failure so to qualify would have a material adverse
impact on the business or financial condition of Sub. In connection
therewith, Sub shall irrevocably appoint an agent for service of
process as required under the provisions of Section 2105 of the
California Corporations Code and under applicable provisions of state
law in other states in which qualification is required hereunder.
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b. File any and all documents with the Florida tax authorities
necessary to the assumption by Sub of all of the tax liabilities of
GoodNoise.
12. Book Entries. As of the Effective Date, entries shall be made upon
the books of Sub in accordance with the following:
a. The assets and liabilities of GoodNoise shall be recorded at the
amounts at which they were carried on the books of GoodNoise
immediately prior to the Effective Date, with appropriate adjustments
to reflect the retirement of the shares of Sub Common Stock presently
issued and outstanding.
b. There shall be credited to the capital stock of Sub the aggregate
amount of the par value of all shares of Sub stock resulting from the
conversion of the outstanding Sub Common Stock pursuant to the Merger.
c. There shall be credited to the capital surplus account of Sub the
aggregate of the amounts shown in the capital stock and capital surplus
accounts of GoodNoise immediately prior to the Effective Date, less the
amount credited to the common stock account of Sub pursuant to
Paragraph (b) above.
d. There shall be credited to the retained earnings account of Sub an
amount equal to that carried in the retained earning account of
GoodNoise immediately prior to the Effective Date.
13. Conditions. It shall be a condition precedent to the consummation of
the Merger and the other transactions contemplated by this Merger Agreement
that the shares of Sub Common Stock to be issued by Sub shall, upon
official notice of issuance, be listed on the Nasdaq National Market prior
to or on the Effective Date.
14. Amendment. At any time before or after approval and adoption by the
shareholders of GoodNoise, to the fullest extent permitted by Section
251(d) of the Delaware General Corporation Law, this Merger Agreement may
be amended in any manner as may be determined in the judgment of the
respective Boards of Directors of Sub and GoodNoise to be necessary,
desirable or expedient in order to clarify the intention of the parties
hereto or to effect or facilitate the purposes and intent of this Merger
Agreement.
15. Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either GoodNoise or Sub or both, notwithstanding approval of
this Merger Agreement by the sole stockholder of Sub and the shareholders
of GoodNoise.
16. Counterparts. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolution of the Board of Directors of GoodNoise and Sub, and subsequently
duly approved by resolution of the shareholders of GoodNoise and the sole
stockholder of Sub, is hereby adopted, approved, certified executed and
acknowledged on behalf of each of said two corporations by their respective
officers thereunto duly authorized.
GoodNoise Corporation, a Florida
corporation
By:
__________________________________
Gene Hoffman, Jr., President
ATTEST:
_________________________________
Robert H. Kohn, Secretary
Emusic.com Inc. a Delaware
corporation
By:
__________________________________
Gene Hoffman, Jr., President
ATTEST:
_________________________________
Robert H. Kohn, Secretary
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APPENDIX B
AMENDED AND RESTATED
BYLAWS OF EMUSIC.COM INC.
Article 1. Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time
to time by the Board of Directors or the President and Chief Executive Officer
or, if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President and Chief Executive Officer at the time and place
to be fixed by the Board of Directors or the President and stated in the
notice of the meeting. If no annual meeting is held in accordance with the
foregoing provisions, the Board of Directors shall cause the meeting to be
held as soon thereafter as convenient.
1.3 Special Meetings. Special meetings of Stockholders may be called at any
time only by the Board of Directors, the Chairman of the Board, the President
or the Chief Executive Officer.
1.4 Notice of Meetings. Written notice of each meeting of stockholders,
whether annual or special, shall be given not less than ten (10) nor more than
sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required by law (meaning here and hereafter, as required from
time to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and
hour of the meeting. The notice of a special meeting shall state, in addition,
the purpose or purposes for which the meeting is called. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the
corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting, and may be inspected by
any stockholder who is present. This list shall preemptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
1.6 Quorum. Except as otherwise provided by law or these Bylaws, the holders
of a majority of the shares of the capital stock of the corporation entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business. If a quorum shall fail to
attend any meeting, the chairman of the meeting or the holders of a majority
of the shares of stock entitled to vote who are present, in person or by
proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the holders of a majority of the shares of
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stock present or represented at the meeting and entitled to vote, although
less than a quorum, or, if no stockholder is present, by any officer entitled
to preside at or to act as Secretary of such meeting. When a meeting is
adjourned to another place, date or time, written notice need not be given of
the adjourned meeting if the place, date and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the date
of any adjourned meeting is more than thirty (30) days after the date for
which the meeting was originally noticed, or if a new record date is fixed for
the adjourned meeting, written notice of the place, date, and time of the
adjourned meeting shall be given in conformity herewith. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons
to vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile transmission or other reproduction
shall be a complete reproduction of the entire original writing or
transmission.
1.9 Action at Meeting. When a quorum is present at any meeting, any election
shall be determined by a plurality of the votes cast by the stockholders
entitled to vote at the election, and all other matters shall be determined by
a majority of the votes cast affirmatively or negatively on the matter (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, a majority of each such class present or
represented and voting affirmatively or negatively on the matter) shall decide
such matter, except when a different vote is required by express provision of
law, the Certificate of Incorporation or these Bylaws.
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by a stockholder entitled to vote or his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the
meeting. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting. The corporation may, and
to the extent required by law, shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
an alternate inspector to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability.
1.10 Notice of Stockholder Business. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(ii) properly brought before the meeting by or at the direction of the Board
of Directors, or (iii) properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder proposal to
be presented at an annual meeting shall be received at the Corporation's
principal executive offices not less than 120 calendar days in advance of the
date that the Corporation's (or the Corporation's predecessor's) proxy
statement was released to stockholders in connection with the previous year's
annual meeting of stockholders, except that if no annual meeting was held in
the previous year or the date of the annual meeting has been advanced by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, notice by the
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stockholders to be timely must be received not later than the close of
business on the tenth day following the day on which the date of the annual
meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the
annual meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
1.11 Conduct of Business. At every meeting of the stockholders, the Chairman
of the Board, if there is such an officer, or if not, the person appointed by
the Board of Directors, shall act as Chairman. The Secretary of the
corporation or a person designated by the Chairman of the meeting shall act as
Secretary of the meeting. Unless otherwise approved by the Chairman of the
meeting, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these Bylaws
to act by proxy, and officers of the corporation.
