<PAGE>
As filed with the Securities and Exchange Commission on April 23, 1999
Registration 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AUDIBLE, INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 22-3407945
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
Andrew J. Huffman
President and Chief Executive Officer
Audible, Inc.
65 Willowbrook Boulevard
Wayne, N.J. 07470
(973) 890-4070
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Edwin M. Martin, Jr., Esquire Brian D. Goldstein, Esquire
Nancy A. Spangler, Esquire Testa, Hurwitz & Thibeault, LLP
Piper & Marbury L.L.P. 125 High Street
1200 19th Street, N.W. Boston, MA 02110
Washington, D.C. 20036 (617) 248-7000
(202) 861-3900
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Securities To Aggregate Amount of
Be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Shares of Common Stock, par value $.01 $46,000,000 $12,788
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED APRIL 23, 1999
Shares
[Audible, Inc. logo]
Common Stock
--------
All of the shares of common stock are being offered by Audible. Prior to this
offering, there has been no public market for the common stock. The initial
public offering price is expected to be between $ and $ per share.
We have granted the underwriters a 30-day option to purchase a maximum of
additional shares to cover over allotments of shares.
We will apply to list the common stock on the Nasdaq National Market under
the symbol "ADBL."
Investing in the common stock involves risks. See "Risk Factors" starting on
page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds
Public Commissions to Audible
-------- ------------- ----------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
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.
Credit Suisse First Boston
J.P. Morgan & Co.
Volpe Brown Whelan & Company
Wit Capital Corporation
The date of this prospectus is , 1999
<PAGE>
[Graphics]
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Management........................................ 39
Related Transactions and Relationships............ 46
Principal Stockholders............................ 49
Description of Capital Stock...................... 52
Shares Eligible for Future Sale................... 56
Underwriting...................................... 58
Notice to Canadian Residents...................... 60
Validity of the Shares............................ 62
Experts........................................... 62
Additional Information............................ 62
Index to Financial Statements..................... F-1
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 14
Dividend Policy...................... 14
Capitalization....................... 15
Dilution............................. 16
Selected Historical Financial Data... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........... 18
Business............................. 27
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
----------------
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to unsold allotments
or subscriptions.
----------------
We have applied for federal registration of the marks Audible, Audible.com,
AudibleReady, AudibleManager, AudiblePlayer, MobileServer, Click.Hear, Internet
Theater and Audible MobilePlayer. Other trademarks and service marks appearing
in this prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in the prospectus.
The summary is not complete and does not contain all the information you should
consider before buying shares in this offering. You should read the entire
prospectus carefully. Except where we state otherwise, we present information
in this prospectus assuming (1) the conversion of all outstanding shares of
convertible preferred stock into an aggregate of 8,934,000 shares of common
stock upon the closing of this offering, (2) our common stock will be sold at
$ per share, which is the mid-point of the range shown on the cover page of
this prospectus, (3) the underwriters will not exercise their over-allotment
option and (4) the filing of the amended and restated certificate of
incorporation.
Audible, Inc.
We are the leading provider of Internet-delivered premium spoken audio
content for playback on personal computers and mobile devices. We have the
largest and most diverse collection of premium digital spoken audio content
available for download on the Internet for playback on personal computers and
mobile devices, most of which is currently available only through our Web site,
audible.com. Visitors can browse, sample, purchase, subscribe, schedule and
download more than 15,000 hours of audio content available on our Web site,
including over 2,800 audio versions of books from publishers such as Bantam
Doubleday Dell Publishing and Random House Publishing, each a division of
Random House, Inc., Dove Audio, Harper Audio, Simon & Schuster Audio and Time
Warner AudioBooks. We also have audio versions of periodicals such as The New
York Times, The Wall Street Journal and The Economist, and radio programs such
as Car Talk, Fresh Air, Marketplace and News From Lake Wobegon. Download and
playback of this content is available on personal computers and AudibleReady
mobile devices. Compaq, Creative Labs, Diamond Multimedia, Everex and Philips
have agreed to support the AudibleReady format on their mobile audio-enabled
devices.
Our solution leverages the increasing usage of the Internet and the
introduction of audio-enabled mobile devices to enable consumers to more
efficiently manage and control the increasing amount of content available to
them. Unlike traditional radio broadcasts, the Audible service offers customers
access to content of their choice and the ability to listen to what they want,
when and where they want--whether commuting, exercising, relaxing or sitting at
their personal computers. Unlike traditional and online bookstores, which are
subject to physical inventory constraints and shipping delays, we provide a
selection that is readily available in digital format that can be quickly
delivered over the Internet directly to our customers. In addition, we provide
customers with lower priced spoken audio content because we do not incur the
manufacturing and distribution costs of audio content stored on cassette tapes
and compact discs.
We help content creators, device manufacturers and our other technology and
distribution partners create incremental sources of revenue by aggregating
premium audio content and providing a system for secure distribution of digital
spoken audio. As a result, we provide a new source of revenue for publishers of
newspapers, magazines, journals, newsletters, professional publications and
business information and producers of radio broadcasts by creating a new market
for content that is too timely for distribution on cassette tape and too
specialized for widely-broadcast radio programs. In addition, our service
provides manufacturers of mobile audio-enabled devices with a new application
and enables our technology and distribution partners to provide our wide
selection of content to their customers.
We were incorporated in 1995 and commenced operations in October 1997. Our
principal executive offices are located at 65 Willowbrook Boulevard, Wayne, New
Jersey 07470, and our telephone number at that location is (973) 890-4070.
3
<PAGE>
The Offering
<TABLE>
<CAPTION>
<C> <S>
Common stock offered......................... shares.
Common stock to be outstanding after this shares.
offering....................................
Use of proceeds.............................. For general corporate purposes,
including increased marketing,
acquisition and production of
new audio content, obtaining
and extending content and
technology licensing
arrangements, increasing
personnel and increasing
production and server system
capacities.
Proposed Nasdaq National Market symbol....... ADBL
</TABLE>
- --------------------
This table is based on shares outstanding as of March 31, 1999. This table
excludes:
. 6,000,000 shares of common stock we have reserved for issuance under
our 1999 Stock Incentive Plan; and
. 613,270 shares of common stock issuable upon exercise of outstanding
warrants.
4
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
November 3, 1995 Ended
(inception) to Year Ended December 31, March 31,
December 31, ------------------------- ----------------
1995 1996 1997 1998 1998 1999
---------------- ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue:
Content and services... $ -- $ -- $ 3 $ 132 $ 30 $ 58
Hardware............... -- -- 57 244 90 57
Other.................. -- -- -- -- -- 200
------ ------- ------- ------- ------- -------
Total revenue......... -- -- 60 376 120 315
------ ------- ------- ------- ------- -------
Operating expenses:
Cost of content and
services revenue...... -- -- 78 372 75 152
Cost of hardware
revenue............... -- -- 252 556 255 63
Production expenses.... -- 684 1,982 1,639 486 495
Research and
development........... 49 1,810 2,672 1,641 389 320
Write-down related to
hardware business..... -- -- -- 952 -- --
Sales and marketing.... -- 256 1,227 1,453 272 396
General and
administrative........ -- 787 1,921 1,838 481 417
------ ------- ------- ------- ------- -------
Total operating
expenses............. 49 3,536 8,133 8,453 1,958 1,844
------ ------- ------- ------- ------- -------
Loss from operations. (49) (3,536) (8,073) (8,076) (1,838) (1,529)
------ ------- ------- ------- ------- -------
Other (income)
expense, net........ -- (27) (44) 62 6 (67)
------ ------- ------- ------- ------- -------
Net loss................ $ (49) $(3,509) $(8,029) $(8,138) $(1,844) $(1,461)
====== ======= ======= ======= ======= =======
Basic and diluted net
loss per common share.. $(0.03) $ (1.66) $ (2.24) $ (1.72) $ (0.42) $ (0.29)
Weighted average shares
outstanding............ 1,500 2,118 3,586 4,731 4,372 4,968
Proforma basic and
diluted net loss per
common share........... (0.02) (0.96) (1.00) (0.75) (0.19) (0.11)
Proforma weighted
average shares
outstanding............ 2,034 3,660 8,045 10,861 9,806 13,819
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents........................ $ 9,652 $9,652
Total assets..................................... 10,991 10,991
Noncurrent liabilities........................... 377 377
Redeemable preferred stock....................... 28,719 --
Total stockholders' (deficit) equity ............ (20,949) 7,770
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock.
We have a limited operating history with which you can evaluate our business
and our future prospects.
We are a development stage company, we earned our first revenue in October
1997 and our business model is unproven. We have generated limited revenue from
a small number of customers who purchased Audible MobilePlayers and our digital
spoken audio content. As a result, we have only a limited operating history
with which you can evaluate our business and prospects. Our limited operating
history and small number of customers makes predicting our future operating
results difficult. In addition, our prospects must be considered in light of
the risks and uncertainties encountered by companies in the early stages of
development in new and rapidly evolving markets, specifically the rapidly
evolving market for delivery of audio content over the Internet. These risks
include our ability to:
. acquire and retain customers;
. build awareness and acceptance of audible.com, the AudibleReady format
and AudibleReady devices;
. extend existing and acquire new content provider relationships; and
. manage growth to stay competitive and fulfill customer demand.
If we fail to manage these risks successfully, it would materially adversely
affect our financial performance.
We have limited revenue, we have a history of losses and we may not be
profitable in the future.
We had total revenue of $376,000 for the year ended December 31, 1998 and
$315,000 for the three months ended March 31, 1999. The majority of this
revenue during 1998 was derived from sales of hardware, which we expect to
decline as we discontinue sales of the Audible MobilePlayer. We had content and
services revenue of only $132,000 for the year ended December 31, 1998 and
$58,000 for the three months ended March 31, 1999. As of March 31, 1999, we
have incurred net operating losses of approximately $21.2 million since
inception, and we expect to continue to incur significant losses for the
foreseeable future. We cannot be certain when we may or if we will become
profitable. Our failure to achieve profitability within the time frame expected
by investors may adversely affect our business and the market price of our
common stock.
Disappointing quarterly revenue or operating results could cause our stock
price to fall.
Our quarterly revenue and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below investor or securities analyst expectations, our
stock price could fall substantially.
Our quarterly revenue may fluctuate as a result of a variety of factors,
many of which are outside our control, including the following:
. demand for the Audible service;
. availability of spoken audio content;
. sales and consumer usage of AudibleReady devices;
. introduction of products competitive with AudibleReady devices and
services competitive with audible.com; and
. inability of our system to satisfy customer demand.
6
<PAGE>
Because most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term, we may be unable to adjust our spending to
compensate for unexpected revenue shortfalls. Accordingly, any significant
shortfall in relation to our expectations could cause significant declines in
our operating results.
The market for our service is uncertain and consumers may not be willing to
use the Internet to purchase spoken audio content.
Our success will depend in large part on consumer willingness to purchase
and download spoken audio content over the Internet. Purchasing this content
over the Internet involves changing purchasing habits, and if consumers are
not willing to purchase and download this content over the Internet, our
revenue will be limited and our business will be materially adversely
affected. Downloading of audio content is a relatively new method of
distribution and its growth and market acceptance is highly uncertain. We
believe that acceptance of this method of distribution may be subject to
network capacity constraints, hardware limitations, company computer security
policies, the ability to change user habits and the quality of the audio
content delivered.
We may not be able to license or produce sufficiently compelling audio content
to attract and retain customers and grow our revenue.
Our future success depends upon our ability to accumulate and deliver
premium spoken audio content over the Internet. Although we currently
collaborate with the publishers of certain periodicals and other branded print
materials to produce original spoken audio content, the majority of our
content originates from producers of audiobooks, radio broadcasts,
conferences, lectures and other forms of spoken audio content. If we are
unable to obtain licenses from content providers on terms acceptable to us or
if a significant number of content providers terminate their agreements with
us, we would have less content available for our customers, which would
materially adversely affect our financial performance. Although many of our
agreements with content providers are for initial terms of one to three years,
our content providers may choose not to renew their agreements with us or may
terminate their agreements early if we do not fulfill our contractual
obligations. We cannot be certain that our content providers will enter into
new agreements with us on the same or similar terms as those currently in
effect or that additional content providers will enter into agreements on
terms acceptable to us.
Manufacturers of mobile devices may not sell a sufficient number of products
suitable for our service, which would limit our revenue growth.
Although content we sell can be played on personal computers, we believe
that a key to our future success is the ability to play back this content on
mobile devices. Because we do not intend to continue to manufacture our own
mobile devices, we depend on manufacturers, such as Philips, Compaq and
Diamond Multimedia, to develop and sell their own products. The first of these
products only became commercially available in April 1999. If these
manufacturers do not sell a sufficient number of AudibleReady devices, or if
these devices do not achieve sufficient market acceptance, we will not be able
to grow revenue and our business will be materially adversely affected.
We may not create sufficient brand awareness to acquire customers and generate
revenue.
We believe that building awareness of the "Audible," "audible.com" and
"AudibleReady" brand names is critical to achieving widespread acceptance of
our service by customers, content providers, device manufacturers and
marketing and distribution partners. If we fail to promote and maintain our
brand names, our business, operating results and financial condition could be
materially adversely affected. To promote our brands, we will need to
substantially increase our marketing expenditures. Although we have applied
for trademark and service mark registrations of our brand names in the United
States, there can be no assurance that these applications will be approved. We
have licensed to others in the past, and expect to license in the future,
certain of our proprietary rights, such as portions of our technology and
certain trademarks or
7
<PAGE>
copyrighted material. While we attempt to ensure that these licensees maintain
the quality of our brand, they could take actions that materially harm the
value of our reputation.
Increasing availability of digital audio technologies may increase competition
and reduce our gross margins, market share and profitability.
The market for the Audible service is new, rapidly evolving and intensely
competitive. We expect competition to intensify as advances in and
standardization of digital audio distribution, download, security, management
and playback technologies reduce the cost of starting a digital audio delivery
system or audio content aggregation service. To remain competitive, we must
continue to enhance the features of the Audible services, our audio content
management software and our audio compression, download, security and playback
technologies, either through technology licenses or through our own
development. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our financial performance. Our competitors for customers, and,
in some cases, for access to audio content, include both online and offline
entities. Many of these companies have significantly greater brand recognition
and financial, technical, marketing and other resources than do we. We cannot
assure you that we will be able to compete successfully against current or
future competitors which may deliver digital spoken audio content.
Our industry is highly competitive and we cannot assure you that we will be
able to compete effectively.
We face competition in all aspects of our business, including competition
for consumers of audio materials, both over the Internet and in cassette tape
or compact disc form, for content with other content distributors and for
mobile devices enabled with audio playback capabilities other than those that
are AudibleReady. The business of providing content over the Internet is
experiencing rapid growth and is characterized by rapid technological changes,
changes in consumer habits and preferences and the emergence of new and
established companies. We compete with (1) traditional and online retail
stores, catalogs, clubs and libraries that sell, rent or loan audiobooks on
cassette tape or compact disc, (2) Web sites that offer streaming access to
spoken audio content using tools such as the RealPlayer or Windows Media Player
and (3) other companies offering services similar to ours. In addition, a small
number of these companies control primary or secondary access to a significant
percentage of Internet users and therefore have a competitive advantage in
marketing to those users. Many of these companies have financial,
technological, promotional and other resources that are much greater than those
available to us. Many of these providers could use or adapt their current
technology, or could purchase technology, to provide a service directly
competitive with the Audible service. We cannot assure you that we will be able
to compete effectively in this industry.
Capacity constraints and failures, delays or overloads could interrupt our
service and reduce the attractiveness of our service to existing or potential
customers.
Our success depends on our ability to electronically distribute spoken audio
content to a large number of customers through our Web site efficiently and
with few interruptions or delays. Accordingly, the performance, reliability and
availability of our Web site, our transaction processing systems and our
network infrastructure are critical to our operating results. Any sustained
failure or delay in using our Web site could reduce the attractiveness of the
Audible service to consumers, which would materially adversely affect our
financial performance. We have experienced periodic systems interruptions,
which we believe may continue to occur. A significant increase in visitors to
our Web site or simultaneous download requests could strain the capacity of our
Web site, software, hardware and telecommunications systems, which could lead
to slower response times or system failures. These interruptions may make it
difficult to download audio content from our Web site in a timely manner.
