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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-35664
The Resale of
2,340,898 Shares
[LOGO OF EMUSIC.COM INC.]
Common Stock
The selling price will be determined by market factors at
the time of their resale
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This prospectus relates to the resale by the selling stockholders of up to
2,340,898 shares of common stock. The selling stockholders may sell the stock
from time to time at the prevailing market price or in negotiated transactions.
Of the shares offered:
. up to 2,135,259 shares are presently outstanding and were issued in
connection with the acquisition of CDuctive.com Inc., formerly known as
Group K Inc., d.b.a. CDuctive; and
. up to 205,639 shares are issuable upon the exercise of common stock
purchase warrants and options issued in connection with the acquisition
of CDuctive.com Inc.
We will receive no proceeds from the sale of the shares by the selling
stockholders. However, we have received proceeds from the sale of shares
currently outstanding.
Our common stock is listed on the Nasdaq National Market under the symbol
"EMUS." On April 20, 2000, the last reported sale price of the common stock on
the Nasdaq National Market was $2.3125 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 3.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is May 12, 2000.
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Table of Contents
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Page
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Risk Factors............................................................... 3
About EMusic............................................................... 14
Use of Proceeds............................................................ 14
Selling Stockholders....................................................... 15
Description of Common Stock................................................ 21
Plan of Distribution....................................................... 22
Legal Matters.............................................................. 24
Experts.................................................................... 24
Where You Can Find More Information About Us............................... 24
Documents Incorporated by Reference........................................ 25
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Prior to June 1999, we operated under the name GoodNoise Corporation. Our
executive offices are located at 1991 Broadway, 2nd Floor, Redwood City,
California 94063, and our telephone number is (650) 216-0200. Our website can
be found at EMusic.com. Our website does not constitute part of this
prospectus.
"EMusic" is a registered trademark of EMusic.com Inc. and the EMusic logo is a
trademark of EMusic.com Inc. All other trademarks or tradenames referred to in
this prospectus are the property of their respective owners.
As used in this prospectus, the terms "we," "us," "our" "the Company" and
"Emusic" mean EMusic.com Inc. and the term "common stock" means our common
stock, par value $0.001 per share.
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Risk Factors
Investing in our common stock involves a high degree of risk. You should
carefully consider the following factors and other information contained in
this prospectus before deciding to invest in our stock.
Any of the following risks, if they actually occur, could materially and
adversely affect our business, financial condition or results of operations. In
such an event, the trading price of our common stock could decline, and you
could lose all or part of your investment.
We have a new and unproven business model and it may not generate sufficient
revenue for our business to survive or be successful.
Our model for conducting business and generating revenues is new and unproven
and if it fails to develop as we plan, our business may not succeed. Our
business model depends upon our ability to generate revenue streams from
multiple sources through our website, including:
. online sales of downloadable music;
. website advertising fees from third parties;
. licensing of musical recordings for use by others; and
. online sales of music-related merchandise.
It is uncertain whether a music-based website such as ours, that relies on
attracting people to purchase and download music, mostly from lesser-known
artists, can generate sufficient revenues to survive. This business model may
not succeed or it may not be sustainable as our business grows.
In order for our business to be successful, we must not only develop services
that directly generate revenue, but also provide content and services that
attract consumers to our website frequently. We will need to develop new
offerings as consumer preferences change and new competitors emerge. We may not
be able to provide consumers with an acceptable blend of products, services,
and informational and community offerings that will attract consumers to our
website frequently. We provide many of our products and services without
charge, and we may not be able to generate sufficient revenue to pay for these
products and services. Accordingly, we are not certain that our business model
will be successful or that we can sustain revenue growth or be profitable.
We are competing in a new market that may not develop sufficiently to support
our business.
The market for online music promotion and distribution is new and rapidly
evolving. As a result, demand and market acceptance for our products and
services are subject to a high degree of uncertainty and risk. We are
attempting to capitalize on a talent pool of artists underserved by the
traditional recording industry. Consumers may not continue to be interested in
listening to, or purchasing music from, these artists. If this new market fails
to develop, develops more slowly than expected or becomes saturated with
competitors, or our products and services do not achieve or sustain market
acceptance, we may not generate sufficient revenues to become profitable.
The future popularity of downloadable music will depend on consumer acceptance
of downloading music generally. We believe that consumer acceptance is, in
part, dependent on the availability of portable devices to store and play this
music. To the extent that devices are not available at affordable prices, or
consumer acceptance or distribution of these portable devices is delayed, our
potential market, and thus our ability to increase our revenues, may be
reduced.
We have a limited operating history that makes an evaluation of our business
difficult.
We were incorporated in January 1998. During 1998, our operating activities
consisted largely of developing the infrastructure necessary to download music
on the Internet. Our limited operating history makes it difficult
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to evaluate our current business and prospects. As a result of our limited
operating history, we do not have meaningful historical financial data upon
which to forecast quarterly revenues and results of operations. Before
investing in us, you should evaluate the risks, expenses and problems
frequently encountered by companies such as ours that are in the early stages
of development.
We have incurred substantial losses to date and we expect net losses in the
future.
From inception through December 31, 1999, we had a deficit accumulated during
the development stage of approximately $77,348,000. We expect substantial net
losses and negative cash flow for the foreseeable future. We believe it is
critical to our long-term success that we continue to develop "EMusic" brand
awareness and loyalty through marketing and promotion, expand our artist and
consumer networks, develop our online content and expand our other services. We
expect that our operating expenses will increase significantly during the next
several years, especially in sales and marketing. With increased expenses, we
will need to generate significant additional revenues to achieve profitability.
As a result, we may never achieve profitability and, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability.
Our quarterly revenues and operating results are subject to fluctuation which
may result in volatility or a decline in the price of our stock.
We believe that period-to-period comparisons of our operating results are not
meaningful and should not be relied upon as indicators of future performance.
Our quarterly operating results are likely to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control, including:
. the demand for downloadable music content and Internet advertising;
. the addition or loss of advertisers;
. the level of traffic on our Internet sites;
. the amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
. the introduction of new sites and services by us or our competitors;
. seasonal trends in Internet use, purchases of downloadable music, and
advertising placements;
. price competition or pricing changes in the industry;
. technical difficulties or system downtime; and
. general economic conditions, and economic conditions specific to the
Internet and Internet media.