The Chairman of the meeting shall call the meeting to order, establish the
agenda, and conduct the business of the meeting in accordance therewith or, at
the Chairman's discretion, it may be conducted otherwise in accordance with
the wishes of the stockholders in attendance. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion
in general or on remarks by any one stockholder. Should any person in
attendance become unruly or obstruct the meeting proceedings, the Chairman
shall have the power to have such person removed from participation.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in
this Section 1.11 and Section 1.10 above. The Chairman of a meeting shall, if
the facts warrant, determine and declare to the meeting that any proposed item
of business was not brought before the meeting in accordance with the
provisions of this Section 1.11 and Section 1.10, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
1.12 No Stockholder Action Without Meeting. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders.
Article 2. Board of Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Term of Office. The number of directors shall initially be
five (5) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption). Upon the effective date of the Agreement
and Plan of Merger between the Corporation and Mattson Technology, Inc., a
California corporation (the "Effective Date"), the directors shall be divided
into three classes, with the term of office of the first class to expire at
the first annual meeting of stockholders held after the Effective Date; the
term of office of the second class to expire at the second annual meeting of
stockholders held after the Effective Date; the term
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of office of the third class to expire at the third annual meeting of
stockholders held after the Effective Date; and thereafter for each such term
to expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected and until their respective successors are elected, except in the
case of the death, resignation or removal of any director.
2.3 Vacancies and Newly Created Directorships. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (including removal
from office by a vote of the stockholders) may be filled only by a majority
vote of the directors then in office, though less than a quorum, and directors
so chosen shall hold office for a term expiring at the next annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
2.4 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.5 Regular Meetings. Regular meetings of the Board of Directors may be held
without notice at such time and place, either within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made
shall be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place
as the annual meeting of stockholders.
2.6 Special Meetings. Special meetings of the Board of Directors may be held
at any time and place, within or without the State of Delaware, designated in
a call by the Chairman of the Board, the President and Chief Executive
Officer, two or more directors, or by one director in the event that there is
only a single director in office.
2.7 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of
the directors calling the meeting. Notice shall be duly given to each director
(i) by giving notice to such director in person or by telephone or electronic
voice message system at least 24 hours in advance of the meeting, (ii) by
sending a telegram, telecopy or telex, or delivering written notice by hand,
to his last known business or home address at least 24 hours in advance of the
meeting, or (iii) by mailing written notice to his last known business or home
address at least three (3) day in advance of the meeting. A notice or waiver
of notice of a meeting of the Board of Directors need not specify the purposes
of the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
2.8 Participation in Meetings by Telephone Conference Calls. Directors or
any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.9 Quorum. A majority of the total number of authorized directors shall
constitute a quorum at any meeting of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum
at any such meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice other than announcement at
the meeting, until a quorum shall be present. Interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or at a meeting of a committee which authorizes a particular
contract or transaction.
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2.10 Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.11 Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board
or committee.
2.12 Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least a majority of the voting
power of all of the outstanding shares of capital stock entitled to vote
generally in the election of directors, voting together as a single class.
2.13 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of
the business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors
may from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these Bylaws for the
Board of Directors.
2.14 Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any director from serving the corporation or any of its parent
or subsidiary corporations in any other capacity and receiving compensation
for such service.
2.15 Nomination of Director Candidates. Subject to the rights of holders of
any class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled
to vote in the election of Directors generally. However, any stockholder
entitled to vote in the election of Directors generally may nominate one or
more persons for election as Directors at a meeting only if timely notice of
such stockholder's intent to make such nomination or nominations has been
given in writing to the Secretary of the Corporation. To be timely, a
stockholder nomination for a director to be elected at an annual meeting shall
be received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except
that if no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the
event of a nomination for director to be elected at a special meeting, notice
by the stockholders to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of the date
of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote for the election of directors on the date of
such notice and intends to appear in person or by proxy at the meeting to
nominate the person or persons
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specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of
each nominee to serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.15 and shall thereafter become unable or unwilling to
stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date
of the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.15 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines that
a nomination of any candidate for election as a Director at such meeting was
not made in accordance with the applicable provisions of this Section 2.15,
such nomination shall be void; provided, however, that nothing in this Section
2.15 shall be deemed to limit any voting rights upon the occurrence of
dividend arrearages provided to holders of Preferred Stock pursuant to the
Preferred Stock designation for any series of Preferred Stock.
Article 3. Officers
3.1 Enumeration. The officers of the corporation shall consist of a Chief
Executive Officer, a President, a Secretary, a Chief Financial Officer and
such other officers with such other titles as the Board of Directors shall
determine, including, at the discretion of the Board of Directors, a Chairman
of the Board, and one or more Vice Presidents and Assistant Secretaries. The
Board of Directors may appoint such other officers as it may deem appropriate.
3.2 Election. Officers shall be elected annually by the Board of Directors
at its first meeting following the annual meeting of stockholders. Officers
may be appointed by the Board of Directors at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more offices
may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in
the vote appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event. Any officer may be removed at any time, with or
without cause, by the Board of Directors.
3.6 Chairman of the Board. The Board of Directors may appoint a Chairman of
the Board. If the Board of Directors appoints a Chairman of the Board, he
shall perform such duties and possess such powers as are assigned to him by
the Board of Directors. Unless otherwise provided by the Board of Directors,
he shall preside at all meetings of the stockholders, and, if he is a
director, at all meetings of the Board of Directors.
3.7 Chief Executive Officer. The Chief Executive Officer shall, subject to
the direction of the Board of Directors, have responsibility for the general
management and control of the business and affairs of the Corporation and
shall perform all duties and have all powers which are commonly incident to
the office of chief executive or which are delegated to him or her by the
Board of Directors. The Chief Executive Officer shall
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perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe. He or she shall have power to sign
stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision and direction of all of the
other officers, employees and agents of the Corporation, other than the
Chairman of the Board.
3.8 President. Should there exist an office of President which is held by a
person other than the Chief Executive Officer and which differs from the
office of Chief Executive Officer, the President shall have the
responsibilities delegated to him or her by the Board of Directors.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the President, the Vice President (or if there shall be more
than one, the Vice Presidents in the order determined by the Board of
Directors) shall perform the duties of the Chief Executive Officer and when so
performing shall have at the powers of and be subject to all the restrictions
upon the Chief Executive Officer. The Board of Directors may assign to any
Vice President the title of Executive Vice President, Senior Vice President or
any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office
of the Secretary, including, without limitation, the duty and power to give
notices of all meetings of stockholders and special meetings of the Board of
Directors, to keep a record of the proceedings of all meetings of stockholders
and the Board of Directors, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess such powers as
the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate
a temporary secretary to keep a record of the meeting.