8
<PAGE>
We could be liable for substantial damages if there is unauthorized duplication
of the content we sell.
We believe that we are able to license premium audio content in part because
our service has been designed to reduce the risk of unauthorized duplication
and playback of audio files. If these security measures fail, our content may
be vulnerable to unauthorized duplication or playback. If others duplicate the
content we provide without authorization, content providers may terminate their
agreements with us and hold us liable for substantial damages. Although we
maintain general liability insurance, including insurance for errors or
omissions, we cannot assure you that the amount of coverage will be adequate to
compensate us for these losses. Security breaches might also discourage other
content providers from entering into agreements with us. We may be required to
expend substantial money and other resources to protect against the threat of
security breaches or to alleviate problems caused by these breaches.
Errors in our proprietary software, including AudibleManager 2.0, could
discourage potential customers and damage our reputation.
Our proprietary software may contain undetected errors, failures or bugs
which could result in customer dissatisfaction, adverse publicity, loss of
reputation, delay in market acceptance of the AudibleReady format or in legal
claims against us by customers or others. We have in the past discovered
errors, failures and bugs in our software and have experienced customer
dissatisfaction. Version 2.0 of our AudibleManager software is required for
customers to use our service with Windows CE-based devices manufactured by a
number of computer and consumer electronics companies. On April 17, 1999,
Version 2.0 became available in a pre-release version, and we do not plan to
release it commercially prior to May 1999. Version 2.0 contains errors and bugs
of which we are aware and may also contain additional errors and bugs.
We do not have a disaster recovery plan or back-up systems, and a disaster
could severely damage our operations.
If our computer systems are damaged or interrupted by a disaster for an
extended period of time, our business, results of operations and financial
condition would be materially adversely affected. We do not have a disaster
recovery plan in effect and do not have fully redundant systems for the Audible
service at an alternate site. Our operations depend upon our ability to
maintain and protect our computer systems, all of which are located in our
headquarters and at a third party, offsite hosting facility, both of which are
located in northern New Jersey. Although we maintain insurance against general
business interruptions, we cannot assure you that the amount of coverage will
be adequate to compensate us for our losses.
Problems associated with the Internet could discourage use of Internet-based
services like ours.
Our success will depend in large part on increasing use of the Internet.
There are critical issues concerning the commercial use of the Internet which
we expect to affect the development of the market for the Audible service,
including:
. the secure transmission of customer credit card numbers and other
confidential information;
. the reliability and availability of Internet service providers;
. the cost of access to the Internet;
. the availability of sufficient network capacity; and
. the ability to download audio content through computer security measures
employed by businesses.
If the Internet fails to develop or develops more slowly than we expect as a
commercial medium, our business may also grow more slowly, if at all.
9
<PAGE>
The loss of key employees, failure to manage growth and inability to hire
employees could jeopardize our growth prospects.
Our future success depends on the continued service and performance of our
senior management and other key personnel, particularly Andrew J. Huffman, our
President, and Donald R. Katz, our Founder and Chairman of the Board. The loss
of the services of any of our executive officers or other key employees could
materially adversely affect our business. We do not have employment agreements
with any of our executive officers or other key employees. We do not have a
chief financial officer. Our future success also depends on our ability to
attract, hire and retain highly skilled technical, managerial, editorial,
marketing and customer service personnel, and competition for these individuals
is intense.
Our failure to properly manage rapid growth could strain our resources and
adversely affect our business.
We have been experiencing a period of rapid growth that has been placing a
significant strain on our resources. Our revenue increased 162% in the quarter
ended March 31, 1999 from the same period the year earlier. The rapid rate of
our recent growth has made management of that growth more difficult. In
addition, we anticipate that we will significantly expand our operations over
the next twelve months. We plan to use the proceeds of this offering in part to
expand sales and marketing activities, to acquire new audio content, to obtain
and extend content and technology licensing arrangements and to expand
production and server system capabilities. This additional growth will further
strain our management, financial and other resources. To manage future growth
effectively we must significantly upgrade our financial and accounting systems
and controls, integrate new personnel and manage expanded operations. Any
failure to do so could have a material adverse effect on the quality of the
Audible service, our ability to retain key personnel and our business,
operating results and financial condition.
Year 2000 problems could interrupt our service.
Any Year 2000 compliance problem of ours or our vendors or suppliers could
have a material adverse effect on our ability to service our customers, and on
our business, results of operations and financial condition. Virtually every
computer operation will be affected in some way by the rollover of the two
digit year value to 00. It is unclear whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or cause a system to fail. In the worst case scenario, the Audible service
would be inoperable until the problem is corrected and this correction could
take weeks or months. During this period, we may be unable to bill our
customers or deliver subscriptions to our customers, and the AudibleManager
software may not download audio content at the scheduled intervals. We are in
the process of reviewing our systems and working with our software and systems
suppliers to be prepared for the year 2000. We have identified certain changes
that we must make in order to be prepared for the year 2000. For example, we
are in the process of upgrading to more recent versions of software and
database applications that are certified to be ready for the year 2000. We
cannot be sure that all software and hardware components are or will be Year
2000 compliant. Significant uncertainty exists concerning the potential costs
and effects associated with Year 2000 compliance.
We may not be able to protect our intellectual property.
The steps we have taken may be inadequate to protect our technology and
other intellectual property. Our competitors may learn or discover our trade
secrets or may independently develop technologies that are substantially
equivalent or superior to ours. We rely on a combination of patents, licenses,
confidentiality agreements and other contracts to establish and protect our
technology and other intellectual property rights. We have applied for
trademarks and service marks on terms and symbols that we believe are important
for our business. We have one patent and have filed eight patent applications.
We also rely on unpatented trade secrets and know-how to maintain our
competitive position. We may have to litigate to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of
10
<PAGE>
others. This litigation could result in substantial costs and the diversion of
our management and technical resources which would harm our business.
Other companies may claim that we infringe their copyrights or patents.
If the Audible service violates the proprietary rights of others, we may be
required to redesign our software, and re-encode the Audible content, or seek
to obtain licenses from others to continue offering the Audible service without
substantial redesign and such efforts may not be successful. We do not conduct
comprehensive patent searches to determine whether our technology infringes
patents held by others. In addition, software development is inherently
uncertain in a rapidly evolving technological environment in which there may be
numerous patent applications pending, many of which are confidential when
filed, with regard to similar technologies. Any claim of infringement could
cause us to incur substantial costs defending against the claim, even if the
claim is invalid, and could distract our management from our business. A party
making a claim could secure a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or other court order that
could prevent us from offering the Audible service. Any of these events could
have a material adverse effect on our business, operating results and financial
condition.
We could be sued for content that we distribute over the Internet.
Our service involves delivering spoken audio content to our customers. As a
distributor and publisher of content over the Internet, we may be liable for
copyright, trademark infringement, unlawful duplication, negligence,
defamation, indecency and other claims based on the nature and content of the
materials that we publish or distribute to customers. Although we generally
require that our content providers indemnify us for liability based on their
content and we carry general liability insurance, the indemnity and the
insurance may not cover claims of these types or may not be adequate to protect
us from the full amount of the liability. If we are found liable in excess of
the amount of indemnity or of our insurance coverage, we could be liable for
substantial damages and our reputation and business may suffer.
Future government regulations may increase our cost of doing business on the
Internet.
Laws and regulations applicable to the Internet covering issues such as user
privacy, pricing and copyrights are becoming more prevalent. The adoption or
modification of laws or regulations relating to the Internet could adversely
affect our business.
We may become subject to sales and other taxes for direct sales over the
Internet.
We do not currently collect sales or other similar taxes for download of
content into states other than in New Jersey and Texas. Nevertheless, one or
more local, state or foreign jurisdictions may require that companies located
in other states collect sales taxes when engaging in online commerce in those
states. If we open facilities in other states, our sales into such states may
be taxable. If one or more states or any foreign country successfully asserts
that we should collect sales or other taxes on the sale of our content, the
increased cost to our customers could discourage them from purchasing our
services, which would materially adversely affect our business.
Our executive officers and directors will continue to exercise significant
influence over our company.
After this offering, our executive officers and directors will continue to
exercise significant influence over stockholder voting matters. Our executive
officers, directors and their affiliates will together control approximately
% of our common stock after this offering. As a result, these stockholders,
if they act together, will be able to determine the composition of our board of
directors, will retain the voting power to approve all matters requiring
stockholder approval, including any acquisition of our company, and will
continue to have significant influence over our affairs. This concentration of
ownership could have the effect of delaying or preventing a change in the
control of our company, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of our company, or
may otherwise discourage a potential acquirer from attempting to obtain control
of us, which in turn could materially adversely affect the market price of our
common stock.
11
<PAGE>
Our contractual obligations, charter and by-laws could discourage an
acquisition of our company that would benefit our stockholders.
Provisions of our agreement with Microsoft and of our certificate of
incorporation and bylaws may make it more difficult for a third party to
acquire control of our company, even if a change in control would benefit our
stockholders. These provisions include:
. Prior to discussing with anyone the sale of our company, we must notify
Microsoft and Microsoft has a right to negotiate exclusively with us for
21 days to acquire our company, and if we do not reach agreement during
this period, we may discuss with others the sale of our company;
. our board of directors, without stockholder approval, may issue
preferred stock on terms that they determine. This preferred stock could
be issued quickly with terms that delay or prevent the change in control
of our company or make removal of management more difficult. Also, the
issuance of preferred stock may cause the market price of our common
stock to decrease;
. our board of directors is "staggered" so that only a portion of its
members are elected each year;
. only our board of directors, our chairman of the board, our president or
stockholders holding a majority of our stock can call special
stockholder meetings; and
. special procedures which must be followed in order for stockholders to
present proposals at stockholder meetings.
Please see "Description of our Capital Stock--Anti-Takeover Effects of Our
Certificate of Incorporation and Bylaws and Delaware Law; Right of First
Negotiation."
There is no prior market for our common stock and the price may decline after
this offering.
Our common stock has not been traded in the public market before this
offering. We will apply to the Nasdaq National Market to list our common stock,
but we do not know whether active trading in our common stock will develop or
continue after this offering. If active trading does not develop, it could
cause the market price of our common stock to decrease. We will determine the
price you will pay for our common stock through negotiations with the
underwriters. You may not be able to resell your shares at or above the price
you will pay for our common stock.
Future sales of our common stock may lower our stock price.
If our existing stockholders sell a large number of shares of our common
stock, the market price of the common stock could decline significantly. The
perception in the public market that our existing stockholders might sell
shares of common stock could depress our market price. Immediately after this
offering, approximately shares of our common stock will be outstanding.
Of these shares, other than the shares included in the offering,
shares will be available for resale in the public market without
restriction immediately following this offering, all of which are subject to
lock-up agreements restricting the sale of common stock for 180 days after the
date of this prospectus. In addition, shares will be available for
resale in the public market without restriction 90 days after the date of this
prospectus, of which shares are subject to the lock-up agreements.
The remaining shares held by existing stockholders become eligible
for resale in the public market at various dates thereafter, all of which
shares are subject to the lock-up agreements.
After this offering, the holders of 8,934,000 shares of common stock and
holders of warrants to purchase an aggregate of 550,000 shares of our common
stock and warrants to purchase 63,270 shares of our preferred stock, which
preferred stock warrants will be exercisable for common stock following this
offering, will have the right to require us to register the sale of their
shares, subject to limitations and the lock-up agreements with
12
<PAGE>
the underwriters. These holders also have the right to require us to include
their shares in any future public offerings of our equity securities. Within
approximately 180 days after this offering, we intend to file one or more
registration statements under the Securities Act to register 6 million shares
of common stock reserved for issuance under our stock plan, subject to
limitations and the lock-up agreements.
Investors will experience immediate and substantial dilution in the book value
of their investment.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution because the price that you pay
will be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that our
earlier investors paid substantially less than the public offering price when
they purchased their shares. You will experience additional dilution upon the
exercise of stock options or warrants to purchase common stock.
We will have broad discretion in using the proceeds from this offering.
We have not identified specific uses for the proceeds from this offering,
and we will have broad discretion in how we use them. We are unable to
determine how much of the proceeds will be used for any identified purpose
because circumstances regarding our planned uses of the proceeds may change.
You will not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds.
This prospectus contains forward-looking statements which may not prove to be
accurate.
This prospectus contains forward-looking statements and information relating
to our company. We generally identify forward-looking statements in this
prospectus using words like "believe," "intend," "will," "expect," "may,"
"should," "plan," "project," "contemplate," "anticipate," "seek" or similar
terminology. These statements are based on our beliefs as well as assumptions
we made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties and assumptions. Actual results may differ significantly
from the results discussed in these forward-looking statements.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the issuance and sale of the shares of our
common stock offered hereby are estimated to be approximately $ million
(approximately $ million if the underwriters' exercise their over-allotment
in full), at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and offering
expenses. We intend to use the proceeds for general corporate purposes,
including increased marketing, acquisition and production of new audio content,
obtaining and extending content and technology licensing arrangements,
increasing personnel and increasing production and server system capacities.
Pending such uses, we will invest the proceeds of this offering in short-term,
interest-bearing, investment-grade securities, certificates of deposit or
direct or guaranteed obligations of the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis giving effect to the conversion of all outstanding
shares of convertible preferred stock into common stock; and
. on a pro forma as adjusted capitalization to give effect to the sale of
shares of common stock offered hereby at an assumed initial public
offering price of $ per share in this offering, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
This information should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------------- ----------------- ------------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Lease obligations, long-term
portion.................... $ 188 $ 188 $
Redeemable convertible
preferred stock (non-
cumulative), $.01 par value
per share; 9,843,000 shares
authorized: 8,934,000
shares issued and
outstanding, actual; no
shares issued and
outstanding, pro forma and
pro forma as adjusted...... 28,719 --
Stockholders' deficit:
Preferred stock, $.01 par
value per share: none
authorized, issued and
outstanding actual;
10,000,000 authorized,
none issued and
outstanding pro forma and
pro forma as adjusted..... -- --
Common stock, par value
$.01 per share: 16,000,000
shares authorized,
5,068,180 shares issued
and outstanding actual;
50,000,000 shares
authorized pro forma and
pro forma as adjusted,
14,002,180 shares issued
and outstanding pro forma
and pro forma as adjusted. 51 140
Additional paid-in capital. 1,249 29,879
Notes due from stockholders
for common stock.......... (1,063) (1,063)
Deficit accumulated during
the development stage..... (21,186) (21,186)
----------------- ----------------- -------------
Total stockholders'
equity (deficit)....... (20,949) 7,770
----------------- ----------------- -------------
Total capitalization.... $ 7,958 $ 7,958 $
================= ================= =============
</TABLE>
15
<PAGE>
DILUTION
Our net tangible book value at March 31, 1999 was $7,769,185 or $0.56 per
common share. Net tangible book value is the amount of total tangible assets
less total liabilities. Net tangible book value per common share is net
tangible book value divided by the number of shares of common stock
outstanding. Net pro forma tangible book value per common share is determined
by dividing our net tangible book value by the number of shares of our common
stock outstanding after giving effect to this offering. Assuming no changes in
our net tangible book value, other than to give effect to the sale of the
common stock offered by this prospectus at an assumed initial public offering
price of $ per share, the mid-point of the range on the cover page of this
prospectus, and the application of the net offering proceeds as described under
"Use of Proceeds," our pro forma net tangible book value at March 31, 1999
would have been $ , or $ per common share.
This represents an immediate increase in pro forma net tangible book value
of $ per common share to existing stockholders, and an immediate dilution in
pro forma net tangible book value of $ per common share to new investors
purchasing our common stock in this offering. The following table illustrates
this per share dilution.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per common share........... $
Net tangible book value per common share at March 31, 1999...... $0.56
Increase per share attributable to new investors................
-----
Net tangible book value per common share after this offering.....
------
Dilution per common share to new investors....................... $
======
</TABLE>
The following table summarizes at March 31, 1999:
. the number of shares of our common stock purchased by existing
stockholders, the total consideration and the average price per share
paid to us for these shares, valuing these shares at the initial public
offering price;
. the number of shares of our common stock purchased by new investors, the
total consideration and the price per share paid by them for these
shares; and
. the percentage of shares purchased by the existing stockholders and new
investors and the percentages of consideration paid to us for these
shares.
This table assumes that none of the warrants outstanding upon the closing of
this offering will be exercised.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Common Share
---------- ------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 14,002,180 100.0% $30,018,469 100.0% $2.14
New Investors...........