In addition, while our revenues may vary significantly, a portion of our
expenses are fixed. As a result, any decrease in revenues will not be
accompanied by a decrease in our fixed operating expenses and our operating
results will suffer. Our quarterly results may also be significantly impacted
by the accounting treatment of acquisitions, financing transactions or other
matters. Particularly at our early stage of development, such accounting
treatment can have a material impact on the results for any quarter. Because of
these and other factors it is likely that our operating results will fall below
expectations in some future quarter and the trading price of our stock may
drop.
Shares eligible for future sale in the open market may depress our stock price.
As of March 31, 2000, there were approximately 43,000,000 shares of common
stock outstanding, substantially all of which were tradable without restriction
under the Securities Act or pursuant to the registration statement of which
this prospectus is a part or other currently effective registration statements.
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Our stock price has been and may continue to be volatile.
Our common stock is currently traded on the Nasdaq National Market under the
ticker symbol "EMUS." There can be no assurance that an active trading market
will be sustained in the future. In addition to fluctuations in our operating
results, the following factors could cause the price of our securities to be
volatile:
. development of the downloadable music market;
. technological innovations;
. legal developments with respect to copyright law and downloadable music;
. new products;
. acquisitions or strategic alliances entered into by us or our
competitors;
. failure to meet securities analysts' expectations;
. government regulatory action;
. patent or proprietary rights developments; and
. market conditions for internet and technology stocks in general.
If our brand name is not accepted, our ability to attract content and customers
to our website will be harmed.
During the quarter ended June 30, 1999, we began to operate under the name
EMusic.com Inc. and launched a marketing campaign to establish the brand name
"EMusic." We believe that establishing and maintaining the EMusic brand is a
critical aspect of our efforts to attract and expand our Internet audience and
acquire new content and that the importance of brand recognition will increase
due to the growing number of Internet sites and the relatively low barriers to
entry in providing Internet content. We intend to incur significant expenses in
our brand building efforts. If these efforts do not generate increased revenues
our operating results will suffer. If we are unable to provide high quality
content or otherwise fail to promote and maintain our brand, our business will
be harmed.
If we are unable to maintain or expand our contracts for music content, or if
the content we license does not sell, our popularity and business may suffer.
We believe that a primary draw to our website is the ability to access music
from known artists and independent record labels. Currently, we have exclusive
multi-year contracts for much of our music library. However, if we are unable
to sign contracts for new content, or if we are unable to extend the terms of
existing contracts as they expire, our website may fail to attract new, or
retain existing, customers which would harm our business.
For much of the content we license, we pay advances against future royalties
which will be owed on sale of the content. If the content we license does not
sell in sufficient quantities, we may not be able to recover all or part of the
advances we have paid and our business could be harmed.
We rely on a third party for the hosting of our website and if this hosting
service becomes unavailable, our customers will not be able to access our
website.
We currently rely on a third party which hosts our website at a single location
in Sunnyvale, California. We currently do not maintain a redundant website. If
for any reason our current website hosting services become unavailable or if
our hosting service experiences technical problems, customers will not be able
to access our website until these services are restored or until we are able to
make arrangements with an alternate provider.
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If we fail to adequately manage our growth, we may not be successful as we may
miss market opportunities.
We expect the scope of our operations and the number of our employees to grow
rapidly. In particular, we intend to hire additional engineering, sales,
marketing, content acquisition and administrative personnel. Additionally,
acquisitions could increase our employee headcount and business activity. We
expect our rapid growth to continue to place significant stress on our
technology, operations, management and employee base. Any failure to
successfully address the needs of our growing enterprise would harm our
business.
Our technology systems must be expanded and enhanced for our business to grow.
In order to support a growing business, we will need to continue to enhance and
expand the technology infrastructure which supports our business. We have
recently converted our central database to a new database based upon technology
licensed from Oracle Corporation and we expect to implement a new accounting
system in the first half of calendar year 2000. As our business continues to
grow, we will need to add additional servers and other hardware and software
systems as well as additional sites for website hosting. If we fail to
successfully implement these new and enhanced systems, our operations could be
disrupted, we may become less competitive, our revenues could be reduced and we
may need to incur additional costs to address these issues.
We may have difficulty executing acquisitions and integrating the acquired
companies into our business.
Our business strategy includes entering into strategic alliances and acquiring
complementary businesses, technologies, content or products. In January 1999,
we completed the acquisition of Creative Fulfillment, Inc.; in June 1999, we
completed the acquisition of Internet Underground Music Archive; in December
1999, we completed the acquisition of CDuctive.com Inc.; and in February 2000,
we completed the acquisition of Tunes.com Inc. These and any other future
acquisitions involve risks commonly encountered in acquisitions of companies,
including:
. exposure to unknown liabilities of acquired companies;
. incurring acquisition costs and expenses in excess of what we
anticipated;
. the occurrence of fluctuations in our quarterly and annual operating
results due to the costs and expenses of acquiring and integrating new
businesses or technologies;
. experiencing difficulties and expenses in assimilating the operations and
personnel of the acquired businesses;
. disruption of our ongoing business and diversion of our management's time
and attention;
. a possible inability to integrate successfully or to complete the
development and application of acquired technology and a possible failure
to achieve the anticipated financial, operating, and strategic benefits
from these acquisitions;
. experiencing difficulties in establishing and maintaining uniform
standards, controls, procedures, and policies;
. impairment of our relationships with key employees and customers of
acquired businesses or the loss of these key employees and customers as a
result of changes in management and ownership of the acquired businesses;
and
. acquisitions using the purchase method of accounting, which may result in
goodwill, creating amortization charges in future periods.
In addition, our shareholders may be diluted if the consideration for future
acquisitions consists of equity securities. We may not overcome these risks or
any other problems encountered in connection with acquisitions. If we are
unsuccessful in doing so, our business could be harmed.
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We expect competition to increase significantly in the future and we may not be
able to compete successfully.
The market for the online promotion and distribution of music and music-related
products and services is new, highly competitive and rapidly changing. The
number of websites on the Internet competing for the attention and spending of
consumers, users and advertisers has increased, and we expect it to continue to
increase, because there are few barriers to entry to Internet commerce. In
addition, the competition for advertising revenues, both on Internet websites
and in more traditional media, is intense. Currently, there are more than one
hundred music retailing websites on the Internet. We face competitive pressures
from numerous actual and potential competitors.