3.11 Chief Financial Officer. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform such duties and shall have such powers as may
from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer. In addition, the Chief Financial Officer shall perform such
duties and have such powers as are incident to the office of chief financial
officer, including without limitation, the duty and power to keep and be
responsible for all funds and securities of the corporation, to maintain the
financial records of the Corporation, to deposit funds of the corporation in
depositories as authorized, to disburse such funds as authorized, to make
proper accounts of such funds, and to render as required by the Board of
Directors accounts of all such transactions and of the financial condition of
the corporation.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 Delegation of Authority. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
Article 4. Capital Stock.
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
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corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall be
entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Chief
Financial Officer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable
securities laws or any agreement among any number of shareholders or among
such holders and the corporation shall have conspicuously noted on the face or
back of the certificate either the full text of the restriction or a statement
of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to
the corporation or its transfer agent of the certificate representing such
shares properly endorsed or accompanied by a written assignment or power of
attorney properly executed, and with such proof of authority or authenticity
of signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of
Incorporation or by the Bylaws, the corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect to such stock, regardless of any transfer, pledge or other disposition
of such stock until the shares have been transferred on the books of the
corporation in accordance with the requirements of these Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new
certificate of stock in place of any previously saved certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity
as the Board of Directors may require for the protection of the corporation or
any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, concession or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating to such
purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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Article 5. General Provisions.
5.1 Fiscal Year. The fiscal year of the corporation shall be as fixed by the
Board of Directors.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be given
by law, by the Certificate of Incorporation or by these Bylaws, a waiver of
such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy, telegraph, cable or
any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.4 Actions with Respect to Securities of Other Corporations. Except as the
Board of Directors may otherwise designate, the President or any officer of
the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution)
at any meeting of stockholders or shareholders (or with respect to any action
of stockholders) of any other corporation or organization, the securities of
which may be held by this corporation and otherwise to exercise any and all
rights and powers which this corporation may possess by reason of this
corporation's ownership of securities in such other corporation or other
organization.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Severability. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
5.8 Pronouns. All pronouns used in these Bylaws shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
5.9 Notices. Except as otherwise specifically provided herein or required by
law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram,
mailgram, telecopy or commercial courier service. Any such notice shall be
addressed to such stockholder, director, officer, employee or agent at his or
her last known address as the same appears on the books of the Corporation.
The time when such notice shall be deemed to be given shall be the time such
notice is received by such stockholder, director, officer, employee or agent,
or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the
mails or be telegram or mailgram.
5.10 Reliance Upon Books, Reports and Records. Each director, each member of
any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected
with reasonable care.
5.11 Time Periods. In applying any provision of these Bylaws which require
that an act be done or not done a specified number of days prior to an event
or that an act be done during a period of a specified number of
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days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
5.12 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Article 6. Amendments.
6.1 By the Board of Directors. Except as is otherwise set forth in these
Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 By the Stockholders. Except as otherwise set forth in these Bylaws,
these Bylaws may be altered, amended or repealed or new Bylaws may be adopted
by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the shares of the capital stock of the corporation issued
and outstanding and entitled to vote at any annual meeting of stockholders, or
at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new Bylaws shall have been stated in the
notice of such special meeting.
Article 7. Indemnification of Directors and Officers.
7.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by Delaware
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said Law permitted the
Corporation to provide prior to such amendment) against all expenses,
liability and loss reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 7.2 of this Article 7, the Corporation
shall indemnify any such person seeking indemnity in connection with an
action, suit or proceeding (or part thereof) initiated by such person only if
(a) such indemnification is expressly required to be made by law, (b) the
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation, (c) such indemnification is provided by the
Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Delaware General Corporation Law, or (d) the action,
suit or proceeding (or part thereof) is brought to establish or enforce a
right to indemnification under an indemnity agreement or any other statute or
law or otherwise as required under Section 145 of the Delaware General
Corporation Law. Such right shall be a contract right and shall include the
right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however that, unless
the Delaware General Corporation Law then so prohibits, the payment of such
expenses incurred by a director or officer of the Corporation in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is tendered by such person while a director or officer,
including, without limitation. service to an employee benefit plan) in advance
of the final disposition of such proceeding, shall be made only upon delivery
to the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified
under this Section or otherwise.
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7.2 Right of Claimant to Bring Suit. If a claim under Section 7.1 is not
paid in full by the Corporation within ninety (90) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if such suit is not frivolous or brought in bad faith, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other then an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation
to indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
7.3 Indemnification of Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of related expenses, to any employee
or agent of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification of and advancement of expenses to
directors and officers of the Corporation.
7.4 Non-Exclusivity of Rights. The rights conferred on any person in
Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5 Indemnification Contracts. The Board of Directors is authorized to enter
into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including employee benefit plans,
providing for indemnification rights equivalent to or, if the Board of
Directors so determines, greater than, those provided for in this Article 7.
7.6 Insurance. The Corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
7.7 Effect of Amendment. Any amendment, repeal or modification of any
provision of this Article 7 by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal
or modification.
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APPENDIX C
FORM OF DELAWARE INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 1999, is made by and between
Emusic.com Inc., a Delaware corporation (the "Company"), and (the
"Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of
corporations unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that
the exposure frequently bears no reasonable relationship to the compensation
of such directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors and
officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in
which the director, officer or agent received no personal profit and in cases
where the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or
its subsidiaries are often related to the knowledge, motives and intent of
such director, officer or agent, that he is usually the only witness with
knowledge of the essential facts and exculpating circumstances regarding such
matters, and that the long period of time which usually elapses before the
trial or other disposition of such litigation often extends beyond the time
that the director, officer or agent can reasonably recall such matters; and
may extend beyond the normal time for retirement for such director, officer or
agent with the result that he, after retirement or in the event of his death,
his spouse, heirs, executors or administrators, may be faced with limited
ability and undue hardship in maintaining an adequate defense, which may
discourage such a director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of Directors
of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and
agents of the Company and its subsidiaries and to encourage such individuals
to take the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents
in connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the
Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify
persons who serve, at the request of the Company, as the directors, officers,
employees or agents of other corporations or enterprises, and expressly
provides that the indemnification provided by Section 145 is not exclusive.