---------- ----- ----------- -----
Total.................. 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information appearing elsewhere in this prospectus. The
selected financial data set forth below as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998, are derived from, and are
qualified by reference to, the Company's audited financial statements included
elsewhere in this prospectus. The balance sheet data as of December 31, 1995
and 1996 and the statement of operations data for the period from November 3,
1995, the date of inception, through December 31, 1995 are derived from the
Company's audited financial statements not included elsewhere in this
prospectus. The selected historical financial data as of March 31, 1999 and for
the three month periods ended March 31, 1998 and 1999 have been derived from
our unaudited financial statements included elsewhere in this prospectus. In
the opinion of our management, such unaudited financial statements have been
prepared on a basis consistent with the audited financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results for these periods and as of such date.
The selected financial data set forth below for the three months ended March
31, 1999 are not necessarily indicative of our future results of operations or
financial performance.
<TABLE>
<CAPTION>
Period
November 3,
1995
(date of Three
inception) Months Ended
to Year Ended December 31, March 31,
December 31, ------------------------- ----------------
1995 1996 1997 1998 1998 1999
------------ ------- ------- ------- ------- -------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue:
Content and services... $ -- $ -- $ 3 $ 132 $ 30 $ 58
Hardware............... -- -- 57 244 90 57
Other.................. -- -- -- -- -- 200
------ ------- ------- ------- ------- -------
Total revenue......... -- -- 60 376 120 315
------ ------- ------- ------- ------- -------
Operating expenses:
Cost of content and
services revenue...... -- -- 78 372 75 152
Cost of hardware
revenue............... -- -- 252 556 255 63
Production expenses.... -- 684 1,982 1,639 486 495
Research and
development........... 49 1,810 2,672 1,641 389 320
Write-down related to
hardware business..... -- -- -- 952 -- --
Sales and marketing.... -- 256 1,227 1,453 272 396
General and
administrative........ -- 787 1,921 1,838 481 417
------ ------- ------- ------- ------- -------
Total operating
expenses............. 49 3,536 8,133 8,453 1,958 1,844
------ ------- ------- ------- ------- -------
Loss from operations. (49) (3,536) (8,073) (8,076) (1,838) (1,529)
------ ------- ------- ------- ------- -------
Other (income)
expense, net........ -- (27) (44) 62 6 (67)
------ ------- ------- ------- ------- -------
Net loss................ $ (49) $(3,509) $(8,029) $(8,138) $(1,844) $(1,461)
====== ======= ======= ======= ======= =======
Basic and diluted net
loss per common share.. $(0.03) $ (1.66) $ (2.24) $ (1.72) $ (0.42) $ (0.29)
Weighted average shares
outstanding............ 1,500 2,118 3,586 4,731 4,372 4,968
Proforma basic and
diluted net loss per
common share........... (0.02) (0.96) (1.00) (0.75) (0.19) (0.11)
Proforma weighted
average shares
outstanding............ 2,034 3,660 8,045 10,861 9,806 13,819
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
------------------------------ ------------------
1995 1996 1997 1998 Actual Pro Forma
---- ------ ------- ------- ------- ---------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents... $388 $ 758 $ 646 $10,526 $ 9,652 $9,652
Total assets................ 435 1,036 3,013 11,600 10,991 10,991
Noncurrent liabilities...... -- 128 842 478 377 377
Redeemable preferred stock.. 389 3,430 12,378 27,725 28,719 --
Total stockholders'
(deficit) equity........... (19) (3,488) (11,427) (19,529) (20,950) 7,770
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Historical Financial
Data" and our financial statements and notes thereto appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
Overview
We are the leading provider of Internet-delivered premium spoken audio
content for playback on personal computers and mobile devices. We have the
largest and most diverse collection of premium digital spoken audio content
available for download on the Internet for playback on personal computers and
mobile devices, most of which is currently available only through us. We were
incorporated in 1995, commenced commercial operations in October 1997 and are
currently in the development stage.
In order to test consumer behavior, demonstrate to content providers the
viability of digital distribution of audio content and test our business model,
we designed, created and sold limited numbers of our own Internet-enabled
mobile audio playback device, the Audible MobilePlayer. We have historically
derived the majority of our revenue through the sale of this device. We expect
this revenue to decrease and eventually phase out as we discontinue the
production of the player and sell our remaining inventory. Our primary focus is
the aggregation and delivery of digital spoken audio content, and, in the
future, we will depend upon computer and consumer electronics companies to
manufacture and sell devices that are AudibleReady. The first of these devices
became commercially available in April 1999. Revenue from the sale of audio
content through our Web site has increased in each of the last four quarters.
We expect that within the next several quarters the sales of Audible content
and our other services will increase and account for the majority of our
revenue. As of March 31, 1999, more than 3,900 customers had purchased content
from our Web site.
Although we have experienced revenue growth in our content sales in recent
periods, there can be no assurance that such growth rates are sustainable, and
therefore such growth rates should not be considered indicative of future
operating results. There can also be no assurance that we will be able to
continue to increase our revenue or attain profitability or, if increases in
revenue and profitability are achieved, that they can be sustained. We believe
that period-to-period comparisons of our historical operating results are not
meaningful and should not be relied upon as an indication of future
performance.
We recognize revenue from content sales in the period when content is
downloaded. Typically, we pay our content providers a 12% royalty based upon
net sales of the content downloaded by our customers. Some of our content
agreements require us to make advance royalty payments for minimum guarantees
which are amortized on a straight-line basis over the term of the agreement or
are expensed as royalties are earned, whichever is sooner.
We recognize revenue from subscriptions pro rata over the subscription term.
Royalty expense on subscriptions is currently accrued on the full subscription
price in the month the subscription is purchased. We plan to implement a
financial reporting system that will allow us to pro rate the accrual on the
subscription royalty over the term of the subscription.
We recognize revenue from sales of the Audible MobilePlayer upon shipment.
We recognize revenue from audio production and hosting services as the services
are performed.
In November 1998, we entered into an agreement with Microsoft, one of our
stockholders, to develop certain integration of products, grant various rights
and licenses and provide for Microsoft to be paid future
18
<PAGE>
royalties for content distributed as a result of the customized software
developed under the agreement. Microsoft committed a minimum of $2.0 million in
payments to us over the course of the five-year term of the agreement to
integrate certain products and acquire various rights and licenses. $200,000 of
these payments were recognized as other revenue in the quarter ended March 31,
1999. $1.5 million of these payments were advanced in the three months ended
December 31, 1998, but have not yet been recognized, and therefore appear on
our balance sheet as deferred revenue until we satisfy the associated
conditions. In addition, Microsoft will be paid a share of our future revenue
for content distributed as a result of the customized software developed under
the agreement. Microsoft has options under the agreement to acquire additional
rights and licenses and extend the term of the agreement for additional
financial consideration.
We are party to several joint marketing agreements, including ones with
device manufacturers such as Compaq, Creative Labs, Diamond Multimedia, Everex
and Philips. Under these agreements, our device manufacturers may receive a
portion of the revenue generated over a specified period of time by each new
Audible customer referred by them through the purchase of a new device. These
revenue sharing arrangements typically last one or two years from the date the
device user becomes an Audible customer.
We have only a limited operating history with which to evaluate our business
and prospects. Our limited operating history and emerging nature of the market
for Internet-delivered audio content makes predicting our future operating
results difficult. In addition, our prospects must be considered in light of
the risks and uncertainties encountered by companies in the early stages of
development in new and rapidly evolving markets, specifically the rapidly
evolving market for delivery of audio content over the Internet. These risks
include our ability to:
. acquire and retain customers;
. build awareness and acceptance of audible.com, the AudibleReady format
and AudibleReady devices;
. extend existing and acquire new content provider relationships; and
. manage growth to stay competitive and fulfill customer demand.
If we fail to manage these risks successfully, it would materially adversely
affect our financial performance.
We have incurred significant losses since inception, and as of March 31,
1999, we had an accumulated deficit of approximately $21.2 million. We believe
that our success will depend largely on our ability to extend our leadership
position as a provider of premium digital spoken audio content over the
Internet. Accordingly, we plan to invest heavily in sales and marketing and
content acquisition and production over the next several quarters, to add
additional personnel and to make capital expenditures to upgrade our systems
capacity.
19
<PAGE>
Results of Operations
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenue during 1997, 1998 and for the three
months ended March 31, 1998 and 1999. We had no revenue in 1996.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
---------------- ----------------
1997 1998 1998 1999
------- ------ ------- ------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Content and services...... 5% 35% 25% 18%
Hardware.................. 95 65 75 18
Other..................... -- -- -- 64
------- ------ ------- -----
Total revenue........... 100% 100% 100% 100%
------- ------ ------- -----
Operating expenses:
Cost of content and
services revenue......... 130 99 63 48
Cost of hardware revenue.. 418 148 212 20
Production expenses....... 3,289 436 403 157
Research and development . 4,433 437 323 102
Write-down related to
hardware business........ -- 253 -- --
Sales and marketing....... 2,037 386 226 126
General and
administrative........... 3,187 489 399 132
------- ------ ------- -----
Total operating
expenses............... 13,494 2,248 1,626 585
------- ------ ------- -----
Loss from operations........ (13,394) (2,148) (1,526) (485)
------- ------ ------- -----
Other (income) expense:
Interest income........... (251) (14) (9) (26)
Interest expense.......... 178 30 14 5
------- ------ ------- -----
Total other (income)
expense................ (73) 16 5 (21)
------- ------ ------- -----
Net loss.................... (13,321)% (2,164)% (1,531)% (464)%
======= ====== ======= =====
</TABLE>
Three months ended March 31, 1999 and 1998
Total revenue. Total revenue for the three months ended March 31, 1999, was
$315,000, as compared to $120,000 for the three months ended March 31, 1998, an
increase of $195,000, or 162%.
Content and services. Content and services revenue for the three months
ended March 31, 1999, was $58,000, as compared to $30,000 for the three months
ended March 31, 1998, an increase of $28,000, or 92%. Content and services
revenue increased primarily as a result of our increased customer base.
Hardware. Hardware revenue for the three months ended March 31, 1999, was
$57,000, as compared to $90,000 for the three months ended March 31, 1998, a
decrease of $33,000, or 37%. Hardware revenue decreased as we de-emphasize the
sale of the Audible MobilePlayer in anticipation of the adoption of mobile
devices produced by our manufacturing partners. Hardware revenue also decreased
due to the sale of the MobilePlayer at a reduced introductory price with a
minimum monthly content purchase commitment.
Other. Other revenue for the three months ended March 31, 1999, was
$200,000, as compared to no other revenue for the three months ended March 31,
1998. Other revenue consisted of services provided pursuant to our agreement
with Microsoft.
Operating expenses.
Cost of content and services revenue. Cost of content and services revenue
consists primarily of amortized minimum guarantees and royalties earned by
content providers. Minimum guarantees are amortized
20
<PAGE>
on a straight-line basis over the terms of the content agreements or are
expensed as royalties when earned, whichever is sooner. Cost of content and
services revenue was $152,000, or 262% of content and services revenue, for the
three months ended March 31, 1999, as compared to $75,000, or 250% of content
and services revenue, for the three months ended March 31, 1998. This increase
was primarily due to the acquisition of additional content licenses and
resulting amortization of new content agreement guarantees. Earned royalties
were $11,000, or 19% of content and services revenue, for the three months
ended March 31, 1999, and $4,000, or 13% of content and services revenue, for
the three months ended March 31, 1998. Amortization of minimum guarantees was
$141,000 for the three months ended March 31, 1999, and $72,000 for the three
months ended March 31, 1998.
Cost of hardware revenue. Cost of hardware revenue consists primarily of the
cost of manufacturing the Audible MobilePlayers sold, write-down of
MobilePlayers in inventory to their estimated net realizable value prior to
September 30, 1998, packaging and collateral material, and fulfillment and
shipping costs. Cost of hardware revenue was $63,000, or 110% of hardware
revenue, for the three months ended March 31, 1999, as compared to $255,000, or
283% of hardware revenue, for the three months ended March 31, 1998. This
decrease was primarily due to write-downs of inventory units to their net
realizable value.
Production expenses. Production expenses consist primarily of personnel and
outsourced costs to support our infrastructure and systems including our Web
site, internal data communications, audio production activities and acquisition
of content. Production expenses were $495,000 for the three months ended March
31, 1999, as compared to $486,000 for the three months ended March 31, 1998, an
increase of $9,000, or 2%. This increase was primarily due to increased audio
production.
Research and development. Research and development expenses are expensed as
incurred and consist of costs incurred in the development of our Web site and
AudibleManager, the software that enables customers to download and manage our
audio content. In 1998, research and development costs consisted primarily of
costs incurred under agreements for the continued design and manufacture of the
Audible MobilePlayer. Research and development costs were $320,000 for the
three months ended March 31, 1999, as compared to $389,000 for the three months
ended March 31, 1998, a decrease of $69,000, or 18%. This decrease was
primarily due to reduced costs resulting from discontinuing the design of the
Audible MobilePlayer, offset by increased personnel and outsourced costs in the
development of new AudibleReady formats.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, advertising, travel, promotional materials, tradeshows and
public relations. Sales and marketing expenses were $396,000 for the three
months ended March 31, 1999, as compared to $272,000 for the three months ended
March 31, 1998, an increase of $124,000, or 46%. This increase was primarily
due to an increase in personnel and advertising costs.
General and administrative. General and administrative expense consists
primarily of administrative and business development personnel costs, legal and
accounting fees, recruiting costs and facility costs. General and
administrative expense was $417,000 for the three months ended March 31, 1999,
as compared to $481,000 for the three months ended March 31, 1998, a decrease
of $64,000, or 13%. This decrease was primarily due to reduced administrative
personnel costs as a result of lower headcount.
Interest income. Interest income, consists primarily of interest income
earned on our cash and cash equivalents balances. Interest income was $83,000
for the three months ended March 31, 1999, as compared to $11,000 for the three
months ended March 31, 1998, an increase of $72,000. This increase was
primarily due to additional interest income resulting from a higher average
cash and cash equivalent balance during the three months ended March 31, 1999.
Interest expense. Interest expense consists of interest paid in connection
with our capital equipment lease line. Interest expense was $15,000 for the
three months ended March 31, 1999, as compared to $17,000 for the three months
ended March 31, 1998, a decrease of $2,000. This decrease was primarily due to
the lower principal balance on our capital equipment lease line.
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Years ended December 31, 1998 and 1997
Total revenue. Total revenue for the year ended December 31, 1998, was
$376,000, as compared to $60,000 for the year ended December 31, 1997, an
increase of $316,000, or 524%.
Content and services. Content and services revenue for the year ended
December 31, 1998, was $132,000, as compared to $3,000 for the year ended
December 31, 1997, an increase of $129,000. Content and services revenue
increased as a result of our increased customer base.
Hardware. Hardware revenue for the year ended December 31, 1998, was
$244,000, as compared to $57,000 for the year ended December 31, 1997, an
increase of $186,000, or 324%. Hardware revenue increased as the number of
MobilePlayers sold increased which was partly offset by a reduction in their
price.
Operating expenses.
Cost of content and services revenue. Cost of content sales and services
revenue was $372,000, or 281% of content and services revenue, for the year
ended December 31, 1998, as compared to $78,000, for the year ended December
31, 1997. This increase was primarily due to the acquisition of additional
content and resulting amortization of minimum guarantees of new content
contract. Earned royalties were $24,000, or 18% of content and services
revenue, for the year ended December 31, 1998, and $2,000, or 82% of content
and services revenue, for the year ended December 31, 1997. Amortization of
contract guarantees was $349,000 for the year ended December 31, 1998, and
$76,000 for the year ended December 31, 1997.
Cost of hardware revenue. Cost of hardware revenue was $556,000, or 228% of
hardware revenue, for the year ended December 31, 1998, as compared to $252,000
for the year ended December 31, 1997, an increase of $304,000, or 120%. This
increase was primarily due to the increase in the total number of MobilePlayers
sold.
Production expenses. Production expenses were $1.6 million for the year
ended December 31, 1998, as compared to $2.0 million for the year ended
December 31, 1997, a decrease of $343,000, or 17%. This decrease was primarily
due to the reduction of personnel and outsourced costs following the completion
and launch of our Web site and the production of our initial audio content in
1997.