Most of the major record label companies have announced initiatives with
respect to the sale of downloadable music or that they expect to make
announcements of their plans soon. If we are unable to obtain licenses to sell
or otherwise distribute content from major record label companies, our ability
to increase our sales will be limited to the our ability to obtain licenses
from the independent record label segment of the music market, which has
historically represented approximately 20% of the total music market. To the
extent that other companies are able to obtain rights to content from major
label companies, such companies may have a significant competitive advantage
over the Company.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of our current and
potential competitors in the Internet and music entertainment businesses may
have substantial competitive advantages relative to us, including:
. longer operating histories;
. significantly greater financial, technical and marketing resources;
. greater brand name recognition;
. larger existing customer bases; and
. more popular content or artists.
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and devote greater resources
to the development, promotion, and sale of their products or services than we
can. Websites maintained by our existing and potential competitors may be
perceived by consumers, artists, talent management companies and other music-
related vendors or advertisers as being superior to ours. In addition, we may
not be able to maintain or increase our website traffic levels, purchase
inquiries and number of click-throughs on our online advertisement. Further,
our competitors may experience greater growth in these areas than we do.
Increased competition could result in advertising price reduction, reduced
margins or loss of market share, any of which could harm our business.
We may need to obtain additional funds to execute our business plan and if we
are unable to obtain such funds, we will not be able to expand our business as
planned.
We believe that our existing capital resources will be sufficient to fund our
operating activities, capital expenditures and other obligations through the
next 12 months. However, unless we raise additional capital, we may need to
reduce the scope of certain of our activities. In addition, we may need to
raise additional funds in order to:
. finance unanticipated working capital requirements, including additional
working capital required as a result of acquisitions;
. develop or enhance existing services or products;
. fund distribution relationships;
. advertise to build global brand recognition;
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. respond to competitive pressures; or
. acquire complementary businesses, technologies, content or products.
Additional financing may not be available on terms favorable to us, or at all.
If adequate funds are not available or are not available on acceptable terms,
our ability to fund our expansion, take advantage of unanticipated
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited. If we raise additional
funds by issuing equity or convertible debt securities, the percentage
ownership of our then existing stockholders will be reduced, and these
securities may have rights, preferences or privileges senior to those of our
stockholders.
Our business is dependent on the continued development and maintenance of the
Internet and the availability of increased bandwidth to consumers.
The success of our business will depend largely on the development and
maintenance of the Internet infrastructure. This includes maintenance of a
reliable network with the necessary speed, data capacity and security, as well
as timely development of complementary products such as high speed modems, for
providing reliable Internet access and services. Because global commerce on the
Internet and the online exchange of information is new and evolving, we cannot
predict whether the Internet will prove to be a viable commercial marketplace
in the long term.
The success of our business will rely on the continued improvement of the
Internet as a convenient means of consumer interaction and commerce, as well as
an efficient medium for the delivery and distribution of music. Our business
will depend on the ability of our artists and consumers to continue to upload
and download mp3 and other music file formats, as well as to conduct commercial
transactions with us, without significant delays or aggravation that may be
associated with decreased availability of Internet bandwidth and slower access
to our website. Our penetration of a broader consumer market will depend, in
part, on continued proliferation of high speed Internet access. Even compressed
in mp3 format, a typical three minute song file can occupy more than three
megabytes of storage space. This file could take approximately seven minutes to
download over a conventional 56 kbps modem compared to less than one minute
over an xDSL or cable modem.
The Internet has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic. As the
Internet continues to experience increased numbers of users, increased
frequency of use and increased bandwidth requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
increases in users or bandwidth requirements may harm the performance of the
Internet. The Internet has experienced a variety of outages and other delays as
a result of damage to portions of its infrastructure, and it could face outages
and delays in the future. This might include outages and delays resulting from
denial of service problems such as those recently experienced by major Internet
sites, such as Yahoo!. These outages and delays could reduce the level of
Internet usage as well as the level of traffic, and could result in the
Internet becoming an inconvenient or uneconomical source of music and music-
related products and services. The infrastructure and complementary products or
services necessary to make the Internet a viable commercial marketplace for the
long term may not be developed successfully or in a timely manner. Even if
these products or services are developed, the Internet may not become a viable
commercial marketplace for the products or services that we offer.
We must maintain and establish strategic alliances to increase our customer
base and enhance our business.
In an attempt to increase our customer base and traffic on our website, build
brand recognition, attract paid advertising and enhance content, distribution
and commerce opportunities, we have entered into agreements with various media,
hardware device and Internet-related companies such as: America OnLine, Yahoo!,
and RealNetworks. Our failure to maintain or renew our existing strategic
alliances or to establish and capitalize on new strategic alliances could harm
our business. Our future success depends to a significant extent upon the
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success of such alliances. Moreover, we are substantially dependent on our
ability to advertise on other Internet sites and the willingness of the owners
of other sites to direct users to our Internet sites through hypertext links.
We may not achieve the strategic objectives of these alliances, and parties to
strategic alliance agreements with us may not perform their obligations as
agreed upon. Such agreements also may not be specifically enforceable by us. In
addition, some of our strategic alliances are short term in nature and may be
terminated by either party on short notice. The termination or impairment of
these strategic alliances could reduce our ability to attract new customers.
Our success depends on our retention of key personnel.
Our performance is substantially dependent on the services of Robert H. Kohn,
our chairman, and Gene Hoffman, Jr., our chief executive officer, as well as on
our ability to recruit, retain and motivate other officers and key employees.
Competition for qualified personnel is intense and there are a limited number
of persons with knowledge of and experience in the Internet and music
entertainment industries. The loss of the services of any of our officers or
senior managers could harm our business.
We may not be able to hire and retain a sufficient number of qualified
employees to grow our business as planned.
Our future success will depend on our ability to attract, train, retain and
motivate other highly skilled technical, managerial, marketing and customer
support personnel. Competition for these personnel is intense, especially for
engineers, web designers and advertising sales personnel, and we may be unable
to successfully attract sufficiently qualified personnel. A large percentage of
our employees joined us in 1999 and we expect that our rate of hiring will
continue at a very rapid pace. To manage the expected growth of our operations,
we will need to integrate these employees into our business. Our inability to
hire, integrate and retain qualified personnel in sufficient numbers may reduce
the quality of our programs, products and services, and could harm our
business. In addition, companies in the Internet and music industries whose
employees accept positions with competitive companies frequently claim that
their competitors have engaged in unfair hiring practices. We may be subject to
claims in the future as we seek to hire qualified personnel and those claims
may result in material litigation involving EMusic. Even if unsuccessful, these
claims could harm our business by damaging our reputation, requiring us to
incur legal costs and diverting management's attention away from our business.