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H. The Company desires and has requested the Indemnitee to serve or continue
to serve as a director, officer or agent of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee or other agent
of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise; or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor
corporation of the Company or a subsidiary of the Company, or was a
director, officer, employee or agent of another enterprise at the request
of, for the convenience of, or to represent the interests of such
predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include all out
of pocket expenses costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements),
actually and reasonably incurred by the Indemnitee in connection with
either the investigation, defense or appeal of a proceeding or establishing
or enforcing a right to indemnification under this Agreement or Section 145
or otherwise; provided, however, that "expenses" shall not include any
judgments, fines, ERISA excise taxes or penalties, or amounts paid in
settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding" means
any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means any
corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an
agent of the Company, so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the Bylaws of the Company or
any subsidiary of the Company or until such time as he tenders his resignation
in writing; provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants and agrees
that, so long as the Indemnitee shall continue to serve as an agent of the
Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent
of the Company, the Company, subject to Section 3(c), shall promptly obtain
and maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and
reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the Indemnitee
shall be named as an insured in such a manner as to provide the Indemnitee
the same rights and benefits as are accorded to the most favorably insured
of the Company's directors, if the Indemnitee is a director; or of the
Company's
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officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a
director or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain
D&O Insurance if the Company determines in good faith that such insurance
is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided
by such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company shall
indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been successful
on the merits or otherwise in defense of any proceeding (including, without
limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of
the Company at any time, against all expenses of any type whatsoever
actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is
or was an agent of the Company, or by reason of anything done or not done
by him in any such capacity, the Company shall indemnify the Indemnitee
against any and all expenses and liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal
of such proceeding, provided the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Company and its stockholders, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of
the Company, or by reason of anything done or not done by him in any such
capacity, the Company shall indemnify the Indemnitee against all expenses
actually and reasonably incurred by him in connection with the
investigation, defense, settlement, or appeal of such proceeding, provided
the Indemnitee acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and its
stockholders; except that no indemnification under this subsection 4(c)
shall be made in respect to any claim, issue or matter as to which such
person shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction unless and only to the extent that the
court in which such proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a person
who was or is a party or is threatened to be made a party to any proceeding
by reason of the fact that he is or was an agent of the Company, or by
reason of anything done or not done by him in any such capacity, and if
prior to, during the pendency of after completion of such proceeding
Indemnitee becomes deceased, the Company shall indemnify the Indemnitee's
heirs, executors and administrators against any and all expenses and
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred to the extent Indemnitee would
have been entitled to indemnification pursuant to Sections 4(a), 4(b), or
4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be obligated to
indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually
made to Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
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5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a proceeding, but not entitled, however, to
indemnification for all of the total amount hereof, the Company shall
nevertheless indemnify the Indemnitee for such total amount except as to the
portion hereof to which the Indemnitee is not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to
which the Indemnitee is a party or is threatened to be made a party by reason
of the fact that the Indemnitee is or was an agent of the Company. Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall be determined ultimately that the Indemnitee is not entitled to
be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20)
days following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement, notify
the Company of the commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of a
proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance
in effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall
be entitled to assume the defense of such proceeding, with counsel approved
by the Indemnitee, upon the delivery to the Indemnitee of written notice of
its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to the Indemnitee under this Agreement for
any fees of counsel subsequently incurred by the Indemnitee with respect to
the same proceeding, provided that (i) the Indemnitee shall have the right
to employ his counsel in any such proceeding at the Indemnitee's expense;
and (ii) if (A) the employment of counsel by the Indemnitee has been
previously authorized by the Company, (B) the Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of any such defense; or (C) the
Company shall not, in fact, have employed counsel to assume the defense of
such proceeding, the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board, (iii) such indemnification is
provided by the Company, in its sole discretion, pursuant to the powers
vested in the Company under the General Corporation Law of Delaware or (iv)
the proceeding is brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145.
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(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be
unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both
as to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement
(other than an action brought to enforce a claim for expenses pursuant to
Section 6 hereof, provided that the required undertaking has been tendered to
the Company) that Indemnitee is not entitled to indemnification because of the
limitations set forth in Sections 4 and 8 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place.
13. Interpretation of Agreement. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions
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of the Agreement (including without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby, and (ii) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, all portions of any paragraph of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed
by certified or registered mail with postage prepaid, on the third business
day after the mailing date. Addresses for notice to either party are as shown
on the signature page of this Agreement, or as subsequently modified by
written notice.
17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each hereby
consent to the jurisdiction of the courts of the State of Delaware with
respect to any action or proceeding which arises out of or relates to this
Agreement.
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The parties hereto have entered into this Indemnity Agreement effective as of
the date first above written.
THE COMPANY:
EMUSIC.COM INC.
By __________________________________
Its _________________________________
Address: 1991 Broadway, 2nd Floor
Redwood City, California 94063
INDEMNITEE:
_____________________________________
[NAME]
Address: _____________________________________
_____________________________________
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APPENDIX D
DISSENTERS' RIGHTS
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.--The following definitions apply
to ss. 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on
which the corporation received written consents without a meeting from the
requisite number of shareholders in order to authorize the action, or in the
case of a merger pursuant to s. 706.1104, the day prior to the date on which a
copy of the plan of merger was mailed to each shareholder of record of the
subsidiary corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.--(1) Any shareholder has the
right to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporation actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s. 607.1104, and the shareholders would have been entitled to vote on
action taken, except for the applicability of s. 607.114;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed
to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his
shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of any of his
shares, when such exchange, cancellation, or reclassification would alter
or abolish his voting rights or alter his percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued dividends
or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable shares,
altering or abolishing any provision relating to any sinking fund for the
redeemable shares, altering or abolishing any provision relating to any
sinking fund or the redemption or purchase of any of his shares, or making
any of his shares subject to redemption when they are not otherwise
redeemable;
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5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(1) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is
entitled to dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in
paragraph (1)(e) has the right to dissent only as to those of his
shares which are adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined
as if the shares as to which he has dissented and his other shares were
registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share
exchange or a proposed sale or exchange of property, to the holders of
shares of any class or series which, on the record date fixed to
determine the shareholders entitled to vote as the meeting of
shareholders at which such action is to be acted upon or to consent to
any such action without a meeting, were either registered on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by not fewer than 2,000
shareholders.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.--(1)(a) If a proposed
corporate action creating dissenters' rights under s. 607.1320 is submitted to
a vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares.
Any shareholder failing to file such election to dissent within the period set
forth shall be bound by the terms of the proposed corporation action. Any
shareholder filing an election to dissent shall deposit his certificates for
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening
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dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is
not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the he shareholders' authorization date), the corporation shall make
a written offer to each dissenting shareholder who has made demand as provided
in this section to pay an amount the corporation estimates to be the fair
value for such shares. If the corporate action has not been consummated before
the expiration of the 90-day period after the shareholders' authorization
date, the offer may be made conditional upon the consummation of such action.
Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his shares shall be made within 90 days after the making
of such offer or the consummation the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder shall cease to
have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of
30 days thereafter, than the corporation within 30 days after receipt of
written demand from any dissenting shareholder given within 60 days after the
date on which such corporate action was effected, shall, or at its election at
any time within such period of 60 days may, file an action in any court of
competent jurisdiction in the county in this state where the registered office
of the corporation is located requesting that the fair value of such shares by
determined. The court shall also determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the
corporation fails to institute the proceedings herein provided, any dissenting
shareholder may do so in the name of the corporation. All dissenting
shareholders (whether or not residents of this state), other than shareholders
who have agreed with the corruption as to the value of their shares, shall be
made parties to the proceeding as an action against their shares. The
corporation shall serve a copy of the initial pleading in such proceeding upon
each dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint and upon each
nonresident dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The jurisdiction
of the court is plenary and exclusive. All shareholders who are proper parties
to the proceeding are entitled to judgment against the corporation for the
amount of the fair value of their shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall have such power
and authority as is specified in the order of their appointment or an
amendment thereof.
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The corporation shall pay each dissenting shareholder the amount found to be
due him within 10 days after final determination of the proceedings. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, of whom the corporation has made an offer to pay for the
shares, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such
expenses shall include reasonable compensation for, and reasonable expenses
of, the appraisers, but shall exclude the fees and expenses of counsel for,
and experts employed by, any party. If the fair value of the shares, as
determined, materially exceeds the amount which the corporation offered to pay
therefor or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court determines
to be reasonable compensation to any attorney or expert employed by the
shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of
such dissenting shareholders would have been converted had they assented to
the merger shall have the status of authorized but unissued shares of the
surviving corporation. (Last amended by Chi. 93-281, L. '93, Fe. 5-15-93.)
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APPENDIX E
GOODNOISE CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Establishment, Purpose and Term of Plan.
1.1 Establishment. This 1999 Employee Stock Purchase Plan (the "Plan") is
hereby established effective as of the date of its approval by the
shareholders of the Company.
1.2 Purpose. The purpose of the Plan is to advance the interests of Company
and its shareholders by providing an incentive to attract, retain and reward
Eligible Employees of the Participating Company Group and by motivating such
persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides such Eligible Employees with an opportunity
to acquire a proprietary interest in the Company through the purchase of
Stock. The Company intends that the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Code.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of its
termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued.
2. Definitions and Construction.
2.1 Definitions. Any term not expressly defined in the Plan but defined for
purposes of Section 423 of the Code shall have the same definition herein.
Whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "Board" means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.
(c) "Committee" means a committee of the Board duly appointed to administer
the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan
at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
(d) "Company" means GoodNoise Corporation, a Florida corporation, or any
successor corporation thereto.
(e) "Compensation" means, with respect to any Offering Period, base wages
or salary, commissions, overtime, bonuses, annual awards, other
incentive payments, shift premiums, and all other compensation paid in
cash during such Offering Period before deduction for any contributions
to any plan maintained by a Participating Company and described in
Section 401(k) or Section 125 of the Code. Compensation shall not
include reimbursements of expenses, allowances, long-term disability,
workers' compensation or any amount deemed received without the actual
transfer of cash or any amounts directly or indirectly paid pursuant to
the Plan or any other stock purchase or stock option plan, or any other
compensation not included above.
(f) "Eligible Employee" means an Employee who meets the requirements set
forth in Section 5 for eligibility to participate in the Plan.
(g) "Employee" means a person treated as an employee of a Participating
Company for purposes of Section 423 of the Code. A Participant shall be
deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the
Plan, an individual shall not be deemed to have ceased to
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be an Employee while such individual is on any military leave, sick
leave, or other bona fide leave of absence approved by the Company of
ninety (90) days or less. In the event an individual's leave of absence
exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless
the individual's right to reemployment with the Participating Company
Group is guaranteed either by statute or by contract. The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective
date of such individual's employment or termination of employment, as
the case may be. For purposes of an individual's participation in or
other rights, if any, under the Plan as of the time of the Company's
determination, all such determinations by the Company shall be final,
binding and conclusive, notwithstanding that the Company or any
governmental agency subsequently makes a contrary determination.
(h) "Fair Market Value" means, as of any date, if there is then a public
market for the Stock, the closing price of a share of Stock (or the
mean of the closing bid and asked prices if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
Market or such other national or regional securities exchange or market
system constituting the primary market for the Stock, as reported in
The Wall Street Journal or such other source as the Company deems
reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date
on which the Fair Market Value shall be established shall be the last
day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its
discretion. If, as of any date, there is then no public market for the
Stock, the Fair Market Value on any relevant date shall be as
determined by the Board.
(i) "Offering" means an offering of Stock as provided in Section 6.
(j) "Offering Date" means, for any Offering, the first day of the Offering
Period with respect to such Offering.
(k) "Offering Period" means a period established in accordance with Section
6.1.
(l) "Parent Corporation" means any present or future "parent corporation"
of the Company, as defined in Section 424(e) of the Code.
(m) "Participant" means an Eligible Employee who has become a participant
in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "Participating Company" means the Company or any Parent Corporation or
Subsidiary Corporation designated by the Board as a corporation the
Employees of which may, if Eligible Employees, participate in the Plan.
The Board shall have the sole and absolute discretion to determine from
time to time which Parent Corporations or Subsidiary Corporations shall
be Participating Companies.
(o) "Participating Company Group" means, at any point in time, the Company
and all other corporations collectively which are then Participating
Companies.
(p) "Purchase Date" means the last day of an Offering Period (or Purchase
Period, if so determined by the Board).
(q) "Purchase Period" means a period, if any, established in accordance
with Section 6.2.
(r) "Purchase Price" means the price at which a share of Stock may be
purchased under the Plan, as determined in accordance with Section 9.
(s) "Purchase Right" means an option granted to a Participant pursuant to
the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the
right of a Participant to withdraw any accumulated payroll deductions
of the Participant not previously applied to the purchase of Stock
under the Plan and to terminate participation in the Plan at any time
during an Offering Period.
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(t) "Stock" means the common stock of the Company, as adjusted from time to
time in accordance with Section 4.2.
(u) "Subscription Agreement" means a written agreement in such form as
specified by the Company, stating an Employee's election to participate
in the Plan and authorizing payroll deductions under the Plan from the
Employee's Compensation.
(v) "Subscription Date" means the last business day prior to an Offering
Date or such other date as the Company shall establish.
(w) "Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
2.2 Construction. Captions and titles contained herein are for convenience
only and shall not affect the meaning or interpretation of any provision of
the Plan. Except when otherwise indicated by the context, the singular shall
include the plural and the plural shall include the singular. Use of the term
"or" is not intended to be exclusive, unless the context clearly requires
otherwise.