Research and development. Research and development expenses were $1.6
million for the year ended December 31, 1998, as compared to $2.7 million for
the year ended December 31, 1997, a decrease of $1.0 million, or 39%. This
decrease was primarily due to completion of the development in 1997 of the
Audible MobilePlayer, the completion of our Web site and of Version 1.0 of the
AudibleManager software.
Write-down related to hardware business. Write-down related to hardware
business was $952,000 for the year ended December 31, 1998. This charge
comprises a reduction of $370,000 in the carrying value of the remaining
inventory of Audible MobilePlayers, the impairment loss of $181,000 on certain
molds and manufacturing equipment and a charge of $401,000 to satisfy any
remaining purchase commitments under the agreement.
Sales and marketing. Sales and marketing expenses were $1.5 million for the
year ended December 31, 1998, as compared to $1.2 million for the year ended
December 31, 1997, an increase of $226,000, or 18%. This increase was primarily
due to increased personnel and advertising costs.
General and administrative. General and administrative expense was $1.8
million for the year ended December 31, 1998, as compared to $1.9 million for
the year ended December 31, 1997, a decrease of $83,000, or 4%. This decrease
was primarily due to a reduction in administrative personnel costs.
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Interest income. Interest income was $53,000 for the year ended December 31,
1998, as compared to $151,000 for the year ended December 31, 1997, a decrease
of $98,000, or 65%. This decrease was primarily due to a lower average cash and
cash equivalent balance during the year ended December 31, 1998.
Interest expense. Interest expense was $115,000 for the year ended December
31, 1998, as compared to $107,000 for the year ended December 31, 1997, an
increase of $8,000, or 7%. This increase was primarily due to additional
interest expense resulting from increased obligations under our capital
equipment lease line during 1998.
Years ended December 31, 1997 and 1996
Total revenue. Total revenue for the year ended December 31, 1997 was
$60,000 primarily from the sale of Audible MobilePlayers, and we had no revenue
for the year ended December 31, 1996.
Operating expenses.
Production expenses. Production expenses were $2.0 million for the year
ended December 31, 1997, as compared to $684,000 for the year ended December
31, 1996, an increase of $1.3 million, or 190%. This increase was primarily due
to increased personnel in connection with audio production, content acquisition
and Web site development and outsourced costs in preparation for the launch of
the Audible service in late 1997.
Research and development. Research and development expenses were $2.7
million for the year ended December 31, 1997, as compared to $1.8 million for
the year ended December 31, 1996, an increase of $862,000, or 48%. This
increase was primarily due to increased personnel in connection with the
development of the Audible MobilePlayers and outsourced development costs in
preparation for the launch of the Audible service in late 1997.
Sales and marketing. Sales and marketing expenses were $1.2 million for the
year ended December 31, 1997, as compared to $256,000 for the year ended
December 31, 1996, an increase of $971,000, or 379%. This increase was
primarily due to increased personnel as we commenced our sales and marketing
activities and other marketing costs in preparation for the launch of the
Audible service in late 1997.
General and administrative. General and administrative expense was $1.9
million for the year ended December 31, 1997, as compared to $787,000 for the
year ended December 31, 1996, an increase of $1.1 million or 144%. This
increase was primarily due to increased personnel and facility costs in
preparation for the launch of the Audible service in late 1997.
Interest income. Interest income was $151,000 for the year ended December
31, 1997, as compared to $28,000 for the year ended December 31, 1996, an
increase of $123,000, or 435%. This increase was primarily due to the interest
income resulting from a higher average cash and cash equivalent balance during
1997.
Interest expense. Interest expense was $107,000 for the year ended December
31, 1997, as compared to $750 for the year ended December 31, 1996. This
increase was primarily due to additional interest expense resulting from the
origination of obligations under our lease line which was used to purchase
capital equipment during 1997.
Factors Affecting Operating Results
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future as a result of
a variety of factors, many of which are outside of our control. Factors that
may affect our quarterly operating results include but are not limited to: (1)
the demand for the Audible service; (2) the availability of premium audio
content; (3) sales and consumer usage of AudibleReady devices; (4) the
introduction of new products or services by a competitor; (5) the cost and
availability of acquiring sufficient capacity to meet our customers' needs; (6)
technical difficulties with our computer system or the Internet or system
downtime; (7) the cost of acquiring audio content; (8) the amount and timing of
capital expenditures and other costs relating to the expansion of our
operations; and (9) general economic conditions and economic conditions
specific to electronic commerce and online media. Any one of these factors
could cause our revenue and operating results to vary significantly in the
future. In addition, as a strategic response to
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changes in the competitive environment, we may from time to time make certain
pricing, service or marketing decisions or acquisitions that could cause
significant declines in our quarterly operating revenue.
Our limited operating history and the emerging nature of our market make
prediction of future revenue difficult. We have no assurance that we will be
able to predict our future revenue accurately. Because we have a number of
fixed expenses, we may be unable to adjust our spending in a timely manner to
compensate for unexpected revenue shortfalls. Accordingly, any significant
shortfall in relation to our expectations could cause significant declines in
our operating results. We believe that our quarterly revenue, expenses and
operating results could vary significantly in the future, and that period-to-
period comparisons should not be relied upon as indications of future
performance. Due to the foregoing factors, it is likely that in some future
quarters our operating results will fall below the expectations of securities
analysts and investors, which could have a material adverse effect on the
trading price of our common stock.
Liquidity and Capital Resources
From inception, we have financed our operations through private sales of our
redeemable convertible preferred stock and warrants. Net proceeds from
inception to March 31, 1999 are approximately $28.7 million. At March 31, 1999,
our principal source of liquidity was approximately $9.6 million of cash and
cash equivalents. At March 31, 1999, our principal commitments consisted of
obligations under our capital lease line, which allows us to purchase up to
$1.8 million of equipment, operating lease commitments, contractual commitments
with content providers and revenue sharing commitments pursuant to agreements
with device manufacturers. At March 31, 1999, we had leased approximately $1.2
million in equipment on this line and had an outstanding balance of
approximately $659,000.
Net cash used in operating activities was $2.6 million for 1996, $8.6
million for 1997, $5.0 million for 1998 and $1.7 million for the three months
ended March 31, 1999. Net cash used in all such periods was primarily
attributable to increases in inventory, offset in part by increases in deferred
revenue, accounts payable and accrued liabilities.
Net cash used in investing activities was $56,000 for 1996, $276,000 for
1997, $4,000 for 1998 and $97,000 for the three months ended March 31, 1999.
Net cash used in investing activities in all such periods were primarily
related to purchases of property and equipment and during 1997, we invested
$100,000 in an interest bearing note issued to a stockholder.
Net cash provided by financing activities was $3.0 million for 1996, $8.8
million for 1997, $14.9 million for 1998 and $908,000 for the three months
ended March 31, 1999. During 1998, we had a $1.0 million bank agreement to
provide letters of credit which expired in April 1999 and under which we did
not draw any amounts. During 1997, we had a $500,000 bank line of credit
agreement under which we drew the full amount. This line expired in December
31, 1997 and prior to such time, the balance had been paid in full. Net cash
provided by financing activities resulted primarily from the issuance of our
redeemable convertible preferred stock offset by capital lease payments.
As of December 31, 1998, we had available net operating loss carryforwards
totaling $10.7 million, which expire beginning in 2010. The Tax Reform Act of
1986 imposes limitations on our use of net operating loss carryforwards because
certain stock ownership changes have occurred.
We believe the net proceeds from this offering, together with our current
cash and cash equivalents, will be sufficient to meet our anticipated cash
requirements for at least the next 12 months. We plan to use the proceeds of
this offering to increase our sales and marketing efforts, acquire new content,
extend our arrangements with our current content providers, add additional
personnel and make capital expenditures to
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upgrade our systems capacity. In the future, we may need to raise additional
funds through public or private financing, or other arrangements. We have no
assurance that such additional financing, if needed, will be available on
terms favorable to us or to our stockholders.
Year 2000 Readiness
General
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit
format. If not addressed, these computer systems will be unable to properly
interpret dates beyond the year 1999, which could lead to business
disruptions. The potential costs and uncertainties associated with the Year
2000 issue will depend on a number of factors, including software, hardware
and the nature of the industry in which a company operates.
We have instituted a company-wide project for addressing the Year 2000
issue. We are integrating this project with a project involving the upgrade of
our Web site. The Year 2000 project is divided into two parts--System
Infrastructure Upgrades and Vendor Compliance. These sections are discussed
separately below. The project is on schedule for completion by the end of the
third quarter 1999.
System Infrastructure Upgrades
We intend to achieve Year 2000 compliance for our internal systems by the
end of the third quarter of 1999. Our limited number of personal computers and
application systems are anticipated to facilitate rapid progress toward full
Year 2000 compliance. We are in the process of upgrading to more recent
versions of operating systems software that are certified to be ready for the
Year 2000.
We intend to continue to work to achieve Year 2000 compliance for our
systems using a methodology that incorporates the following steps:
. update the inventory of computer hardware, software and miscellaneous
network components,
. evaluate application development environment compliance,
. conduct overall assessment of systems infrastructure compliance,
. complete business risk analysis,
. take remedial actions (upgrade, repair, replace, retire or retain),
and
. develop appropriate contingency plans, and develop and implement
regimes to test Year 2000 compliance for mission-critical systems.
We are at the remedial action stage, and we currently anticipate completion
of this process by the end of the third quarter 1999 in order to avoid Year
2000 impact on our systems.
Vendor Compliance
This section includes the process of identifying and prioritizing critical
suppliers of technology and communicating with them about their plans and
progress in addressing the Year 2000 problem. This process will include not
only manufacturers with which we have agreements, but also providers of
insurance, financial and other services.
Our vendor compliance program will include the following steps:
. catalog and classify all vendors,
. on-site review and testing of out-sourced services or systems,
. review responses from vendors to determine the level of compliance,
. determine the timing, method and cost of vendor solutions,
. assess vendor Year 2000 compliance and business risks, and
. develop remedial actions or contingency plans, as necessary.
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We are at the remedial action stage of this program. Achievement of vendor
Year 2000 compliance is anticipated to be an on-going effort during 1999. The
current target to achieve compliance or complete contingency plans is by the
end of the third quarter 1999.
Costs
The estimated cost to compete the Year 2000 compliance project is
approximately $100,000, not including software and hardware upgrades already
budgeted as part of our next generation Web site. These costs are expected to
be incurred throughout 1999. These costs will be incurred primarily for the use
of outside consultants, setting up Year 2000 testing environments and the
replacement of existing software and hardware.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, our Web site and certain normal business
activities or operations. Such failures could materially and adversely affect
our business, financial condition and results of operations. Moreover, even if
we successfully remediate our Year 2000 issues, we can be materially and
adversely affected by failures of our vendors to remediate their own Year 2000
issues. The failure of our vendors with which we have financial or operational
relationships to remediate their computer and non-information technology
systems issues in a timely manner could result in a material financial risk to
us. Due to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of vendors, we are
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on our business, financial condition and results of
operations. Accordingly, we may experience business interruption or shutdown,
financial loss, damage to our reputation and legal liability. We believe that,
with the implementation of new business systems and completion of the project
as scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Our expectations about future costs and the timely completion of our Year
2000 project are subject to uncertainties that could cause actual results to
differ materially from what has been discussed above. Factors that could
influence the amount of future costs and the effective timing of remediation
efforts include our success in identifying computer programs and non-
information technology systems that contain two-digit year codes, the nature
and amount of programming and testing required to upgrade or replace each of
the affected programs and systems, the rate and magnitude of related labor and
consulting costs, and the success of our vendors in addressing the Year 2000
issue.
In addition, we cannot assure you that Internet access companies, utility
companies and telecommunications providers will be Year 2000 compliant. The
failure by these companies to be Year 2000 compliant could result in a
systematic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could prevent us from
delivering the Audible service to our customers, decrease the use of the
Internet or prevent users from accessing audible.com, would have a material
adverse effect on our business, results of operations and financial condition.
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BUSINESS
We are the leading provider of Internet-delivered premium spoken audio
content for playback on personal computers and mobile devices. Visitors can
browse, sample, purchase, subscribe, schedule and download more than 15,000
hours of audio content available on our Web site, including audio versions of
books, periodicals and radio programs. Several manufacturers have agreed to
support the AudibleReady format on their mobile audio-enabled devices.
Our solution leverages the increasing usage of the Internet and the
introduction of audio-enabled mobile devices to enable consumers to more
efficiently manage and control how they select, organize and listen to audio
content. In contrast to traditional radio broadcasts, the Audible service
offers customers access to content of their choice and the ability to listen to
what they want, when and where they want--whether commuting, exercising,
relaxing or sitting at their personal computers. Furthermore, unlike
traditional and online bookstores which are subject to physical inventory
constraints and shipping delays, we provide a selection that is readily
available in digital format that can be quickly delivered over the Internet
directly to our customers.
By aggregating premium audio content and providing a system for secure
distribution of digital spoken audio, we create incremental sources of revenue
for a variety of partners. For example, we provide new sources of revenue for
publishers of newspapers, magazines, journals, newsletters, professional
publications and business information and producers of radio broadcasts. In
addition, our service provides manufacturers of mobile audio-enabled devices
with a new application and enables our technology and distribution partners to
provide our wide selection of content to their customers.
Industry Overview
Public demand for entertainment, information and educational media continues
to grow as sources for this content proliferate. Veronis, Suhler & Associates
estimates that the communications industry exceeded $300 billion in revenues in
1997, increasing from less than $60 billion in 1977. During 1997, Americans on
average spent more than 3,300 hours reading, watching or listening to media
content from a large number of disparate sources. We believe that many
consumers feel overwhelmed by the vast amount of available media and seek a
better way to manage this content.
Listening is a way for individuals to consume this content at times when
they are unable to read, such as when they are driving. A 1996 market study by
the Yankee Group indicates that 87% of automobile commuters listened to the
radio an average of 50 minutes a day while commuting. According to the
Department of Transportation, in 1990, 84 million people drove to and from work
alone, an increase of 35% from 1980. As individuals look to use their commuting
time more efficiently and manage an increasing amount of available content,
audiobooks have emerged as a personalized "pay-to-listen" alternative to radio,
which does not allow listeners to control when they listen to a particular
program. Americans spent $2.0 billion on spoken word audio tapes in 1998, an
increase from $1.6 billion in 1996. This increasing usage of audiobooks exists
despite limited types of content, high prices and the limitations of cassette
tape players. For instance, the audiobook market does not address timely print
content such as newspapers, newsletters, magazines and journals.
Recently, the Internet has emerged as a significant global communications
medium enabling millions of people to access and share information. Through the
Internet, users have the ability to quickly receive information in various
forms, from text and multimedia to newer technologies such as streaming audio.
Jupiter Communications estimates that over 33% of all Internet users listen to
Internet-delivered audio on their personal computers. However, the current
audio environment available on the Internet generally restricts consumers to
listening at their personal computers. Consumer electronics and computer
manufacturers are addressing this constraint by developing a new generation of
mobile devices that are capable of playing back downloaded audio content.
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IDC estimates that shipments of hand-held companion devices exceeded 4.5
million units in 1998 and will increase to over 14 million by 2002. We believe
seven million of these mobile devices will be audio-enabled by the year 2002.
This estimate does not include the recent appearance of Internet-connected
music players. According to Forrester Research, the installed base of Internet-
connected music players are estimated to reach one million units in 1999 and 17
million units in 2002.
The confluence of the Internet as an increasingly accepted media
distribution channel, the widespread adoption of audio-enabled mobile devices
and the continuing growth in consumer demand for content in a variety of
formats, has resulted in new challenges for the media industry. These
challenges include creating a system that takes advantage of revenue
opportunities by making content readily accessible through the Internet while
compensating publishers and other content creators and preventing unauthorized
duplication and distribution. This creates an opportunity for a provider who
can establish a secure system for Internet delivery of premium audio content.