Security concerns regarding credit card or other confidential information
transmitted over the web could limit our growth and subject us to liability.
A significant barrier to e-commerce and communications over the Internet has
been the need for secure transmission of confidential information over public
networks. Internet usage may not increase at the rate we expect unless some of
these concerns are adequately addressed and found acceptable by the market.
Internet usage could also decline if any well publicized compromise of security
occurred. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. Protections
against security breaches may not be available at a reasonable price or at all.
If a third party were able to circumvent our security measures and
misappropriate our users' personal information, it may cause interruptions to
our retail website operation, damage our reputation or subject us to claims by
users. Any compromise of confidential data during transmission over the
Internet may harm our business.
Any failure of our internal security measures could cause us to lose customers
and subject us to liability.
Our business is dependent on maintaining a database of confidential user
information, including credit card numbers. If the security measures that we
use to protect personal information are ineffective, we may lose customers and
our business would be harmed. We rely on security and authentication technology
licensed from third parties. With this technology, we perform real-time credit
card authorization and verification. We cannot predict whether new
technological developments could allow these security measures to be
circumvented. In addition, our software, databases and servers may be
vulnerable to computer viruses, physical or electronic
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break-ins and similar disruptions. We may need to spend significant resources
to protect against security breaches or to alleviate problems caused by any
breaches and we may not be able to prevent all security breaches.
Our intellectual property protection may be inadequate, and any loss or
reduction in intellectual property protection may harm our business.
Our intellectual property includes our trademarks and copyrights, proprietary
software, and other proprietary rights. We believe that our intellectual
property is important to our success and our competitive position, and we try
to protect it. However, our efforts to protect our intellectual property could
be inadequate. Use of the "EMusic" name by others could dilute our brand
identity and confuse the market. In addition, our ability to conduct our
business may be harmed if others claim we violate their intellectual property
rights. For example, Sightsound.com, Inc. and intouch group Inc. have asserted
that many online music providers, including EMusic, violate patent rights that
they allegedly owns covering the sale of music over the Internet through
digital downloads. If successful, these claims, or similar claims by others,
could seriously harm our business by forcing us to cease using intellectual
property that we depend on to operate our business. Even if unsuccessful, these
claims could harm our business by damaging our reputation, requiring us to
incur legal costs and diverting management's attention away from our business.
Government regulation may require us to change the way we do business.
Laws and regulations directly applicable to Internet communications, commerce
and advertising are becoming more prevalent. The United States Congress has
enacted Internet laws regarding children's privacy, copyrights and taxation.
Such legislation could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
advertising medium. Although our transmissions originate in California, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently enacted its own privacy regulations that may result in
limits on the collection and use of certain user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel and taxation apply to the Internet and Internet advertising. In addition,
the growth and development of the market for Internet commerce may prompt calls
for more stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on companies conducting business
over the Internet. Furthermore, the Federal Trade Commission has recently
investigated the disclosure of personal identifying information obtained from
individuals by Internet companies. Evolving areas of law that are relevant to
our business include privacy law, proposed encryption laws, content regulation
and sales and use tax. For example, changes in copyright law could require us
to change the manner in which we conduct business or increase our costs of
doing business. In addition, currently pending litigation involving copyright
infringement claims brought against MP3.com and Napster may result in decisions
which have a significant impact on our business. If the unlicensed distribution
of music is held to be lawful, our ability to sell music could be materially
harmed. Because of this rapidly evolving and uncertain regulatory environment,
we cannot predict how these laws and regulations might affect our business. In
addition, these uncertainties make it difficult to ensure compliance with the
laws and regulations governing the Internet. These laws and regulations could
harm us by subjecting us to liability or forcing us to change how we do
business. In the event the Federal Trade Commission or other governmental
authorities adopt or modify laws or regulations applicable to our business,
including those relating to the Internet and copyright matters, our business
could be harmed.
We may have liability for content on our website and liability for other
materials which we distribute.
We may be liable to third parties for content on our website and any other
materials we distribute if:
. the music, text, graphics or other content on our website violates their
copyright, trademark, or other intellectual property rights;
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. our artists or labels violate their contractual obligations to others by
providing content on our website; or
. content we distribute is deemed obscene, defamatory or excessively
violent.
We may also be subject to these types of liability for content that is
accessible from our website through links to other websites.
Liability or alleged liability for content or other materials could harm our
business by damaging our reputation, requiring us to incur legal costs in
defense, exposing us to significant awards of damages, fines and costs and
could divert management's attention away from our business. In particular, in
addition to civil damages, liability for violations of copyright law currently
can result in penalties of up to $10,000 per occurrence.
Imposition of sales and other taxes on e-commerce transactions may impair our
ability to derive financial benefits from e-commerce.
Except for sales of tangible merchandise into certain states, we do not collect
sales or other taxes on sales of our products through our websites. Although
the Internet Tax Freedom Act precludes, for a period of three years ending
October 2001, the imposition of state and local taxes that discriminate against
or single out the Internet, it does not currently impact existing taxes.
However, one or more states may seek to impose sales tax collection obligations
on out-of-state companies such as us, which engage in or facilitate online
commerce. A number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through
the Internet. Such proposals, if adopted, could substantially impair the growth
of electronic commerce and could adversely affect our opportunity to derive
financial benefit from electronic commerce. Moreover, if any state or foreign
country were to successfully assert that we should collect sales or other taxes
on the exchange of merchandise on its system, it could affect our cost of doing
business.
We may have difficulty expanding into international markets which could limit
the growth of our business.
Our future growth and success will depend in part on our ability to generate
international sales. There can be no assurance, however, that we will be
successful in generating international sales of our products. Sales to
customers in certain international countries may be subject to a number of
risks, including: currency exchange rate risk; the risks that agreements may be
difficult or impossible to enforce and receivables difficult to collect through
an international country's legal system; foreign customers may have longer
payment cycles; or foreign countries could impose withholding taxes or
otherwise tax our foreign income, impose tariffs, embargoes, or exchange
controls, or adopt other restrictions on foreign trade. In addition, the laws
of certain countries do not protect our offerings and intellectual property
rights to the same extent as the laws of the United States. If we fail to
compete successfully or to expand the distribution of our offerings in
international markets the growth of our business could be limited.
Development of new standards for the electronic delivery of music may threaten
our business.