3. Administration.
3.1 Administration by the Board. The Plan shall be administered by the
Board. All questions of interpretation of the Plan, of any form of agreement
or other document employed by the Company in the administration of the Plan,
or of any Purchase Right shall be determined by the Board and shall be final
and binding upon all persons having an interest in the Plan or the Purchase
Right. Subject to the provisions of the Plan, the Board shall determine all of
the relevant terms and conditions of Purchase Rights granted pursuant to the
Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 Policies and Procedures Established by the Company. The Company may,
from time to time, consistent with the Plan and the requirements of Section
423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number
of changes permitted in the rate of payroll deduction during an Offering, (c)
an exchange ratio applicable to amounts withheld in a currency other than
United States dollars, (d) a payroll deduction greater than or less than the
amount designated by a Participant in order to adjust for the Company's delay
or mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements of Section 423 of the Code, and (e) determination of the date and
manner by which the Fair Market Value of a share of Stock is determined for
purposes of administration of the Plan.
4. Shares Subject to Plan.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in
Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be two hundred and fifty thousand (250,000), and
shall consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires
or is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the
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Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall
be made in the number and class of shares subject to the Plan and each
Purchase Right and in the Purchase Price. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Purchase
Rights are exchanged for, converted into, or otherwise become (whether or not
pursuant to an Ownership Change Event) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Purchase Rights to
provide that such Purchase Rights are exercisable for New Shares. In the event
of any such amendment, the number of shares subject to, and the Purchase Price
of, the outstanding Purchase Rights shall be adjusted in a fair and equitable
manner, as determined by the Board, in its sole discretion. Notwithstanding
the foregoing, any fractional share resulting from an adjustment pursuant to
this Section 4.2 shall be rounded down to the nearest whole number, and in no
event may the Purchase Price be decreased to an amount less than the par
value, if any, of the stock subject to the Purchase Right. The adjustments
determined by the Board pursuant to this Section 4.2 shall be final, binding
and conclusive.
5. Eligibility.
5.1 Employees Eligible to Participate. Each Employee of a Participating
Company is eligible to participate in the Plan and shall be deemed an Eligible
Employee, except the following:
(a) Any Employee who is customarily employed by the Participating Company
Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the Participating Company
Group for not more than five (5) months in any calendar year.
5.2 Exclusion of Certain Shareholders. Notwithstanding any provision of the
Plan to the contrary, no Employee shall be granted a Purchase Right under the
Plan if, immediately after such grant, such Employee would own or hold options
to purchase stock of the Company or of any Parent Corporation or Subsidiary
Corporation possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of such corporation, as determined in
accordance with Section 423(b)(3) of the Code. For purposes of this Section
5.2, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of such Employee.
6. Offerings.
6.1 Offering Periods. The Plan shall be implemented by sequential Offerings
(an "Offering Period"). The first Offering Period shall commence on the August
1, 1999 and end on January 31, 2000 (the "Initial Offering Period").
Subsequent Offerings shall commence on the first day of February and August of
each year and end on the last day of July and January, respectively, occurring
thereafter, and will have a duration of approximately six (6) months.
6.2 Purchase Periods. If the Board so determines, in its discretion, each
Offering Period may consist of two (2) or more consecutive Purchase Periods
having such duration as the Board shall specify, and the last day of each such
Purchase Period shall be a Purchase Date.
6.3 Discretion to Vary Duration. Notwithstanding the foregoing, the Board
may establish a different duration for one or more Offering Periods or
Purchase Periods or different commencing or ending dates for such periods;
provided, however, that no Offering Period may have a duration exceeding
twenty-seven (27) months. If the first or last day of an Offering Period or a
Purchase Period is not a day on which the national securities exchanges or
Nasdaq Stock Market are open for trading, the Company shall specify the
trading day that will be deemed the first or last day, as the case may be, of
the period.
7. Participation in the Plan.
7.1 Initial Participation. An Eligible Employee may become a Participant in
an Offering Period by delivering a properly completed Subscription Agreement
to the Company not later than the close of business for
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such office on the Subscription Date established by the Company for the
applicable Offering Date. An Eligible Employee who does not deliver a properly
completed Subscription Agreement to the Company's designated office on or
before the Subscription Date shall not participate in that Offering Period or
any subsequent Offering Period unless such Eligible Employee subsequently
delivers a properly completed Subscription Agreement to the appropriate office
of the Company on or before the Subscription Date for such subsequent Offering
Period. An Employee who becomes an Eligible Employee after the Offering Date
of an Offering Period (other than the Initial Offering Period) shall not be
eligible to participate in such Offering Period but may participate in any
subsequent Offering Period provided such Employee is still an Eligible
Employee as of the Offering Date of such subsequent Offering Period.
7.2 Continued Participation. A Participant shall automatically participate
in the next Offering Period commencing immediately after the final Purchase
Date of each Offering Period in which the Participant participates provided
that such Participant remains an Eligible Employee on the Offering Date of the
new Offering Period and has not either (a) withdrawn from the Plan, or (b)
terminated employment as provided in Section 13. A Participant who may
automatically participate in a subsequent Offering Period, as provided in this
Section, is not required to deliver any additional Subscription Agreement for
the subsequent Offering Period in order to continue participation in the Plan.
However, a Participant may deliver a new Subscription Agreement for a
subsequent Offering Period in accordance with the procedures set forth in
Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement.
8. Right to Purchase Shares.
8.1 Grant of Purchase Right. Except as set forth below, on the Offering Date
of each Offering Period, each Participant in such Offering Period shall be
granted automatically, on the Offering Date, a Purchase Right consisting of an
option to purchase, on each Purchase Date within such Offering Period, that
number of whole shares of Stock determined by dividing the aggregate payroll
deductions collected from the Participant by the applicable Purchase Price on
such Purchase Date; provided, that no Participant may purchase more than one
thousand (1,000) shares of Stock on any Purchase Date.
8.2 Calendar Year Purchase Limitation. Notwithstanding any provision of the
Plan to the contrary, no Participant shall be granted a Purchase Right which
permits his or her right to purchase shares of Stock under the Plan to accrue
at a rate which, when aggregated with such Participant's rights to purchase
shares under all other employee stock purchase plans of a Participating
Company intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other
limit, if any, as may be imposed by the Code) for each calendar year in which
such Purchase Right is outstanding at any time. For purposes of the preceding
sentence, the Fair Market Value of shares purchased during a given Offering
Period shall be determined as of the Offering Date for such Offering Period.
The limitation described in this Section shall be applied in conformance with
applicable regulations under Section 423(b)(8) of the Code.
9. Purchase Price.
The Purchase Price at which each share of Stock may be acquired in an
Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period
or (b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering
Period, the Purchase Price for that Offering Period shall be eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock
on the Offering Date of the Offering Period, or (b) the Fair Market Value of a
share of Stock on the Purchase Date.