Our Solution
We have created the Audible service, the first solution for secure delivery
of premium digital spoken audio content over the Internet for playback on
personal computers and mobile devices. Our service allows customers to program
their listening time with personalized selections from a wide collection of
spoken audio content available on audible.com, our Web site, including
entertainment, news, education and business information. We have assembled the
largest and most diverse collection of premium spoken audio content available
for download on the Internet for playback on personal computers and mobile
devices in most cases, currently available only through us and, in many cases,
pursuant to exclusive license rights. We have more than 15,000 hours of audio
content available on our Web site, including audio versions of books and
periodicals such as The New York Times, The Wall Street Journal and The
Economist, and radio programs such as Car Talk, Fresh Air, Marketplace and News
From Lake Wobegon. We provide over 2,800 audio versions of books from
publishers, including Bantam Doubleday Dell Audio Publishing and Random House
Audio Publishing, each a division of Random House, Inc., Dove Audio, Harper
Audio, Simon & Schuster Audio and Time Warner AudioBooks, and written by
authors such as Dave Barry, John Grisham, Stephen King, Sidney Sheldon and Amy
Tan. We believe that our extensive audio content collection and our secure
delivery system provide benefits to our customers, content providers, mobile
device manufacturing partners and technology and distribution partners.
Benefits to Customers:
Unlike the traditional ways consumers select, organize and consume audio
content, Audible customers can access content of their choice and listen when,
where and how they want--whether commuting, exercising, relaxing or sitting at
their personal computers.
Selection. At our Web site, audible.com, customers can browse and purchase
from a large and diverse collection of readily available premium spoken audio
content, most of which is currently available only through us in digital format
for Internet distribution. Our collection includes over 2,800 digital
audiobooks in a wide variety of categories from more than 1,500 authors. We are
the only source of timely digital audio editions of leading newspapers and
selected periodicals. We also offer popular and special interest radio
programming, including interviews, commentaries and talk radio. Our collection
also contains selections that are difficult to find or may not otherwise be
readily or conveniently available to customers, such as lectures and speeches.
We have over 4,200 of these other audio selections in addition to our
audiobooks.
Convenience. audible.com provides customers with one-stop shopping for their
premium digital spoken audio needs. Our customers can browse and sample spoken
audio selections through our easy to navigate Web site. Our customers can
purchase bundled packages of selected audio content and choose automated
delivery of timely audio content on a subscription basis. Unlike traditional
and online bookstores, which are subject to physical inventory constraints and
shipping delays, we provide a selection that is readily available in digital
format that can be quickly delivered over the Internet directly to our
customers.
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Listening Experience. Unlike radio, which offers limited programming and no
ability for the listener to control broadcast times, our service enables
customers to take greater control of the listening experience. Customers decide
to listen to what they want, when and where they want. Our service allows
customers to skip between selections or individual articles or chapters within
selections. Customers can pause and resume listening where they left off and
can "bookmark" multiple sections of content, rather than be constrained by the
rewind and fast forward functions of cassette tape players.
Lower Prices. We provide customers with lower priced spoken audio content
because we do not incur the costs of traditional audio content manufacture and
distribution. For example, on April 15, 1999, the unabridged digital audio
version of Stephen King's new novel, The Girl Who Loved Tom Gordon, sold for
$10.95 on audible.com compared to the cassette version price of $20.97 plus
shipping through Amazon.com. By comparison, the manufacturer's suggested retail
price for the same title was $29.95 for cassette tape and $44.95 for compact
disc.
Benefits to our partners:
We help content creators, device manufacturers and our other technology and
distribution partners create incremental sources of revenue by aggregating
premium content and providing a widely-accepted system for digital spoken audio
distribution. We are the first to offer a solution that addresses the needs of
our partners which has allowed us to establish a leadership position in our
market.
Content creators. We provide a new source of revenue for publishers of
newspapers, magazines, journals, newsletters, professional publications and
business information and producers of radio broadcasts by creating a new market
for content that is too timely for distribution on cassette tape and too
specialized for widely-broadcast radio programs. Additionally, our electronic
delivery service offers publishers of audiobooks a new distribution channel for
their existing audiobook content. Older publications, including archived or
out-of-print content, when converted to digital audio form, can also provide
additional revenue while incurring relatively low costs for storing and
delivering electronic inventory. Our solution has the benefit of reducing the
risk of audio files being copied without authorization by employing a system
designed to limit playback of audio files to specifically identified personal
computers and mobile devices.
Device manufacturers. Major manufacturers of mobile audio-enabled devices,
such as Compaq, Creative Labs, Diamond Multimedia, Everex and Philips, have
agreed to support the Audible format. Our service provides these manufacturers
with an attractive application that takes advantage of the audio capability of
their devices, which may, in turn, increase their sales. In most cases, these
manufacturers also receive a portion of the revenue generated over a specified
period of time by each new Audible customer referred by them through the
purchase of a new device.
Other technology and distribution partners. We have entered into agreements
with Microsoft, MP3.com, RealNetworks and Softbank to allow their customers to
access Audible content and our technology, either directly or indirectly. In
return, we have access to additional distribution outlets. We have agreed with
these partners to share a portion of revenue from sales of our content to their
customers.
Our Strategy
Our objective is to enhance our position as the leading provider of
Internet-delivered premium spoken audio content. Key elements of our strategy
to achieve this goal include:
Increase brand awareness. We seek to make "Audible" a recognizable brand. We
intend to use the AudibleReady brand to signify that a device is enabled to
play back Audible content. We plan to enhance brand awareness of the Audible
service and increase visitors to our Web site by expanding our marketing
efforts through online initiatives, such as affiliate programs, sponsorships,
direct e-mail solicitations and banner advertisements. We will augment this
effort with offline initiatives, such as print advertisements, direct mail,
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radio advertisements and billboards. Our co-marketing agreements with
AudibleReady device manufacturers are key elements of our plans to make
potential customers aware of, and to encourage them to try, our service. As an
incentive for potential customers, we plan to work with our content partners to
provide a selection of free and discounted content samples. In addition, we
seek to partner with content providers as well as owners of Internet portals,
destinations and commerce sites to promote co-branded services to Internet
users.
Expand content collection. We plan to acquire more Internet distribution
rights to digital audio versions of books, newspapers, radio broadcasts,
magazines, journals, newsletters, conferences, seminars, performances,
lectures, speeches and television audio tracks. With selected content partners,
we plan to create additional, timely digital audio editions of newspapers,
periodicals and other written content not otherwise available to consumers in
audio format. We also intend to differentiate our service by expanding our
collection of original and topic-specific content, building a collection
unconstrained by traditional physical inventory concerns.
Enable additional mobile devices and systems to be AudibleReady. We intend
to continue to work with the manufacturers of mobile devices to enable these
devices to play Audible content. In addition to our agreements with Compaq,
Everex and Philips, we also seek to make future generations of MP3 audio
players AudibleReady. For instance, we have an agreement with Diamond
Multimedia to integrate the Audible format and security into future versions of
the Rio Internet music player. We are also seeking to expand the AudibleReady
program to include other mobile devices, such as smart phones, other hand held
computing devices as they become audio-enabled and automobile-based personal
computers.
Continue to improve the customer experience. We intend to make the Audible
service increasingly easy for customers to use and personalize. We intend to
take advantage of the flexibility of our online distribution system to offer a
variety of pricing and subscription models designed to maximize customer
satisfaction and to generate recurring revenue. We intend to enhance
audible.com to make it easier for customers to find specific selections and to
actively suggest selections that might be of interest to them based on their
prior purchasing patterns. We also intend to enhance our AudibleManager
software to make it simpler for customers to manage their personal audio
content selections and automate downloads and transfers of content to mobile
devices. In addition, we plan to improve the Audible system to improve the
clarity and fidelity of the sound and to play music and sound effects.
The Audible Service
Audible's integrated spoken audio delivery service includes four components:
(1) our Web site, audible.com; (2) our collection of digital audio content; (3)
AudibleManager, our Web-based client software for downloading, managing and
scheduling audio selections for playback; and (4) a variety of AudibleReady
devices.
[graphic displaying four components of the Audible service in circles and
pictures]
audible.com
Our Web site, audible.com, delivers through the Internet a large and diverse
selection of premium digital spoken audio content in a secure format. At
audible.com, visitors can browse, sample, purchase, subscribe, schedule and
download digital audio content. One hour of spoken audio, requiring about two
megabytes of storage, takes approximately 15 minutes to download to a personal
computer using a 28 kbps modem, approximately eight minutes using a 56 kbps
modem or approximately ten seconds using a high speed Internet connection, and
approximately six minutes to transfer the content from the personal computer to
an AudibleReady device.
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Digital audio content
We currently offer more than 2,800 digital audiobooks and more than 4,200
other audio selections comprising 15,000 hours of digital spoken audio content,
segmented in four categories:
. Audiobooks. We offer a wide selection of audiobooks from more than 1,500
authors. We offer both abridged (usually three to ten hours long) and
unabridged (usually five to 20 hours long) versions of original works,
read either by the authors or by professional narrators.
. Timely audio editions of print publications. Our service enables the
timely distribution of audio editions of newspapers and periodicals
previously available only in print. We offer a 40-minute daily audio
edition of The New York Times and a twice-daily audio version of The
Wall Street Journal. We also offer audio editions of The Harvard
Business Review, The Economist and numerous technology and investment
newsletters.
. Radio broadcasts. We offer popular and special-interest radio programs
shortly after they are originally broadcast so our customers have the
flexibility to listen to these programs when and where they want.
. Lectures, speeches, performances and other audio. We offer a broad
selection of lectures, speeches, dramatic and comedic performances,
educational and self-improvement materials, religious and spiritual
content, television audio tracks and other forms of spoken audio, many
of which are difficult to find from any other source. We also offer
specialty content created exclusively for audible.com.
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Following are examples drawn from the Audible collection, including prices
as of April 15, 1999:
Audiobooks
John Grisham: The Testament-- $9.95 (6 hours); $18.95 (unabridged 13 hours)
Stephen King: Bag of Bones--$10.95
John Berendt: Midnight in the Garden of Good and Evil--$6.95
Frank McCourt: Angela's Ashes--$6.95 (4 hours); $9.95 (unabridged 15 hours)
John Gray: Men Are From Mars, Women Are From Venus--$5.95
Margaret Atwood: Alias Grace--$9.95
Stephen W. Hawking: A Brief History of Time--$9.95
James McBride: The Color of Water--$6.95
Neale Donald Walsch: Conversations With God--$6.95
Scott Adams: The Dilbert Principle--$3.95
Geoffrey Moore: Inside the Tornado--$6.95
David Gardner and Tom Gardner: The Motley Fool's Rule Breakers, Rule Makers:
The Foolish Guide to Picking Stocks--$6.95
Michael Dell: Direct from Dell--$6.95
Jewel: A Night Without Armor--$3.95
James Patterson: When the Wind Blows-- $6.95
Amy Tan: The Joy Luck Club--$6.95
Robert Ludlum: The Bourne Identity--$5.95
Phillip Roth: American Pastoral--$9.95
Edward L. Fritsch and Nathan P. Rosenblatt: The Art and Skill of Conversation--
$5.95
Terry Pratchett: The Colour of Magic--$9.95
Dave Barry: Dave Barry Is from Mars and Venus--$8.95
Rebecca Wells: Divine Secrets of the Ya-Ya Sisterhood--$6.95
Douglas Adams: The Hitchhiker's Guide to the Galaxy--$8.95
Wally Lamb: I Know This Much Is True--$9.95
Dante Alighieri (translated by Robert Pinsky): The Inferno of Dante--$6.95
Eric Tyson: Investing for Dummies--$5.95
C.S. Lewis: The Screwtape Letters--$6.95
Timely Audio Summaries of Print Publications
The New York Times Audio Digest (The New York Times News Services, a Division
of the New York Times Company)--$.95 per daily issue; $49.95 for a 1-year
subscription
The Wall Street Journal on audible.com (Dow Jones & Company Inc.)--$.95 per
twice daily issue; $49.95 for a 1-year subscription
The Wall Street Journal Special Report (Dow Jones & Company, Inc.)--$6.95
The Economist Audio Digest (The Economist Newspaper NA Inc.)--$4.95 per monthly
edition; $14.95 for a 1-year subscription
Mitch Ratcliffe's Adventures in Technology (Internet/Media Strategies Inc)--
$2.95 per monthly edition; $14.95 for a 1-year subscription
Harvard Management Update (Harvard Business School Publishing)--$2.95 per
monthly edition; $14.95 for a 1-year subscription
The Harvard Business Review (Harvard Business School Publishing)--$2.95 per
article
James K. Glassman on Wall Street (James K. Glassman)--$2.95 per monthly column;
$14.95 for a 1-year subscription
Chris Shipley's DemoLetter (IDG Conference Management Company)--$1.95 per
monthly issue
Internet Business Report (Jupiter Communications)--$2.95 per monthly report
Radio and TV Broadcasts
Fresh Air (WHYY-FM)--$1.95 per daily broadcast; $49.95 for a 1-year
subscription
Marketplace (Marketplace Productions Inc.)--$.95 per daily broadcast; $49.95
for a 1-year subscription
Car Talk (Dewey, Cheetham and Howe d/b/a Tapet Brothers Associates)--$1.95 per
weekly broadcast; $15.95 for a 1-year subscription
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Science Friday (Samanna Productions, Inc)--$2.95 per weekly broadcast; $15.95
for a 1-year subscription
To the Best of Our Knowledge (Wisconsin Public Radio)--$1.95 per weekly
broadcast; $15.95 for a 1-year subscription
Sound Money (Minnesota Public Radio)--$1.95 per weekly broadcast; $15.95 for a
1-year subscription
News from Lake Wobegon (Minnesota Public Radio)--$.95 per weekly broadcast;
$15.95 for a 1-year subscription
Lectures, Speeches, Performances and Other Audio
Gartner Group: The Euro--$1.95
Winston Churchill: Churchill in His Own Voice--$5.95
William J. Clinton: Historic Presidential Speeches, Volume 6--$2.95
Scott McNealy: Technology, Pizza and the Internet--$2.95
Bill Gates: Where Does Microsoft Go Next?--$1.95
William Shakespeare: Hamlet--$8.95
Bob & Ray: A Night of Two Stars--$5.95
Time Life Audio: Lost Civilizations: Egypt--$5.95
We have licensed Internet distribution rights to audio content from more
than 100 publishers, producers of radio content and other content creators. Our
license agreements are typically for terms of one to three years, and many
provide us with exclusive Internet distribution rights. Under most licensing
arrangements, we pay the content creator a portion of the revenue we receive.
In some cases, we also pay a guaranteed advance against the content creator's
revenue share.
In most cases, we license audio recordings from publishers and content
creators. In other cases, such as with The New York Times, the morning read of
The Wall Street Journal, The Economist and The Harvard Business Review, we
create audio versions from the print publication. In all cases, we convert the
audio into our compressed, digital format.
Some of our content providers include:
Audio Literature CNBC/Dow Jones Business Video
Bantam Doubleday Dell Audio The Economist
Publishing, a division of Gartner Group
Random House, Inc. Harvard Business School
Blackstone Audiobooks Industry Standard
Books on Tape Marketplace Productions
Dove Audio The New York Times
Harper Audio/Caedmon Harper Audio The Wall Street Journal
New World Library The Teaching Company
Random House AudioBooks, Sounds True
a division of Random House, Inc. Stanford Audio
Simon & Schuster Audio Penguin Audiobooks
Time Warner AudioBooks
AudibleManager
The second generation of our AudibleManager software, which is generally
available in pre-release form on our Web site, is scheduled for commercial
release in May 1999. AudibleManager enables our customers to download and
listen to digital spoken audio content and transfer it to an AudibleReady
device for mobile playback. AudibleManager can also be used to organize
individual selections, to specify listening preferences and to manage delivery
options for subscriptions. Selections that exceed playback time limitations on
a
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customer's mobile device can be listened to over successive sessions by
reconnecting the device to the customer's personal computer and initiating a
synchronization command that automatically replaces the sections that have been
listened to with new content.
AudibleReady Program
We have formed several relationships with consumer electronics and computer
companies to make their mobile devices AudibleReady. To be included in the
AudibleReady program, these devices must include bundled software support for
playing our file format and for the transfer of content from a personal
computer to the devices. Unlike cassette tape or compact disc players,
AudibleReady devices offer fast navigation of the content through section
markers and bookmarks that can be set by the user. Users of AudibleReady
devices can skip between selections, individual articles or chapters,
effectively allowing them to control the listening experience. The device
manufacturers are generally required to promote the Audible service through a
variety of means, which may include (1) displaying the AudibleReady logo on
their devices, (2) displaying the AudibleReady logo on the outside of the
device package, (3) including our Audible and AudibleReady brochures inside the
device package and (4) referring to Audible and AudibleReady in their brochures
and manuals. In most cases, our partners receive a portion of the revenue
generated over a specific period of time by each new Audible customer referred
by the partner as a result of the purchase of a new device.