We currently rely on mp3 technology as a delivery method for the digital
distribution of music. Mp3 is an open standard adopted by the Moving Picture
Experts Group for the compression of audio files. We do not own or control mp3
technology and are dependent upon a license to obtain rights to certain patents
relating to the technology. The onset of competing industry standards for the
electronic delivery of music could significantly affect the way we operate our
business as well as the public's perception of EMusic as a company. For
example, in December 1998, the major recording studios announced a plan to
develop a universal standard for the electronic delivery of music, called the
Secured Digital Music Initiative. If new standards are developed and adopted by
consumers, we may not be able to obtain a license to such technology on
favorable terms or at all and our business could be harmed. Even if new
standards are not developed, delays with respect to proposed standards, such as
those which have occured with respect to SDMI, can cause confusion in the
marketplace, slow the development of the market for downloadable music and
otherwise harm our business.
11
<PAGE>
Mp3 technology is controversial within certain segments of the traditional
music industry and we may face continued opposition to our use of mp3 which may
slow market development and harm our business.
Certain segments of the traditional music industry have not embraced the
development of the mp3 format to deliver music, in part because users of mp3
technology can download and distribute unauthorized or "pirated" copies of
copyrighted recorded music over the Internet. We believe that our success is
largely dependent upon the ease with which customers can download and play
music. We may face opposition from a number of different music industry sources
including record companies and studios, the Recording Industry Association of
America and certain artists. The adoption of competing standards may slow the
development of the market for downloadable music or result in increased costs
of doing business which could harm our business.
Our executive officers and directors control approximately 17% of our common
stock and have power to influence significant corporate matters, which may
delay, deter or prevent transactions that could benefit our stockholders.
Executive officers and directors, in the aggregate, beneficially own
approximately 17% of our outstanding common stock. These stockholders are able
to significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control of EMusic and may make
some transactions more difficult or impossible without the support of these
stockholders.
Anti-takeover provisions in our charter documents could negatively impact our
stockholders.
Our Board of Directors has the authority to issue up to 20,000,000 shares of
preferred stock without need for stockholder approval. The board may also
determine the economic and voting rights, of this preferred stock. The holders
of our common stock could be adversely affected by the issuance of preferred
stock. Issuance of preferred stock could impede or prevent transactions that
would cause a change in control of our company. This might discourage bids for
our common stock as a premium over the market price of our common stock and
adversely affect the trading price of our common stock. We have no current
plans to issue shares of preferred stock. In addition, other provisions in our
charter documents could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.
Our data warehousing and web server systems are vulnerable to natural
disasters, failure of third-party services and other unexpected problems.
Since our data warehousing, web server and network facilities are all located
in California, an earthquake or other natural disaster could affect all of our
facilities simultaneously. An unexpected event such as a power or
telecommunications failure, fire, flood or earthquake at our on-site data
warehousing facility or at our Internet service providers' facilities could
cause the loss of critical data and prevent us from offering our services to
artists and consumers. Our business interruption insurance may not adequately
compensate us for losses that may occur. In addition, we rely on third parties
to securely store our archived data, house our web server and network systems,
and connect us to the Internet. A failure by any of these third parties to
provide these services satisfactorily could harm our business.
You should not rely on forward-looking statements in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including, "could," "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue;" the
negative of these terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially.
12
<PAGE>
In evaluating these statements, you should specifically consider various
factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially
from any forward-looking statement. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under
no duty to update any of the forward-looking statements after the date of this
prospectus to conform them to actual results or to changes in our expectations.
13
<PAGE>
About EMusic
EMusic.com Inc. is a leading provider of downloadable music over the Internet.
Through our website at EMusic.com, we offer a compelling selection of music
from which our customers may discover, sample, and purchase popular recordings
for immediate digital delivery and enjoyment. The recordings available for
download at EMusic.com are provided through our relationships with a growing
roster of recording artists and independent record labels. We currently have
exclusive, multi-year, digital download licenses from over 600 record labels
and over 2,500 recording artists, including selected titles from such well
known artists as Bush, Phish, Elvis Costello, They Might Be Giants, B.B. King
and Ella Fitzgerald. We currently have over 100,000 titles available for
download on our EMusic.com website. In addition, our IUMA subsidiary offers our
customers access to over 7,500 unsigned artists. We believe this represents one
of the largest digital music content archives currently licensed for
distribution over the Internet.
Our website enables artists and labels to easily access a global customer base
while providing them with an integrated means of distributing, promoting and
tracking the sales of their recorded music. Recordings are currently offered
for sale on EMusic.com and partners' websites in the "mp3" format, the most
widely-recognized compression standard for the download of musical recordings.
We believe that our combination of selection, convenience, varied content,
improved distribution and tracking capabilities creates a compelling music
purchasing experience for consumers as well as an attractive distribution
alternative for artists and independent record labels.
We are a development stage company and have experienced net losses since
inception in January 1998. We intend to aggressively invest to implement our
strategy, and expect to continue to incur net losses for the forseeable future.
Use of Proceeds
We will not receive any of the proceeds from the sale of shares of common stock
by the selling stockholders. If any warrants or options are exercised by
selling shareholders for cash, we will receive cash equal to the exercise price
of the warrants or options. We will use the net proceeds received upon the
exercise of any warrants or options for general corporate purposes, including
working capital.
14
<PAGE>
Selling Stockholders
The following table sets forth certain information with respect to the selling
stockholders as of April 20, 2000. Except as set forth below, none of the
selling shareholders currently is an affiliate of ours, and none of them has
had a material relationship with us during the past three years.