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10. Accumulation of Purchase Price through Payroll Deduction.
Shares of Stock acquired pursuant to the exercise of all or any portion of a
Purchase Right may be paid for only by means of payroll deductions from the
Participant's Compensation accumulated during the Offering Period for which
such Purchase Right was granted, subject to the following:
10.1 Amount of Payroll Deductions. Except as otherwise provided herein, the
amount to be deducted under the Plan from a Participant's Compensation on each
payday during an Offering Period (after the Offering Date) shall be determined
by the Participant's Subscription Agreement. The Subscription Agreement shall
set forth the percentage of the Participant's Compensation to be deducted on
each payday during an Offering Period (after the Offering Date) in whole
percentages of not less than one percent (1%) (except as a result of an
election pursuant to Section 10.3 to stop payroll deductions made effective
following the first payday during an Offering after the Offering Date) or more
than ten percent (10%). Notwithstanding the foregoing, the Board may change
the limits on payroll deductions effective as of any future Offering Date.
10.2 Commencement of Payroll Deductions. Payroll deductions shall commence
on the first payday following the Offering Date and shall continue to the end
of the Offering Period unless sooner altered or terminated as provided herein.
10.3 Election to Change or Stop Payroll Deductions. During an Offering
Period, a Participant may elect to increase or decrease the rate of or to stop
deductions from his or her Compensation by delivering to the Company an
amended Subscription Agreement authorizing such change on or before the
"Change Notice Date." The "Change Notice Date" shall be a date prior to the
beginning of the first pay period for which such election is to be effective
as established by the Company from time to time and announced to the
Participants. A Participant who elects to decrease the rate of his or her
payroll deductions to zero percent (0%) shall nevertheless remain a
Participant in the current Offering Period unless such Participant withdraws
from the Plan as provided in Section 12.1.
10.4 Administrative Suspension of Payroll Deductions. The Company may, in
its sole discretion, suspend a Participant's payroll deductions under the Plan
as the Company deems advisable to avoid accumulating payroll deductions in
excess of the amount that could reasonably be anticipated to purchase the
maximum number of shares of Stock permitted during a calendar year under the
limit set forth in Section 8.2. Payroll deductions shall be resumed at the
rate specified in the Participant's then effective Subscription Agreement at
the beginning of the next Offering Period the Purchase Date of which falls in
the following calendar year.
10.5 Participant Accounts. Individual bookkeeping accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such Participant's Plan account and shall be
deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
10.6 No Interest Paid. Interest shall not be paid on sums deducted from a
Participant's Compensation pursuant to the Plan.
10.7 Voluntary Withdrawal from Plan Account. A Participant may withdraw all
or any portion of the payroll deductions credited to his or her Plan account
and not previously applied toward the purchase of Stock by delivering to the
Company a written notice on a form provided by the Company for such purpose. A
Participant who withdraws the entire remaining balance credited to his or her
Plan account shall be deemed to have withdrawn from the Plan in accordance
with Section 12.1. Amounts withdrawn shall be returned to the Participant as
soon as practicable after the withdrawal and may not be applied to the
purchase of shares in any Offering under the Plan. The Company may from time
to time establish or change limitations on the frequency of withdrawals
permitted under this Section, establish a minimum dollar amount that must be
retained in the Participant's Plan account, or terminate the withdrawal right
provided by this Section.
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11. Purchase of Shares.
11.1 Exercise of Purchase Right. On each Purchase Date, each Participant who
has not withdrawn from the Plan and whose participation in the Offering has
not terminated before such Purchase Date shall automatically acquire pursuant
to the exercise of the Participant's Purchase Right the number of whole shares
of Stock determined by dividing (a) the total amount of the Participant's
payroll deductions accumulated in the Participant's Plan account during the
Offering Period and not previously applied toward the purchase of Stock by (b)
the Purchase Price. No shares of Stock shall be purchased on a Purchase Date
on behalf of a Participant whose participation in the Offering or the Plan has
terminated before such Purchase Date.
11.2 Pro Rata Allocation of Shares. In the event that the number of shares
of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
11.3 Delivery of Certificates. As soon as practicable after each Purchase
Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of
the Participant. Shares to be delivered to a Participant under the Plan shall
be registered in the name of the Participant, or, if requested by the
Participant, in the name of the Participant and his or her spouse, or, if
applicable, in the names of the heirs of the Participant.
11.4 Return of Cash Balance. Any cash balance remaining in a Participant's
Plan account following any Purchase Date shall be refunded to the Participant
as soon as practicable after such Purchase Date. However, if the cash to be
returned to a Participant pursuant to the preceding sentence is an amount less
than the amount that would have been necessary to purchase an additional whole
share of Stock on such Purchase Date, the Company may retain such amount in
the Participant's Plan account to be applied toward the purchase of shares of
Stock in the subsequent Offering Period (or Purchase Period, if applicable).
11.5 Tax Withholding. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some
or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount
necessary to meet such withholding obligations.
11.6 Expiration of Purchase Right. Any portion of a Participant's Purchase
Right remaining unexercised after the end of the Offering Period to which the
Purchase Right relates shall expire immediately upon the end of the Offering
Period.
11.7 Reports to Participants. Each Participant who has exercised all or part
of his or her Purchase Right shall receive, as soon as practicable after the
Purchase Date, a report of such Participant's Plan account setting forth the
total payroll deductions accumulated prior to such exercise, the number of
shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.
12. Withdrawal from Plan.
12.1 Voluntary Withdrawal from the Plan. A Participant may withdraw from the
Plan by signing and delivering to the Company a written notice of withdrawal
on a form provided by the Company for such purpose. Such withdrawal may be
elected at any time prior to the end of an Offering Period. A Participant who
voluntarily
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withdraws from the Plan is prohibited from resuming participation in the Plan
in the same Offering from which he or she withdrew, but may participate in any
subsequent Offering by again satisfying the requirements of Sections 5 and
7.1. The Company may impose a requirement that the notice of withdrawal from
the Plan be on file with the Company for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.2 Return of Payroll Deductions. Upon a Participant's voluntary withdrawal
from the Plan pursuant to Section 12.1, the Participant's accumulated payroll
deductions which have not been applied toward the purchase of shares of Stock
shall be refunded to the Participant as soon as practicable after the
withdrawal, without the payment of any interest, and the Participant's
interest in the Plan shall terminate. Such accumulated payroll deductions to
be refunded in accordance with this Section may not be applied to any other
Offering under the Plan.