We have agreements with Compaq, Everex and Philips to bundle AudibleManager
with their Windows CE palm-size devices. We also have an agreement with Diamond
Multimedia, and are in discussions with Creative Labs, to make future versions
of their portable devices AudibleReady. We anticipate entering into agreements
with other palm-size device manufacturers, including Casio, with which we have
a letter of intent. In order to measure consumer behavior, to demonstrate to
content providers the viability of secure digital distribution of audio content
and to test the potential of our business model, we designed, created and sold
limited numbers of the MobilePlayer, which stores up to two hours of spoken
audio content, and the MobilePlayer PLUS, which stores up to seven hours of
spoken audio content. Content can be played back directly from these devices or
through a car stereo system using either an unused FM radio frequency or a
cassette tape adapter.
Other services
We also provide audio production and hosting services to corporations that
enable them to deliver in digital audio format training, analysis, marketing
and other information to their employees, suppliers and customers.
Technology
Our solution provides for the distribution of compressed digital spoken
audio files for playback on a personal computer or AudibleReady device. Our
solution is designed to facilitate the secure distribution and playback of
digital audio files to personal computers and mobile devices in order to reduce
the risk of audio files being copied without authorization. Audio files are
compressed for relatively fast downloads, scrambled and targeted to a
customer's personal computer or mobile device.
Most of the Audible content is encoded using a compression-decompression
technology that we have licensed and to which we have made proprietary
extensions to enable the security features of the system. We intend to support
other compression-decompression technologies in the future, which will offer
customers the flexibility to choose higher fidelity sound in exchange for
increased download time and increased storage requirements. We have designed an
audio production process to record, edit, encode, segment, categorize, secure
and upload content to our Web site. Our Web site, hosted by QWEST, runs on a
Sun server.
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As of March 31, 1999, our research and development team consisted of
approximately ten developers and engineers, as well as several outside
contractors, who develop and upgrade the AudibleManager software, interfaces to
AudibleReady devices, audible.com and the system architecture. Our production
team comprises business developers, professional readers, audio editors, copy
editors, merchandisers and Web authors and editors. As of March 31, 1999, we
had 14 employees and several contractors involved in audio production who
regularly produce new audio for the site.
Strategic Relationships
In addition to our arrangements with Casio, Compaq, Everex, MP3.com, Philips
and Softbank, we have entered into strategic development and marketing
arrangements with Microsoft, RealNetworks and Diamond Multimedia.
Microsoft. Our agreement with Microsoft involves several development
projects including Windows CE, Windows Media Player, Digital Rights Management,
Microsoft's electronic books initiative and Microsoft's Auto PC platform.
Microsoft has made a minority investment in our company and has committed to
pay certain fees over the next five years for technology development,
technology licensing and content licensing. We have also agreed to share a
portion of the revenue generated over a specified period of time by each new
Audible customer referred by Microsoft through the purchase of a Microsoft
device or through the Microsoft Web site.
RealNetworks. Our agreement with RealNetworks has a variety of components.
We plan to develop software that will allow users of RealNetworks' personal
computer audio playback software to access, purchase and listen to Audible
content. We also plan to cooperatively distribute portions of Audible content
through RealNetworks' e-commerce initiatives, and we plan to advertise on
various RealNetworks' Web sites.
Diamond Multimedia. Under the terms of our development and marketing
agreement with Diamond Multimedia, we will collaborate to make the next
generation Rio Internet Music Player AudibleReady. Our collaboration will
facilitate access to the entire collection of Audible content using our
security, management and playback system. We plan to actively promote the
Audible/Rio service in joint marketing activities. We and Diamond Multimedia
will share revenue for referring customers to each other. In addition, we will
collaborate to integrate a future release of the AudibleManager software with a
future release of the Rio Manager software.
Sales and Marketing
Since our inception, we have focused on building our content collection,
developing the Audible service and working with manufacturers to make their
devices AudibleReady. Until recently, we have limited our marketing activities
primarily to public relations and test marketing initiatives. With the
commercial release of Version 2.0 of the AudibleManager software and the
release by our manufacturing partners of AudibleReady devices, we plan to
increase the level and breadth of our sales and marketing activities. We intend
to initially focus our marketing efforts primarily on commuters and mobile
professionals. We intend to use a combination of online and traditional media
methods for sales, marketing and promotional purposes, including the following:
Advertising. We plan to use a combination of advertising techniques to
enhance the Audible brand and attract customers to our service. Online
techniques may include free content offers, affiliate programs, sponsorships,
direct e-mail solicitations and banner advertisements. Offline techniques may
include print advertisements, direct mail, radio advertisements, billboards and
retail store promotions.
Co-marketing. We intend to work with our device manufacturers to promote the
AudibleReady program. We plan to cooperate with content providers to promote
specific Audible content to their customers on a co-branded basis. We plan to
cooperate with RealNetworks to promote Audible content bundles to users of the
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RealPlayer and with Microsoft to provide Audible content bundles to users of
Windows Media Player. In addition, we plan to work with portable personal
computer manufacturers to pre-load our AudibleManager software with sample
content and sign-up offers.
Membership programs. We plan to offer membership programs including volume
discounts at various monthly commitment levels. We may use free and discounted
content offers to encourage our customers to sign up for our new membership
programs. We believe that these new membership programs will improve customer
adoption and retention.
Personalized marketing. We plan to analyze customers' stated preferences and
observed buying patterns. We will use this information to suggest selections
and to enhance the customers' purchasing and listening experience.
Competition
The market for the sale and delivery of spoken audio is highly competitive
and rapidly changing. Principal competitive factors in the spoken audio market
include:
. selection;
. price;
. speed of delivery;
. protection of intellectual property;
. timeliness;
. convenience; and
. sound quality.
Although we believe that we currently compete favorably with respect to these
factors, we cannot be sure that we can maintain our competitive position
against current or new competitors, especially those with longer operating
histories, greater name recognition and substantially greater financial,
technical, marketing, management, service, support and other resources.
We compete with (1) traditional and online retail stores, catalogs, clubs
and libraries that sell, rent or loan audiobooks on cassette tape or compact
disc, (2) Web sites that offer streaming access to spoken audio content using
tools such as the RealPlayer or Windows Media Player and (3) other companies
offering services similar to ours.
Audiobooks on cassette tape or compact disc have been available from a
variety of sources for a number of years. Traditional book stores, such as
Borders and Barnes & Noble, and online book stores, such as barnesandnoble.com
and Amazon.com, offer a variety of audiobooks. The AudioBook Club offers
discounted audiobooks by mail order. Rental services, such as Books on Tape,
offer low pricing for time-limited usage of audiobooks, and libraries loan a
limited selection of audiobooks. One or more of these competitors might develop
a competing electronic service for delivering audio content.
Competition from Web sites that provide streaming audio content is intense
and is expected to increase significantly in the future. Broadcast.com, which
recently announced plans to be acquired by Yahoo!, and RealNetworks offer a
wide selection of streaming audio content. These companies may compete directly
with us by selling premium audio content for download.
Audiohighway.com also offers downloaded digital audio content for playback
on personal computers. Command Audio has announced plans to deliver audio
content through FM radio frequency for mobile playback.
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Our content partners and other media companies may choose to provide digital
audio content directly to consumers. In addition, a small number of companies
control primary or secondary access to a significant percentage of Internet
users and therefore have a competitive advantage in marketing to those users.
These providers could use or adapt their current technology, or could purchase
technology, to provide a service directly competitive with the Audible service.
Many of these companies have significantly greater brand recognition and
financial, technical, marketing and other resources than we do. We also expect
competition to intensify and the number of competitors to increase
significantly in the future as technology advances provide alternative methods
of delivering digital audio content through the Internet, satellite, wireless
data, FM radio frequency or other means.
Intellectual Property and Proprietary Rights
We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to our success. To
protect our proprietary rights, we rely on a combination of patent, trademark
and copyright law, trade secret protection and confidentiality and license
agreements with our employees, customers, partners and others. Notwithstanding
these precautions, others may be able to use our intellectual property or trade
secrets without our authorization. If we are unable to adequately protect our
intellectual property, it could materially affect our financial performance. In
addition, potential competitors may be able to develop technologies or services
similar to ours without infringing our patents.
We hold one patent and have filed eight patent applications for some aspects
of the Audible system, two of which have been allowed. We do not know if the
other pending patents will ever be issued and, if issued, if they will survive
legal challenges. Legal challenges to our patents, whether successful or not,
may be very expensive to defend.
We have applied for U.S. registration of several of our trademarks and
service marks, including Audible, audible.com and AudibleReady. We do not know
if these marks will be approved. In addition, effective trademark, service
mark, copyright and trade secret protection are not necessarily available in
every country in which our services are available online.
We also license some of our intellectual property to others, including our
AudibleReady technology and certain trademarks and copyrighted material. While
we attempt to ensure that the quality of our brand is maintained, others might
take actions that materially harm the value of either these proprietary rights
or our reputation.
We license technology from others, including our compression-decompression
technology, that we incorporate into the Audible system. If these technologies
become unavailable to us, we would need to license other technology which would
require us to redesign our system and recode our content. Although we are
generally indemnified against claims that technology licensed by us infringes
the intellectual property rights of others, such indemnification is not always
available for all types of intellectual property and proprietary rights and in
some cases the scope of such indemnification is limited. Even if we receive
broad indemnification, third party indemnitors may not have the financial
resources to fully indemnify us in the event of infringement, resulting in
substantial exposure to us. We cannot assure you that infringement or
invalidity claims arising from the incorporation of this technology, resulting
from these claims, will not be asserted or prosecuted against us. These claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential redevelopment costs
and delays, all of which could materially adversely effect our business,
operating results and financial condition.
We attempt to avoid infringing the proprietary rights of others, although we
have not done an exhaustive patent search. Our competitors may claim that we
are infringing their intellectual property and, if they are successful, we may
be unable to obtain a license or similar agreement to use the technology we
need to conduct our business.
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Employees
As of April 15, 1999, Audible had a total of 39 full-time employees -- ten
in research and development, 11 in sales and marketing, 14 in production and
four in general and administrative.
Facilities
Our headquarters is in Wayne, New Jersey, where we lease approximately
14,000 square feet housing all our full-time employees. We house our server in
a secure facility in Weehawken, New Jersey.
Legal Proceedings
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the
ordinary course of its business. Any such proceeding against us, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
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MANAGEMENT
Our Directors and Executive Officers
The following table shows information about our directors and executive
officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Andrew J. Huffman....... 39 President, Chief Executive Officer and Director
Donald R. Katz.......... 47 Chairman of the Board of Directors
Brian M. Fielding....... 44 Vice President, Business and Legal Affairs
Matthew Fine............ 38 Vice President, Content Production
J. Travis Millman....... 31 Vice President, Business Development
Foy C. Sperring, Jr..... 39 Vice President, Marketing
Guy Story, Jr........... 47 Vice President, Technology
Anthony T. Nash......... 41 Director of Finance and Administration
Richard Brass........... 47 Director
R. Bradford
Burnham (1)(2)......... 44 Director
W. Bingham Gordon (2)... 49 Director
Thomas P.
Hirschfeld (1)......... 36 Director
Winthrop
Knowlton (1)(2)........ 68 Director
Timothy Mott............ 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Andrew J. Huffman has been our Chief Executive Officer, President and a
director since joining us in February 1998. From July 1997 to February 1998,
Mr. Huffman consulted with a number of technology companies. From April 1995 to
July 1997, Mr. Huffman was President and Chief Executive Officer of Aimtech
Corporation, an Internet and multimedia software tools company. From July 1993
to March 1995, Mr. Huffman was Vice President of Novell, Inc.'s Enterprise
Solutions Division, where he was responsible for Novell's worldwide consulting,
developer relations, and systems integrator relations. From November 1991 to
July 1993, Mr. Huffman was Vice President and General Manager of the
Distributed Computing Business Group at Unix System Laboratories, a software
company.
Donald R. Katz has been Chairman of the Board of Directors since April 1999
and a director since co-founding Audible in November 1995. From November 1995
to March 1998, Mr. Katz served as our President and Chief Executive Officer.
Prior to co-founding Audible, Mr. Katz was an author, business journalist and
media consultant for over fifteen years.
Brian Fielding has been our Vice President, Business and Legal Affairs since
January 1999. From April 1997 to January 1999, Mr. Fielding was our Managing
Director, Business and Legal Affairs. From March 1988 to April 1997, Mr.
Fielding held various positions at CBS Sports, a division of CBS, Inc., and was
most recently the Vice President, Business Affairs.
Matthew Fine has been our Vice President, Programming Production since
January 1999. From May 1998 to January 1999, Mr. Fine was our Director of Sales
and, from April 1997 to May 1998, our Director of Business Programming. He has
also managed our telesales group and enterprise sales efforts. From January
1997 to April 1997, Mr. Fine was Special Projects Manager at Dow Jones
Newswires, and, from December 1993 to January 1997, National Sales Manager at
Dow Jones Investor Network.
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J. Travis Millman has been our Vice President, Business Development since
October 1997, after serving briefly as an executive consultant to Audible from
August to October 1997. From September 1996 to August 1997, Mr. Millman was
Director of Business Development at OnLive! Technologies, Inc., an Internet
communications software company, and, from June 1994 to September 1996, Manager
of Business Development at Interplay Entertainment Corporation, an
entertainment software developer. Mr. Millman started his career in the
Engineering & Manufacturing Division of Sony Corporation of America.
Foy C. Sperring, Jr. has been our Vice President, Marketing since June 1998.
From September 1997 to June 1998, Mr. Sperring was Vice President of Product
Development at Interleaf Inc., a publishing software service company. From
November 1996 to September 1997, he was Vice President of Sales and Marketing
for Aimtech. From October 1995 to November 1996, Mr. Sperring was Vice
President of Marketing for Forman Interactive, an Internet software tools and
hosting service company. From March 1994 to October 1995, he was Vice President
of Electronic Publishing for PaperDirect, Inc., a personalized communication
materials company.
Guy Story, Jr. has been our Vice President, Technology since June 1996. From
September 1994 to June 1996, Mr. Story was Director of Multimedia Software
Application Architectures at the Lucent Network Systems division of Lucent
Technologies. From October 1985 to September 1994, he was a member of the
technical staff at Lucent Bell Laboratories.
Anthony T. Nash has been our Director of Finance and Administration since
July 1998 and he was our Controller from February 1997 to July 1998. From May
1993 to February 1997, Mr. Nash was the Chief Financial Officer of Charles
Green's Nursery, a wholesale foliage company.
Richard Brass has been a director since April 1999. Since November 1997, Mr.
Brass has been Vice President, Technology Development at Microsoft Corporation.
From 1989 to July 1997, Mr. Brass was Senior Vice President of Oracle
Corporation.
R. Bradford Burnham has been a director since March 1997. Since May 1996,
Mr. Burnham has been a general partner of AT&T Ventures, a group of venture
capital funds. From May 1994 to May 1996, Mr. Burnham was a principal of AT&T
Ventures.
W. Bingham Gordon has been a director since November 1996. Since March 1998,
Mr. Gordon has been Executive Vice President and Chief Creative Officer of
Electronic Arts Inc., an interactive entertainment company. From October 1995
to March 1998, he was Executive Vice President, Marketing. From August 1993 to
October 1995, he served as Executive Vice President of EA Studios.
Thomas Hirschfeld has been a director since July 1996. Since March 1998, Mr.
Hirschfeld has been a managing director of Patricof & Co. Ventures, Inc., where
he was a principal from January 1995 to March 1998. From February 1994 to
December 1995, Mr. Hirschfeld was Assistant to the Mayor of New York City.
Winthrop Knowlton has been a director since November 1996. Since 1989 Mr.
Knowlton has been the Chairman and Chief Executive Officer of Knowlton
Brothers, Inc., a management company for limited partnerships and offshore
funds investing in the United States.
Timothy Mott has been a director since co-founding Audible in December 1995
and was the Chairman of the Board of Directors from December 1995 through April
1999. Mr. Mott has been a partner of Ironwood Capital L.L.C., an investment
company, since he co-founded it in January 1993. From October 1990 to July
1995, he was Chairman of Macromedia Inc., a multimedia software company. Mr.