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April Offered for after after
Name and Addresses 20, 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Aboucaya, David R. 38,107(/1/)(/2/) 38,107 0 --
39 Boulevard
Beaumarchais
Paris 75003
FRANCE
Ahearn, Chris 46,876(/1/)(/2/) 46,876 0 --
155 Franklin Street,
Apt. 5C
New York, NY 10013
Daniel J. Ahearn, MD a 16,935(/1/)(/2/) 16,935 0 --
Medical Corporation
Profit Sharing Plan
5046 Golden Arrow Drive
Rancho Palos Verdes, CA
90274
American High Growth 30,243(/1/)(/2/) 30,243 0 --
Equities
Attn: Brad Butler
725 Fifth Avenue
New York, NY 10022
Banim, Shane 7,258(/1/) 7,258 0 --
78a Farm Lane
London W6
ENGLAND
Brody, Timothy 7,407(/1/)(/2/) 7,407 0 --
415 East 73rd Street,
Apt. 5C
New York, NY 10021
Bueno, Eric 4,536(/1/) 4,536 0 --
284 Elgin Avenue, Flat 2
London W9 1JR
ENGLAND
C.B. Equities Capital 98,293(/1/)(/2/) 98,293 0 --
III, LLC
Attn: Abbey Butler
207 Dune Road
Westhampton Beach, NY
11978
Cavity Search 54(/2/) 54 0 --
Attn: Denny Swofford
P.O. Box 42246
Portland, OR 97242
Comiteau, Joel 60,488(/1/)(/2/) 60,488 0 --
95 South Country Road
Remsenburg, NY 11960
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April 20, Offered for after after
Name and Addresses 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Costa, C. Simon A. 30,241(/1/)(/2/) 30,241 0 --
c/o Lehman Brothers
1 Broadgate
London EC2M 7HA
ENGLAND
Curd, Howard 43,854(/1/)(/2/) 43,854 0 --
18 Elm Sea Lane
Manhasset, NY 11030
Dorado Records Limited 1,850(/2/) 1,850 0 --
Attn: Oliver Buckwell
76 Brewer Street
London W1R 3PH
ENGLAND
Ecker, Felice 1,361(/2/) 1,361 0 --
126 E. 16th Street, #4C
New York, NY 10003
Endeavor Asset 37,805(/1/)(/2/) 37,805 0 --
Management LP
Attn: Chad Comiteau
17 Battery Place, Suite
709
New York, NY 10004
Ernesto H. Manuel Trust 217(/2/) 217 0 --
152 Timber Trail Drive
Oak Brook, IL 60523
Evans, Christopher D. 8,769(/1/)(/2/) 8,769 0 --
45 West 60th Street,
#23D
New York, NY 10023
Flydaddy, Inc. 408(/2/) 408 0 --
Attn: Kevin O'Leary
10 Abbott Park Place,
5th Floor
Providence, RI 02903
Fritz, Jason 10,432(/1/)(/2/) 10,432 0 --
145 West 67th Street,
Apt. 31E
New York, NY 10023
Galpert, Simeon 10,888(/1/) 10,888 0 --
Gairnside, Gate End
Northwood Middlesex HA6
3QG
ENGLAND
Giacomelli, Julian 12,399(/1/)(/2/) 12,399 0 --
104-4855 DeMaisonneuve
Street West
Westmount, Quebec H3Z
1M6
CANADA
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April Offered for after after
Name and Addresses 20, 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Gilbert, Marc 10,735(/1/)(/2/) 10,735 0 --
456 Gladstone Avenue
Toronto, Ontario M6H 3H9
CANADA
Glickman, Dave 3,325(/1/)(/2/) 3,325 0 --
26300 Village Lane #108
Beachwood, OH 44122
Go Kart Records, Inc. 408(/2/) 408 0 --
Attn: Greg Ross
P.O. Box 20, Prince
Street
New York, NY 10012
Gonick, Brian 185,788(/1/)(/2/) 185,788 0 --
150 Chambers Street,
Apt. 5E
New York, NY 10007
Grass, James B. 8,313(/1/)(/2/) 8,313 0 --
5 Edgehill Close
Bronxville, NY 10708
Haralampoudis, George 11,672(/1/)(/2/) 11,672 0 --
38 Glenby Lane
Bronxville, NY 11545
Haralampoudis, Gregory 15,257(/1/)(/2/) 15,257 0 ----
7 Heritage Lane
Convent Station, NJ
07960
Haralampoudis, Thomas 15,257(/1/)(/2/) 15,257 0 ----
27 Pomeroy Road
Madison, NJ 07940
Johnson, Stephen 65,778(/1/)(/2/) 65,778 0 --
c/o Swiss Bank
5 Temasek Boulevard
18-00, Sun Tec City
Tower 038985
SINGAPORE
JW Genesis Capital 23,590(/1/)(/2/) 23,590 0
Markets LLC --
Attn: Jeff Lehman
599 Lexington Ave., 27th
Floor
New York, NY 10022
Kadila Holding Company 19,054(/1/) 19,054 0 --
Attn: Steve Kutulos
1100 Franklin Avenue,
Suite 205
Garden City, NY 11530
Kill Rock Stars 1,088(/2/) 1,088 0 --
Attn: Slim Moon
120 NE State Avenue,
#418
Olympia, WA 98501
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April Offered for after after
Name and Addresses 20, 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Kindercore 54(/2/) 54 0 --