13. Termination of Employment or Eligibility.
Upon a Participant's ceasing, prior to a Purchase Date, to be an Employee of
the Participating Company Group for any reason, including retirement,
disability or death, or the failure of a Participant to remain an Eligible
Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the
Participant's death, to the Participant's legal representative, and all of the
Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned pursuant to this Section 13. A Participant whose
participation has been so terminated may again become eligible to participate
in the Plan by again satisfying the requirements of Sections 5 and 7.1.
14. Change in Control.
14.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred if any of
the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions
by the shareholders of the Company of more than fifty percent (50%) of
the voting stock of the Company; (ii) a merger or consolidation in
which the Company is a party; (iii) the sale, exchange, or transfer of
all or substantially all of the assets of the Company; or (iv) a
liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event or a series
of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in
substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the Transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the
total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the
Company were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial
ownership shall include, without limitation, an interest resulting from
ownership of the voting stock of one or more corporations which, as a
result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to
determine whether multiple sales or exchanges of the voting stock of
the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
14.2 Effect of Change in Control on Purchase Rights. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may assume the Company's rights and obligations under the Plan.
If the Acquiring Corporation elects not to assume the Company's rights and
obligations under outstanding Purchase Rights, the Purchase Date of the then
current Offering Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall
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not be adjusted. All Purchase Rights which are neither assumed by the
Acquiring Corporation in connection with the Change in Control nor exercised
as of the date of the Change in Control shall terminate and cease to be
outstanding effective as of the date of the Change in Control.
15. Nontransferability of Purchase Rights.
A Purchase Right may not be transferred in any manner otherwise than by will
or the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.
16. Compliance with Securities Law.
The issuance of shares under the Plan shall be subject to compliance with
all applicable requirements of federal, state and foreign law with respect to
such securities. A Purchase Right may not be exercised if the issuance of
shares upon such exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock
may then be listed. In addition, no Purchase Right may be exercised unless (a)
a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the
Purchase Right may be issued in accordance with the terms of an applicable
exemption from the registration requirements of said Act. The inability of the
Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company's legal counsel to be necessary to the lawful
issuance and sale of any shares under the Plan shall relieve the Company of
any liability in respect of the failure to issue or sell such shares as to
which such requisite authority shall not have been obtained. As a condition to
the exercise of a Purchase Right, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company.
17. Rights as a Shareholder and Employee.
A Participant shall have no rights as a shareholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company).
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date such certificate is issued, except
as provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or
interfere in any way with any right of the Participating Company Group to
terminate the Participant's employment at any time.
18. Legends.
The Company may at any time place legends or other identifying symbols
referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present
to the Company any and all certificates representing shares acquired pursuant
to a Purchase Right in the possession of the Participant in order to carry out
the provisions of this Section. Unless otherwise specified by the Company,
legends placed on such certificates may include but shall not be limited to
the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO
THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY
THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED
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HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)."
19. Notification of Sale of Shares.
The Company may require the Participant to give the Company prompt notice of
any disposition of shares acquired by exercise of a Purchase Right within two
(2) years from the date of granting such Purchase Right or one (1) year from
the date of exercise of such Purchase Right. The Company may require that
until such time as a Participant disposes of shares acquired upon exercise of
a Purchase Right, the Participant shall hold all such shares in the
Participant's name (or, if elected by the Participant, in the name of the
Participant and his or her spouse but not in the name of any nominee) until
the lapse of the time periods with respect to such Purchase Right referred to
in the preceding sentence. The Company may direct that the certificates
evidencing shares acquired by exercise of a Purchase Right refer to such
requirement to give prompt notice of disposition.
20. Notices.
All notices or other communications by a Participant to the Company under or
in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. Indemnification.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan, or any
right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is
liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
22. Amendment or Termination of the Plan.
The Board may at any time amend or terminate the Plan, except that (a) such
termination shall not affect Purchase Rights previously granted under the
Plan, provided that the Board may terminate the Plan (and any Offering
thereunder) on any Purchase Date if the Board determines that such termination
is in the best interests of the Company and its shareholders except as
permitted under the Plan, and (b) no amendment may adversely affect a Purchase
Right previously granted under the Plan (except to the extent permitted by the
Plan or as may be necessary to qualify the Plan as an employee stock purchase
plan pursuant to Section 423 of the Code or to obtain qualification or
registration of the shares of Stock under applicable federal, state or foreign
securities laws). In addition, an amendment to the Plan must be approved by
the shareholders of the Company within twelve (12) months of the adoption of
such amendment if such amendment would authorize the sale of more shares than
are authorized for issuance under the Plan or would change the definition of
the corporations that may be designated by the Board as Participating
Companies.
E-10
<PAGE>
PROXY
GOODNOISE CORPORATION
1991 Broadway, 2nd Floor, Redwood City, California 94063
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This undersigned hereby appoints Robert H. Kohn and Gene Hoffman, Jr. (the
"Proxies"), and each of them, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and vote as designated below,
all the shares of Common Stock of GoodNoise Corporation (the "Company") held of
record by the undersigned on June 21, 1999, at the Special Meeting of
Shareholders to be held on July 16, 1999 or any adjournment thereof.
1. To approve the reincorporation of the Company in the State of Delaware and
other related changes to the Company's charter and rights of shareholders.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
2. To approve certain additional anti-takeover measures under the Delaware
Charter Documents as follow:
A. To approve the elimination of cumulative voting for the election of
directors.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
B. To approve a classified board of directors removable only for cause.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
C. To approve the elimination of action by written consent.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
D. To approve certain limitations on the ability to call special meetings.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
E. To approve super-majority vote requirements for certain amendments to the
Delaware Charter Documents.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
F. To increase the number of shares of Preferred Stock of the Company
authorized for issuance from 500,000 shares to 20,000,000 shares.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
3. To approve an amendment to the Company's Restated Articles of Incorporation
to Emusic.com Inc.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
4. To approve an increase in the number of shares reserved for issuance under
the Company's 1998 Stock Option Plan by 3,000,000 shares.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
5. To approve the adoption of the Company's 1999 Employee Stock Purchase Plan.
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
6. To transact such other business as may properly come before the meeting.
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, the Proxy will be
voted FOR Proposals 1, 2, 3, 4 and 5.
Please sign exactly as your name ap-
pears on your stock certificates.
When shares are held by joint ten-
ants, both should sign. When signing
as an attorney, as executor, admin-
istrator, trustee or guardian,
please give your full title. If a
corporation, please sign in full
corporate name, by President or
other authorized officer. If a part-
nership, please sign in partnership
name by authorized person.
Dated: _________________________ 1999
-------------------------------------
Signature
-------------------------------------
Signature if held jointly
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
URGED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO
EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