Mott is a director of Electronic Arts, a company he co-founded in 1982.
Our executive officers are elected by our board of directors and serve at
its discretion. There are no family relationship among our officers and
directors.
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Classified Board
Our certificate of incorporation and bylaws will provide for a classified
board of directors consisting of three classes of directors, each serving
staggered three-year terms. As a result, a portion of our board of directors
will be elected each year. To implement the classified structure, prior to
consummation of the offering, three of the nominees to the board will be
elected to one-year terms, three will be elected to two-year terms and two will
be elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Messrs. Burnham, Hirschfeld and Mott will be Class I
directors with terms expiring at the 2000 annual meeting of stockholders,
Messrs. Brass, Gordon and Knowlton will be Class II directors, with terms
expiring at the 2001 annual meeting of stockholders, and Messrs. Huffman and
Katz will be Class III directors, with terms expiring at the 2002 annual
meeting of stockholders.
Board Committees
Our board has an Audit Committee and a Compensation Committee. The Audit
Committee, among other things, is responsible for:
. recommending to our board of directors the independent auditors to
conduct the annual audit of our books and records;
. reviewing the proposed scope and results of the audit;
. approving the audit fees to be paid;
. reviewing accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
. reviewing and approving transactions between us and our directors,
officers and affiliates.
The members of our Audit Committee are Messrs. Burnham, Hirschfeld and
Knowlton.
The Compensation Committee reviews and recommends the compensation
arrangements for management, including the compensation for our President and
Chief Executive Officer. It establishes and reviews general compensation
policies with the objective to attract and retain superior talent, to reward
individual performance and to achieve our financial goals. It also administers
our Stock Incentive Plan and our restricted stock program. The members of our
Compensation Committee are Messrs. Burnham, Gordon and Knowlton.
Compensation Committee Interlocks and Insider Participation
During 1998, members of our Compensation Committee were Messrs. Huffman,
Burnham and Hirschfeld. None of our executive officers has served as a member
of the compensation committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as a director of
or member of our Compensation Committee.
Director Compensation
Our directors have received no compensation for serving as directors. We
reimburse our directors for reasonable expenses they incur to attend board and
committee meetings. Our non-employee directors are eligible to receive grants
of options to acquire our common stock under our Stock Incentive Plan. See
"1999 Stock Incentive Plan."
Mr. Mott has been covered under our medical benefits plan since 1998 on the
same terms as our employees.
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<PAGE>
Executive Compensation
The following table summarizes the compensation paid to our chief executive
officer and the other four most highly paid executive officers whose total
salary and bonus exceeded $100,000 during 1998, whom we refer to as our Named
Executive Officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Restricted
------------------------- Stock
Name and Principal Position Salary Bonus(1) Other Sales(2)
- --------------------------- -------- -------- ------- ------------
<S> <C> <C> <C> <C>
Andrew J. Huffman.................... $152,077 $36,250 $ 7,664(3) $ -- (4)
President and Chief Executive
Officer
Donald R. Katz....................... 140,000 30,750 -- --
Chairman of the Board of Directors
Travis Millman....................... 114,125 31,733 11,767(3) -- (5)
Vice President, Business Development
Brian Fielding....................... 110,000 17,750 -- -- (6)
Vice President, Business and Legal
Affairs
Guy Story, Jr........................ 103,542 16,750 -- --
Vice President, Technology
</TABLE>
- --------
(1) Includes amounts earned in 1998 and paid in 1999.
(2) Each Named Executive Officer who purchased shares of our restricted stock
during 1998 paid for the stock by means of a promissory note. The price of
the stock on the date of purchase was equal to the fair market value on the
date of purchase as determined by our board of directors. See the
description of our restricted stock sales in this section regarding vesting
of restricted stock.
(3) Consists of relocation payments.
(4) In February 1998, Mr. Huffman purchased 1,000,000 shares of our restricted
common stock for $400,000. As of December 31, 1998, 200,000 shares had
vested. The remaining shares vest at a rate of 20,000 shares per month and
will be fully vested in April 2002.
(5) In May 1998, Mr. Millman purchased 50,000 shares of our restricted common
stock for $20,000. As of December 31, 1998, 8,000 shares had vested. The
remaining shares vest at a rate of 1,000 per month and will be fully vested
in June 2002.
(6) In May 1998, Mr. Fielding purchased 25,000 shares of our restricted common
stock for $10,000. As of December 31, 1998, 4,000 shares had vested. The
remaining shares vest at a rate of 500 per month and will be fully vested
in June 2002.
42
<PAGE>
Fiscal 1998 Year-End Restricted Stock Values
All of our Named Executive Officers own restricted stock. The following
table sets forth, as of December 31, 1998, the total purchases of restricted
stock by each Named Executive Officer and the number and aggregate dollar value
of the vested and unvested shares held by them. There was no public trading
market for our common stock as of December 31, 1998. Accordingly, we have
calculated the aggregate value of the shares based on the difference between an
assumed initial public offering price of $ and the purchase price of each
share, multiplied by the number of shares. All these shares were purchased by
the Named Executive Officers at their fair market value, as determined by our
board of directors, and were paid for by promissory note on the terms described
under "Restricted Stock Program."
<TABLE>
<CAPTION>
Aggregate Value Aggregate Value
Of Vested Of Unvested
Name Vested Shares Unvested Shares Shares Shares
---- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Andrew J. Huffman....... 200,000 800,000 $ $
Donald R. Katz.......... 906,250 93,750
Travis Millman.......... 59,000 141,000
Brian Fielding.......... 35,500 64,500
Guy Story, Jr........... 142,000 108,000
</TABLE>
If we are acquired by another company, 50% of each employee's unvested
shares on that date will automatically become vested.
Option Grants
We did not have a stock option plan prior to April 1999 and have never
granted options to our Named Executive Officers. Named Executive Officers have
purchased shares of our common stock through our restricted stock program as
described below.
Employment Arrangements
We have not entered into formal employment agreements with any of our Named
Executive Officers. Our employment arrangements with our Named Executive
Officers provide for a base salary, which may be increased by our board of
directors, and an annual bonus. The following table shows their current annual
base salary and annual bonus potential for 1999.
<TABLE>
<CAPTION>
Maximum
Annual Annual Bonus
Name Base Salary for 1999
---- ----------- ------------
<S> <C> <C>
Andrew J. Huffman................................... $180,000 $90,000
Donald R. Katz...................................... 140,000 42,000
Travis Millman...................................... 120,000 40,000
Brian Fielding...................................... 115,000 23,000
Guy Story, Jr....................................... 110,000 22,000
</TABLE>
Mr. Huffman's employment arrangement provides that we pay him six month
severance if we terminate his employment. Mr. Fielding's employment arrangement
provides that we pay him one month severance if we terminate his employment.
We require all our employees to sign agreements which prohibit the
disclosure of our confidential or proprietary information. Each of these
employees also has agreed to non-competition and non-solicitation provisions
that will be in effect during his employment and for one year thereafter.
43
<PAGE>
We have agreed to pay Messrs. Katz, Millman, Fielding and Story bonuses in
the following amounts if they are still employed by us on the following dates:
<TABLE>
<CAPTION>
Name Bonus Date
---- ------- ------------------
<S> <C> <C>
Donald R. Katz.................................... $70,000 June 30, 1999
Travis Millman.................................... 80,000 September 30, 2001
Brian Fielding.................................... 40,000 May 31, 2001
Guy Story, Jr..................................... 22,667 July 31, 2000
</TABLE>
Restricted Stock Program
Since our inception, some of our employees have purchased restricted shares
of our common stock at a price per share equal to the fair market value on the
date of purchase as determined by our board of directors. The number of shares
that each employee purchased varied depending on his or her position. In
general, employees paid for these shares by promissory notes, which are due on
the earlier of 50 months from the date of issuance of the shares or the date
the employee leaves Audible.
In general, we may repurchase a portion of an employee's shares if he or she
ceases to be employed by us. If the employee leaves within six months of
purchasing the restricted stock, we may repurchase all of the employee's
shares. Twelve percent of the employee's shares vest six months after the date
of purchase and thereafter, the remaining shares vest equally over the next 44
months. We may repurchase all unvested shares at the original purchase price.
If we are acquired by another company, 50% of each employee's unvested shares
on that date will automatically become vested.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan authorizes the grant of:
. stock options;
. stock appreciation rights;
. stock awards;
. phantom stock; and
. performance awards.
The Compensation Committee administers our Stock Incentive Plan. The
Committee has sole power and authority, consistent with the provisions of our
Stock Incentive Plan, to determine which eligible participants will receive
awards, the form of the awards and the number of shares of our common stock
covered by each award. The Committee may impose terms, limits, restrictions and
conditions upon awards, and may modify, amend, extend or renew awards,
accelerate or change the exercise time of awards or waive any restrictions or
conditions to an award.
As of April 15, 1999, we have issued none of the 6,000,000 shares of our
common stock available under the Stock Incentive Plan.
Stock Options. We can grant options to purchase shares of our common stock
that either are intended to qualify as incentive stock options under the
Internal Revenue Code or that do not qualify as incentive options. The
Committee can determine the option exercise price, the term of each option, the
time when each option may be exercised and, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised.
Stock Appreciation Rights. We can grant rights to receive a number of shares
or cash amounts, or a combination of the two that is based on the increase in
the fair market value of the shares underlying the right during a stated period
specified by the Committee.
44
<PAGE>
Stock Awards. We can award shares of our common stock at no cost or for a
purchase price. These stock awards may be subject to restrictions at the
Committee's discretion.
Phantom Stock. We can grant stock equivalent rights, or phantom stock, which
entitle the recipient to receive credits which are ultimately payable in the
form of cash, shares of our common stock or a combination of both. Phantom
stock does not entitle the holder to any rights as a stockholder.
Performance Awards. We can grant performance awards to participants
entitling the participants to receive cash, shares of our common stock, or a
combination of both, upon the achievement of performance goals and other
conditions determined by the committee. The performance goals may be based on
our operating income, or on one or more other business criteria selected by the
Committee.
Other Stock-Based Awards. We can grant other stock-based awards. These
stock-based awards may be denominated in cash, in common stock, or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into common stock, or in any combination
of the foregoing and may be paid in common stock or other securities, in cash,
or in a combination of common stock or other securities and cash, all as
determined in the sole discretion of the Committee.
401(k) Plan
We maintain a 401(k) plan that covers all our employees who satisfy certain
eligibility requirements relating to minimum age, length of service and hours
worked. We may make an annual contribution for the benefit of eligible
employees in an amount determined by our board of directors. We have not made
any such contribution to date and have no current plans to do so. Eligible
employees may make pretax elective contributions of up to 15% of their
compensation, subject to maximum limits on contributions prescribed by law.
45
<PAGE>
RELATED TRANSACTIONS AND RELATIONSHIPS
Sale of Stock
In July 1996, we issued 2,000,000 shares of Series B preferred stock at a
price of $1.50 per share, including 333,334 shares to Ironwood Capital L.L.C.,
833,333 shares to funds managed by Patricof & Co. Ventures, Inc., (the
"Patricof group") of which Mr. Hirschfeld, one of our directors, is a managing
director, and 833,333 shares to Kleiner Perkins Caufield & Byers and its
affiliates (the "Kleiner Perkins group").
In November 1996, we issued 25,000 additional shares of Series B preferred
stock at a price of $1.50 per share, to each of Winthrop Knowlton and W.
Bingham Gordon, both of whom are members of our board of directors.
In March 1997, we issued 2,250,000 shares of Series C preferred stock at a
price of $4.00 per share, including 122,917 shares to Ironwood, 6,250 shares to
Mr. Knowlton, 6,250 shares to Mr. Gordon, 307,292 shares to the Patricof group,
307,291 shares to the Kleiner Perkins group and 750,000 shares to AT&T Venture
Fund II, L.P. and its affiliates (the "AT&T group"), of which Mr. Burnham, a
member of our board of directors, is a general partner.
In February 1998, we issued 1,350,000 shares of Series D preferred stock at
a price of $4.00 per share, including 65,228 shares to Ironwood, 117,980 shares
to the Patricof group, 75,000 shares to the Kleiner Perkins group, 77,575
shares to the AT&T group and 750,000 shares to CPQ Holdings, Inc., an affiliate
of Compaq Computer Corporation.
In December 1998, we issued 2,500,000 additional shares of Series D
preferred stock at a price of $4.00 per share, including 81,731 shares to the
Patricof group, 78,926 shares to the Kleiner Perkins group, 53,686 shares to
the AT&T group and 1,250,000 shares to Microsoft Corporation, of which Mr.
Brass, a member of our board of directors, is Vice President of Business
Development.
Pursuant to these sales of preferred stock, we granted registration rights
to certain stockholders. See "Description of Our Capital Stock--Registration
Rights."
Since inception, we have sold to our executive officers and directors the
following shares of restricted common stock at the date and prices listed in
the table. In general, each officer or director paid for his shares by way of
unsecured promissory notes that typically bear interest at 7% or 8% per year
and are payable upon the earlier of the termination of employment or such time
as all shares have vested.
46
<PAGE>
<TABLE>
<CAPTION>
Date Number of Price Aggregate
Name of Issuance Shares Per Share Price(1)
- ---- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
W. Bingham Gordon..................... 07/17/96 5,000 $.17 $ 850
W. Bingham Gordon..................... 02/20/97 25,000 .15 3,750
Timothy Mott (2)...................... 12/11/95 250,000 .07 17,500
Timothy Mott (2)...................... 07/23/96 250,000 .15 37,500
Winthrop Knowlton..................... 01/20/97 25,000 .15 3,750
Brian Fielding........................ 06/17/97 75,000 .40 30,000
Brian Fielding........................ 05/06/98 25,000 .40 10,000
Brian Fielding........................ 03/02/99 75,000 .40 30,000
Matthew Fine.......................... 06/17/97 75,000 .40 30,000
Matthew Fine.......................... 05/06/98 25,000 .40 10,000
Matthew Fine.......................... 03/02/99 50,000 .40 20,000
Andrew Huffman........................ 02/28/98 1,000,000 .40 400,000
Donald Katz (3)....................... 12/11/95 1,000,000 .07 70,000
J. Travis Millman..................... 11/03/97 150,000 .40 60,000
J. Travis Millman..................... 05/06/98 50,000 .40 20,000
Anthony Nash.......................... 05/08/97 15,000 .15 2,250
Anthony Nash.......................... 11/03/97 15,000 .40 6,000
Anthony Nash.......................... 09/15/98 20,000 .40 8,000
Foy Sperring.......................... 06/15/98 250,000 .40 100,000
Guy Story, Jr. ....................... 07/17/96 200,000 .085 17,000
Guy Story, Jr. ....................... 07/29/97 50,000 .40 20,000
</TABLE>
- --------
(1) As of December 31, 1998, other than as noted for Mr. Katz, each of these
directors and executive officers was indebted to us in an amount equal to
the aggregate purchase price of his shares of restricted stock plus accrued
interest from the origination date on the promissory notes with which he
purchased the shares.
(2) Ironwood Capital transferred these shares to Mr. Mott in April 1999.
(3) Mr. Katz purchased his stock through a combination of a $52,500 promissory
note and contribution of patent rights valued at $17,500. As of December
31, 1998, Mr. Katz was indebted to us for $52,500 plus accrued interest
from December 11, 1995.
Issuance of Warrants
In March 1997, in connection with the sale of the Series C preferred stock,
we issued warrants to purchase an aggregate of 450,000 shares of common stock
at an exercise price of $6.00 per share to holders of Series C preferred stock,
including Ironwood, the Kleiner Perkins group, the Patricof group, the AT&T
group and Messrs. Knowlton and Gordon. These warrants may be exercised until
March 31, 2002.
In April 1999, in connection with an amendment to our license agreement with
Microsoft, which owns over 5% of our capital stock, we issued to Microsoft a
warrant to purchase 100,000 shares of common stock at a price per share equal
to the price to the public of our common stock in this offering, or, if this
offering does not occur within 12 months of the date of issuance, such warrant
is exercisable for 100,000 shares of common stock at $6.00 per share. This
warrant may be exercised until November 18, 2003.