Attn: Ryan Lewis
329 Ocean Parkway
Brooklyn, NY 11218
Kogan, Eric 8,313(/1/)(/2/) 8,313 0 --
34 Gramercy Park East,
Apt. 1AR
New York, NY 10003
Lehavy, Nadav 8,313(/1/)(/2/) 8,313 0 --
c/o AIG Trading
2809-11, Citibank Tower
3 Garden Road, Central
Hong Kong
HONG KONG
Mack, Ralph 8,313(/1/)(/2/) 8,313 0 --
300 East 56th Street,
Apt. 4K
New York, NY 10022
Madara, Edward S. 302(/2/) 302 0 --
145 Spring Street, Apt.
5
New York, NY 10012
Madara, Ted 3,023(/1/) 3,023 0 --
145 Spring Street, Apt.
5
New York, NY 10012
Manuel, Alan 453,666(/1/) 453,666 0 --
436 Duncan Street
San Francisco, CA 94131
Manuel, Ernesto 8,226(/1/) 8,226 0 --
152 Timber Trail Drive
Oak Brook, IL 60523
Manuel, Melissa 1,088(/1/) 1,088 0 --
617 Belleforte Street
Oak Park, IL 60302
Manuel, Michael 2,722(/1/) 2,722 0 --
1517 West Roscoe Street
Chicago, IL 60657
Manuel, Rebecca 3,024(/1/) 3,024 0 --
Flat 2, 284 Elgin Avenue
London W9 1JR
ENGLAND
Manuel, Sarah 1,088(/1/) 1,088 0 --
1021 West Dakin, #3E
Chicago, IL 60613
Mashaal, Richard 4,156(/1/)(/2/) 4,156 0 --
c/o Senvest
International
1140 DeMaisonneuve West,
Ste. 1140
Montreal, Quebec H3A 1M8
CANADA
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April Offered for after after
Name and Addresses 20, 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Mashaal, Robert 4,156(/1/)(/2/) 4,156 0 --
c/o Yale Properties
6256 Greenwich Drive,
Suite 230
San Diego, CA 92122
McCaw, Trevor 2,189(/1/)(/2/) 2,189 0 --
c/o Boston Consulting
Group
BCE Place, 181 Bay
Street
Suite 2400, P.O. Box 783
Toronto, Ontario M5J 2T3
CANADA
McMillan, Jr., Neill 362(/2/) 362 0
Kirby --
151 First Avenue, #108
New York, NY 10003
Mihalakakos, Nicholas 9,677(/1/)(/2/) 9,677 0 --
321 80th Street
Brooklyn, NY 11209
My Own Planet Recordings 54(/2/) 54 0 --
Attn: Michele Van Valey
P.O. Box 95921
Seattle, WA 98145
Negroni, Hector 8,313(/2/) 8,313 0 --
421 Hudson Street, #724
New York, NY 10014
Ninja Tune 2,722(/2/) 2,722 0 --
Attn: Alastair Nicholson
Winchester Wharf, Clink
Street
London SE1 9DG
ENGLAND
No Alternative Records 81(/2/) 81 0 --
Attn: Kim Randall
2217 Nicolett Avenue,
South
Minneapolis, MN 55404
Psaros, William & Toni 14,213(/1/)(/2/) 14,213 0
Ann --
751 Cornell Road
Franklin Square, NY
11010
Richards, Reuben 36,293(/1/) 36,293 0 --
394 Elizabeth Avenue
Somerset, NJ 08873
Rigos, John 453,666(/1/) 453,666 0 --
111 Fourth Avenue, Apt.
6J
New York, NY 10003
Roulis, William 6,048(/1/) 6,048 0 --
77 Durham Road
New Hyde Park, NY 11040
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Number
Ownership of of Shares of Shares Percentage
Common Stock as Common Stock Owned Owned
of April Offered for after after
Name and Addresses 20, 2000 Sale Offering Offering
- ------------------ --------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Ryan, Thomas 453,666(/1/) 453,666 0 --
93 Second Avenue, Apt. 4
New York, NY 10003
Safe House 272(/2/) 272 0 --
Attn: Jim Reynolds
P.O. Box 214
Poultney, VT 05764
Saybe, Rafael 4,720(/1/)(/2/) 4,720 0 --
c/o Emerson Electronic
10000 N.W. 25th Street
Miami, FL 33172
Senvest International 8,313(/1/)(/2/) 8,313 0 --
Attn: Rich Mashaal
1140 DeMaisonneuve West,
Ste. 1140
Montreal, Quebec H3A 1M8
CANADA
Steller, Valerie 1,361(/2/) 1,361 0 --
383 Second Street
Brooklyn, NY 11215
Sugar Free Records 81(/2/) 81 0 --
Attn: David Simkins
P.O. Box 14166
Chicago, IL 60614
The Telegraph Music 54(/2/) 54 0
Company dba the
Telegraph Company --
Attn: Jerod Gunsberg
P.O. Box 2553
New York, NY 10009
Vogel, Neil 3,629(/1/) 3,629 0 --
5 East 16th Street, Apt.
8
New York, NY 10003
Which? Records 54(/2/) 54 0 --
Attn: Taylor Clyne
P.O. Box 659, Village
Station
New York, NY 10014
</TABLE>
- ------------------
(1) Represents shares issued in connection with the acquisition of CDuctive.com
Inc.
(2) Represents shares to be issued upon exercise of outstanding common stock
purchase warrants or options issued in connection with the acquisition of
CDuctive.com Inc.
20
<PAGE>
Description of Common Stock
Our authorized common stock consists of 200,000,000 shares, par value $0.001
per share.
This summary does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of our restated certificate of incorporation
where such rights are set forth in full, and the provisions of applicable law.
As of March 31, 2000, there were approximately 43,000,000 shares of common
stock outstanding held of record by approximately 650 shareholders. The holders
of common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the holders of common stock. Subject to
preferences applicable to any then outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors out of funds legally available therefor. In the event
of a liquidation, dissolution, or winding up of EMusic, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
our liabilities and the liquidation preference of any preferred stock. Holders
of common stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of common stock are fully paid and non-assessable.
Board of Directors
The terms of the board of directors are divided into three classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in
2002; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2000; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2001. The Class I directors are Robert Kohn and Tor
Braham, the Class II directors are Gene Hoffman, Jr. and Howard Tullman, and
the Class III directors are Ralph Peer and Ed Rosenblatt. At each annual
meeting of stockholders, the successors to directors whose term expires will be
elected to serve a term of three years. This classification of directors may
have the effect of delaying or preventing changes in our control. Our board of
directors consists of five members. Our amended and restated bylaws provide
that the authorized number of directors may be changed by resolution of the
board of directors.
Executive officers are elected by the board of directors annually. There are no
family relationships among any of our directors, officers or key executives.
Board Committees
We have established an Audit Committee and a Compensation Committee. The Audit
Committee, which currently consists of Messrs. Braham, Peer and Rosenblatt,
reviews our internal accounting procedures and consults with and reviews the
services provided by our independent auditors. The Compensation Committee,
which currently consists of Messrs. Braham, Peer and Rosenblatt, reviews and
recommends to the Board of Directors the compensation and benefits of our
executive officers, establishes and reviews general policies relating to our
compensation and benefits and administers our stock plans.
21
<PAGE>
Plan of Distribution
We will not receive any proceeds from the sale of the common stock through this
prospectus. We will receive proceeds from the payment of the exercise price of
the common stock purchase warrants and options if any are exercised for cash.
We have agreed to pay the expenses of registration of the common stock offered
hereby, including legal and accounting fees, but excluding underwriter's
discounts and commissions, if any.
The offered shares may be sold from time to time at
. negotiated prices,
. fixed prices which may be changed,
. market prices prevailing at the time of sale or
. prices related to prevailing market prices.
The selling stockholders may effect such transactions
. in privately negotiated sales in the over-the-counter market or any
exchange on which the securities are listed,
. by selling the shares to or through broker-dealers, including block
trades in which brokers or dealers will attempt to sell the shares as
agent but may position and resell the block as principal, and
. in one or more underwritten offerings on a firm commitment or best effort
basis.
Sales of selling stockholders' shares may also be made pursuant to Rule 144
under the Securities Act, where applicable.
To the extent required under the Securities Act, the following information will
be set forth in an accompanying prospectus supplement
. the aggregate amount of selling shareholders' shares being offered and
the terms of the offering,
. the names of any such agents, brokers, dealers, transferees or
underwriters and
. any applicable fee or commission with respect to a particular offer.
Each selling stockholder will be responsible for paying compensation owed by it
to any underwriters, dealers, brokers or agents participating in the
distribution of its shares, regardless of whether such compensation is in the
form of underwriting discounts, concessions, commission or fees. This
compensation might be in excess of customary commissions. The aggregate
proceeds to a selling stockholder from the sale of its shares offered by this
prospectus will be the purchase price of such shares less any discounts or
commissions.
If selling stockholders pledge, hypothecate or grant a security interest in
some or all of the shares, then the pledgees, secured parties or persons to
whom such securities have been hypothecated shall, upon foreclosure in the
event of default, be deemed to be selling stockholders under this prospectus.
Similarly, if the selling stockholders transfer, pledge, donate or assign
shares to lenders or others, then each of such persons will be deemed to be a
selling stockholder for purposes of this prospectus. The number of shares
beneficially owned by the selling stockholders will decrease if and when a
selling stockholder transfers, pledges, donates or assigns shares. The plan of
distribution for selling stockholders' shares sold by this prospectus will
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be selling shareholders under this prospectus. There is,
however, no assurance that any selling stockholder will sell any or all of the
shares described in this prospectus, and any selling stockholder may transfer,
devise or gift such securities by other means not described in this prospectus.
22
<PAGE>
A selling stockholder may also use this prospectus in the following ways:
. to sell short, from time to time, shares of our common stock and, in such
instances, this prospectus may be delivered in connection with such short
sales and the shares offered hereby may be used to cover such short
sales,
. to enter into hedging transactions with broker-dealers, and the broker-
dealers may engage in short sales of the shares in the course of holding
the positions they assume with such selling stockholder, including,
without limitation, in connection with distribution of the shares by such
broker-dealers,
. to enter into option or other transactions with broker-dealers that
involve the delivery of the shares to the broker-dealers, who may then
resell or otherwise transfer such shares, and
. to loan or pledge the shares to a broker-dealer and the broker-dealer may
sell the shares as loaned or upon a default may sell or otherwise
transfer the pledge shares.
The selling stockholders, any underwriter, any broker-dealer or any agent that
participates with the selling stockholders in the distribution of the shares
may be deemed to be "underwriter" within the meaning of the Securities Act. As
a result thereof, any discounts, commissions or concessions received by them
and any profit on the resales of the shares purchased by them may be deemed to
be underwriting commissions under the Securities Act.
To comply with securities laws of certain states, if applicable, the shares
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states the shares may not be sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available.
Pursuant to a registration rights agreement entered into in connection with our
acquisition of CDuctive.com Inc., we have agreed to keep the registration
statement of which this prospectus is a part continuously effective until the
earlier of the date that all of the shares issued pursuant to the acquisition
have been resold or until 180 days from the effectiveness of the registration
statement of which this prospectus is a part. In this regard, we are required
to supplement and/or amend the registration statement of which this prospectus
is a part if more shares than are registered for resale hereby are issued upon
exercise of the warrants or to supplement or change the list of selling
stockholders hereunder.
23
<PAGE>
Legal Matters
The validity of the shares of common stock offered hereby will be passed upon
for us by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of the
date of this prospectus, an investment partnership of Gray Cary Ware &
Freidenrich owned an aggregate of 8,300 shares of common stock.
Experts
The financial statements incorporated in this Prospectus by reference to the
Annual Report of Form 10-K of Emusic.com, Inc. for the year ended June 30, 1999
and the audited historical financial statements included as Exhibit 99.2 to
each of Emusic.com, Inc.'s reports on Form 8-K filed dated January 31, 1999 and
June 11, 1999, respectively have been so incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and related financial statement schedule of Tunes.com as
of December 31, 1997 and 1998 and for the years then ended and for the period
from July 2, 1996, inception, to December 31, 1996, and the financial
statements of Tunes Network, Inc. as of December 31, 1996 and 1997 and for the
years then ended as set forth in their reports. Such financial statements are
incorporated herein by reference in reliance upon Ernst & Young LLP's reports,
given on their authority as experts in accounting and auditing.
Richard A. Eisner & Company, LLP, independent auditors, have audited the
financial statements of Group K Inc. as of December 31, 1997 and 1998, for the
year ended December 31, 1998, the period from June 16, 1997 (Inception) through
December 31, 1997 and the period from June 16, 1997 (Inception) through
December 31, 1998 as set forth in their report, incorporated by reference
herein. We have incorporated these financial statements in the registration
statement in reliance upon Richard A. Eisner & Company, LLP's report, given on
their authority as experts in accounting and auditing.
Where You Can Find More Information About Us
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the shares of common stock registered hereby.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in our registration statement and
the exhibits filed therewith. For further information with respect to EMusic
and the common stock, reference is made to the registration statement and the
exhibits filed therewith. Statements contained in this prospectus regarding the
contents of any agreement or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of such agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy any document we file at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference rooms.
Our SEC filings are also available to the public from the SEC's website at
http://www.sec.gov.
Since September 20, 1998, we have been subject to the information and periodic
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance therewith, file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's website, which is described above.
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Documents Incorporated By Reference
The SEC allows us to "incorporate by reference" information that we file with
them which means that we can disclose important information to you by referring
you to these documents. The information incorporated by reference is an
important part of this prospectus and information we later file with the SEC
will automatically update and supersede this information. The following
documents filed by us with the SEC are incorporated in this prospectus by
reference:
. Annual Report on Form 10-K for the year ended June 30, 1999;
. Current Report on Form 8-K dated November 15, 1999, as amended;
. Current Report on Form 8-K dated November 29, 1999, as amended;
. Quarterly Report on Form 10-Q for the quarter ended September 30, 1999,
filed on November 15, 1999;
. Quarterly Report on Form 10-Q/A for the quarter ended December 31, 1999,
filed on February 22, 2000; and
. The description of our common stock contained in our registration
statement on Form 10-SB filed on July 22, 1998 (Registration Statement
No. 000-24671), including any amendment or report filed for the purpose
of updating that description.
We also incorporate by reference all documents and reports filed by us pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus and prior to the date of termination of this
offering. We will provide free of charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all of the documents incorporated by reference in
this prospectus. Please direct such requests to Investor Relations, EMusic.com
Inc, 1991 Broadway, 2nd Floor, Redwood City, California 94063. Our telephone
number is (650) 216-0200.
25
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[LOGO OF EMUSIC.COM INC.]
2,340,898 Shares
Common Stock
-----------------
PROSPECTUS
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May 12, 2000
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You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