Additional Transactions
In March 1997, we loaned Mr. Katz, our Chairman of the Board, $100,000 under
the terms of a promissory note and secured by Mr. Katz's pledge of 25,000
shares of common stock. The promissory note bears interest at the rate of 6%
per annum and is due on the earlier of March 28, 2002 or one year following
this offering. On March 31, 1999, the outstanding balance on the loan was
$100,000 plus $12,000 in accrued interest.
In September 1998, we entered into a software development and licensing
agreement with Compaq Computer Corporation, an affiliate of CPQ Holdings, Inc.,
which owns over 5% of our issued stock.
47
<PAGE>
In November 1998, we entered into a license agreement with Microsoft. This
agreement also contains a right of first negotiation if we receive a proposal
from another company that could result in our acquisition. Please see
"Business--Strategic Relationships" and "Description of our Capital Stock--
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and
Delaware General Corporation Law; Right of First Negotiation" for a description
of the agreement.
In January 1998, we entered into an agreement with Flextronics International
Ltd. to manufacture the Audible MobilePlayer. The chief executive officer of
Flextronics is a principal of Ironwood, of which Mr. Mott, a director, is also
a principal. As of December 31, 1997, $173,000 was due to Flextronics under the
terms of that agreement, and as of December 31, 1998, $51,000 was due. We plan
to terminate this agreement in 1999.
We believe that all the transactions described above were made on terms no
less favorable to us than if such transactions were with non-affiliates. We
have adopted a policy whereby all future transactions between us and our
officers, directors and affiliates will be on terms no less favorable than
could be obtained from non-affiliates and will be approved by a majority of our
board.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of the shares offered hereby, by:
. each person who we know beneficially owns more that 5% of our common
stock;
. each member of our board of directors;
. each of our Named Executive Officers; and
. all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed is c/o
Audible, Inc., 65 Willowbrook Boulevard, Wayne, New Jersey 07470. Except as
otherwise indicated, each of the persons named in this table has sole voting
and investment power with respect to all the shares indicated.
For purposes of calculating the percentage beneficially owned, 14,002,180
shares of common stock are deemed outstanding before the offering. For purposes
of calculating the percentage beneficially owned, the number of shares deemed
outstanding after the offering includes: (a) all shares deemed to be
outstanding before the offering and (b) shares being sold in this
offering, assuming no exercise of the underwriters' over-allotment option.
In computing the number of shares beneficially owned by a person and the
percentage ownership by that person, shares of common stock which that person
could purchase by exercising outstanding common stock purchase warrants prior
to May 31, 1999, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Percent of Common
Number of Stock Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Patricof group (1)............................... 1,401,794 10.0%
c/o Patricof & Co. Ventures, Inc.
445 Park Avenue, 11th Floor
New York, NY 10022
Kleiner Perkins group (2)........................ 1,356,008 9.6
2750 Sand Hill Road
Menlo Park, CA 94025
Microsoft Corporation (3)........................ 1,350,000 9.6
One Microsoft Way
Redmond, WA 98052-6399
Ironwood Capital L.L.C. (4)...................... 1,080,063 7.7
2241 Lundy Avenue
San Jose, CA 95131
AT&T group (5)................................... 1,031,261 7.3
c/o AT&T Ventures
295 North Maple Avenue
Basking Ridge, NJ 07920
CPQ Holdings, Inc. (6)........................... 750,000 5.4
20555 SH 249
Houston, TX 77070
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Percent of Common
Number of Stock Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Richard Brass................................... -- --
R. Bradford Burnham (7)......................... 1,031,261 7.3
W. Bingham Gordon (8)........................... 62,500 *
Thomas Hirschfeld (9)........................... 1,401,794 10.0
Winthrop Knowlton (10).......................... 57,500 *
Timothy Mott (11)............................... 1,580,063 11.3
Andrew J. Huffman (12).......................... 1,000,000 7.1
Donald R. Katz (13)............................. 1,000,000 7.1
Brian Fielding (14)............................. 175,000 1.3
J. Travis Millman (15).......................... 200,000 1.4
Guy Story, Jr. (16)............................. 250,000 1.8
All officers and directors as a group (14
people) (17)................................... 7,208,118 50.6
</TABLE>
- --------
* Less than 1%.
(1) Represents (i) 1,172,462 shares beneficially owned by APA Excelsior IV,
L.P., including 51,404 shares issuable upon exercise of warrants, (ii)
206,904 shares beneficially owned by APA Excelsior IV/Offshore L.P.,
including 9,071 shares issuable upon exercise of warrants, and (iii) 22,428
shares beneficially owned by Patricof Private Investment Club, L.P.,
including 983 shares issuable upon exercise of warrants.
(2) Represents (i) 1,313,889 shares beneficially owned by Kleiner Perkins
Caufield & Byers VIII, including 59,922 shares issuable upon exercise of
warrants, (ii) 33,899 shares beneficially owned by KPCB Information
Sciences Zaibatsu, including 1,536 shares issuable upon exercise of
warrants, and (iii) 8,200 shares beneficially owned by KPCB VIII Founders
Fund.
(3) Includes 100,000 shares issuable upon exercise of a warrant issued in April
1999.
(4) Includes 24,584 shares issuable upon exercise of warrants.
(5) Represents (i) 103,126 shares beneficially owned by Venture Fund I, L.P.,
including 15,000 shares issuable upon exercise of warrants, and (ii)
928,135 shares beneficially owned by AT&T Venture Fund II, L.P., including
135,000 shares issuable upon exercise of warrants.
(6) An affiliate of Compaq Computer Corporation.
(7) Represents (i) 103,126 shares beneficially owned by Venture Fund I, L.P.,
including 15,000 shares issuable upon exercise of warrants, and (ii)
928,135 shares owned by AT&T Venture Fund II, L.P., including 135,000
shares issuable upon exercise of warrants. Mr. Burnham, a director, is a
general partner of the AT&T group partnerships. Mr. Burnham disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest. Mr. Burnham's address is c/o AT&T Ventures.
(8) Includes 1,250 shares issuable upon exercise of warrants and 9,000 shares
that are subject to our repurchase option.
(9) Represents 1,401,794 shares beneficially owned by the Patricof group, funds
managed by Patricof & Co. Ventures, Inc., of which Mr. Hirschfeld is a
managing director. Mr. Hirschfeld disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest. Mr. Hirschfeld's
address is c/o Patricof & Co. Ventures, Inc.
(10) Includes 1,250 shares issuable upon exercise of warrants and 9,500 shares
that are subject to our repurchase option.
(11) Includes 83,333 shares that are subject to our repurchase option. Includes
1,080,063 shares (including 24,584 shares issuable upon exercise of
warrants) beneficially owned by Ironwood Capital L.L.C., of which Mr.
Mott, a director, is a managing member. Mr. Mott disclaims beneficial
ownership of these 1,080,063 shares, except to the extent of his pecuniary
interest.
50
<PAGE>
(12) Includes 740,000 shares that are subject to our repurchase option.
(13) Includes 46,875 shares that are subject to our repurchase option, 65,000
shares that are pledged to secure private loans and 25,000 shares that are
pledged to secure a $100,000 loan from the Company. See "Related
Transactions and Relationships."
(14) Includes 133,500 shares that are subject to our repurchase option.
(15) Includes 129,000 shares that are subject to our repurchase option.
(16) Includes 93,000 shares that are subject to our repurchase option.
(17) Includes an aggregate of 1,585,508 shares that are subject to our
repurchase option and 237,292 shares issuable upon exercise of warrants.
51
<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock currently consists of 50,000,000 shares of
common stock, with a par value of $0.01 per share, and 19,843,000 shares of
preferred stock, with a par value of $0.01 per share. As of March 31, 1999,
there were 5,068,180 shares of our common stock outstanding, held of record by
81 stockholders. As of March 31, 1999, we had outstanding an aggregate of
8,934,000 shares of convertible preferred stock consisting of 534,000 shares of
Series A preferred stock, 2,050,000 shares of Series B preferred stock,
2,250,000 shares of Series C preferred stock and 4,100,000 shares of Series D
preferred stock. The Series A, B, C and D preferred stock are held of record by
one, eight, 12 and 26 stockholders, respectively. All outstanding shares of
preferred stock will be automatically converted into an aggregate of 8,934,000
shares of common stock upon the closing of this offering. In addition, we
currently have outstanding warrants to purchase up to an aggregate of 550,000
shares of our common stock and 63,270 shares of preferred stock, which warrants
will be exercisable for common stock following this offering as described
below. After this offering, we will have outstanding, shares of common
stock if the underwriters do not exercise their overallotment option, or
shares of common stock if the underwriters exercise their
overallotment option in full.
The following is a description of our capital stock.
Common Stock
We are authorized to issue 50,000,000 shares of common stock. Holders of
common stock are entitled to one vote for each share of record on all matters
submitted to a vote of stockholders. The holders of common stock are entitled
to receive ratably such lawful dividends as may be declared by the board of
directors. However, such dividends are subject to preferences that may be
applicable to the holders of any outstanding shares of preferred stock. In the
event of a liquidation, dissolution, or winding up of the affairs of our
company, whether voluntary or involuntary, the holders of common stock will be
entitled to receive pro rata all of our remaining assets available for
distribution to stockholders. Any such pro rata distribution would be subject
to the rights of the holders of any outstanding shares of preferred stock. Our
common stock has no preemptive, redemption, conversion or subscription rights.
Piper & Marbury L.L.P., our counsel, will opine that the shares of common stock
to be issued by us in this offering, when issued and sold in the manner
described in the prospectus and in accordance with the resolutions adopted by
the board of directors, will be fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of our common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Immediately following the offering, our board will have the authority to
designate and issue up to 10,000,000 shares of preferred stock, in one or more
series. Our board can establish the preferences, rights and privileges of each
series, which may be superior to the rights of the common stock.
We have no current plans to issue any preferred stock. However, if we do so,
it could discourage a third party from attempting to acquire a majority of the
our outstanding voting stock.
Warrants
We have outstanding the following warrants to purchase shares of our common
stock, including warrants previously exercisable to purchase shares of
preferred stock but which, upon completion of this offering, will entitle the
holder to purchase shares of common stock: (1) warrants, to purchase 33,582
shares at an exercise price of $2.68 per share, expiring November 19, 2006, (2)
warrant, to purchase 12,500 shares at an exercise price of $4.00 per share,
expiring November 20, 2001, (3) warrant, to purchase 12,188 shares at an
exercise price of $4.00 per share, expiring July 24, 2007, (4) warrant, to
purchase 5,000 shares at an exercise price of $4.00 per share, expiring April
5, 2003, (5) warrants, to purchase 450,000 shares at an exercise price of $6.00
per share, expiring March 31, 2002, and (6) warrants, to purchase 100,000
shares at an exercise price per share equal to the price to the public of this
offering.
52
<PAGE>
Registration Rights
After this offering, holders of (i) an aggregate of 534,000 shares of common
stock issued upon the conversion of the Series A preferred stock (the "Series A
Registrable Shares"); (ii) 2,096,082 shares of common stock issued upon the
conversion of the Series B preferred stock including 46,082 shares issuable
upon exercise of warrants to purchase Series B preferred stock (the "Series B
Registrable Shares"); (iii) 2,262,188 shares of common stock issued upon the
conversion of the Series C preferred stock including 12,188 shares issuable
upon exercise of warrants to purchase Series C preferred stock and 450,000
shares of common stock issuable upon exercise of outstanding warrants held by
holders of the Series C preferred stock (the "Series C Registrable Shares");
and (iv) 4,100,000 shares of the common stock issued upon conversion of the
Series D preferred stock and 100,000 shares of common stock issuable upon
exercise of an outstanding warrant held by a holder of Series D preferred stock
(the "Series D Registrable Shares") will be entitled to certain provisions with
respect to the registration of such shares under the Securities Act.
We have an agreement with these stockholders that gives them certain
registration rights. Subject to certain limitations, including those in lock-up
agreements that the stockholders have signed relating to this offering, these
stockholders have the right, after March 31, 2000, upon request of the holders
of at least two-thirds in interest of the Series A Registrable Shares, Series B
Registrable Shares, or upon request of the holders of at least a majority in
interest in the Series C Registrable Shares or at any time after this offering,
upon request of the holders of no less than 40% of the Series D Registrable
Shares, to require us to register under the Securities Act the sale of shares
having an aggregate offering price of at least $5,000,000 (a "demand
registration"). The number of demand registrations is limited to two for each
group of Registrable Shares. In addition to these demand registration rights
and, subject to certain conditions and limitations, these stockholders may
require us to file an unlimited number of registration statements on Form S-3
under the Securities Act when such form is available for our use, generally one
year after this offering. Holders of warrants to purchase our stock do not have
there demand registration rights.
If we propose to register our securities under the Securities Act after this
offering, these stockholders will be entitled to notice of the registration and
to include their shares in the registration provided that the underwriters of
the proposed offering will have the right to limit the number of shares
included in the registration. We must pay for all expenses in connection with
these registrations, other than underwriters' discounts and commissions.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and
Delaware General Corporation Law; Right of First Negotiation
Our Certificate of Incorporation and Bylaws and Delaware General Corporation
Law. Certain provisions of Delaware law and our certificate of incorporation
and bylaws could make the following more difficult:
. the acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to
first negotiate with our board. We believe that the benefits of increased
protection of the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
Election and Removal of Directors
Our board of directors will be divided into three classes. The directors in
each class will serve for a three-year term, one class being elected each year
by our stockholders. This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of because it generally makes it more difficult for stockholders
to replace a majority of the directors.
53
<PAGE>
In addition, our by-laws will provide that, except as otherwise provided by
law or our certificate of incorporation, newly created directorships resulting
from an increase in the authorized number of directors or vacancies on the
board may be filled only by
. a majority of the directors then in office, though less than a quorum is
then in office; or
. by the sole remaining director.
Stockholder Meetings
Under our certificate of incorporation and bylaws, only the board of
directors, the chairman of the board, the president or the holders of at least
a majority of our outstanding stock may call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our bylaws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless the "business combination" or the transaction
in which the person became an interested stockholder is approved in a
prescribed manner. Generally, a "business combination" includes a merger, asset
or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Elimination of Stockholder Action By Written Consent
Our certificate of incorporation will eliminate the right of stockholders to
act by written consent without a meeting, unless the consent is unanimous.
No Cumulative Voting
Our certificate of incorporation and bylaws will not provide for cumulative
voting in the election of directors.
Undesignated Preferred Stock
The authorization of undesignated preferred stock will make it possible for
our board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Audible. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or our company or management.
54
<PAGE>
Limitation Of Liability
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption
of stock; or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws will provide for the
indemnification of our directors and officers to the fullest extent authorized
by the Delaware General Corporation Law. The indemnification provided under our
certificate of incorporation and bylaws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us
of an undertaking by or on behalf of the director or officer to repay all
amounts so paid in advance if it is ultimately determined that the director or
officer is not entitled to be indemnified. If we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
claimant may at any time thereafter bring an action to recover the unpaid
amount of the claim and, if successful the director or officer will be entitled
to be paid the expense of prosecuting the action to recover these unpaid
amounts.
Under our bylaws, we will have the power to purchase and maintain insurance
on behalf of any person who is or was one of our directors, officers, employees
or agents, or is or was serving at our request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling
one of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware General Corporation Law. We intend to purchase director and officer
liability insurance on behalf of our directors and officers.
Right of First Negotiation. Pursuant to an agreement with Microsoft, if we
receive an unsolicited proposal, or if our board determines to solicit
proposals or otherwise enter into discussions that would result in a sale of a
controlling interest in our company or other merger, asset sale or other
disposition that effectively results in a change of control of the company, we
are required to give written notice to Microsoft. Microsoft then has 7 days to
provide notice to us that it desires to negotiate a potential acquisition of
Audible by Microsoft. If Microsoft delivers this notice to us within 7 days, we
will negotiate exclusively and in good faith for 21 days from the date of
delivery of the initial notice. If we are unable to negotiate a disposition
with Microsoft within the 21-day negotiation period, we may negotiate with
others for a sale of our company. If we do not enter into a definitive
agreement with another party within 6 months from the date we initially
delivered notice to Microsoft, we must restart the notice and negotiation
process. Microsoft has this right for up to 4 1/2 years. Microsoft's right of
first negotiation could have the effect of delaying, deterring or preventing a
change of control.
Stock Transfer Agent
The transfer agent and registrar for our common stock is .
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have shares of common stock outstanding. All of the shares
we sell in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
affiliates, as that term is defined in Rule 144, may generally only be sold in
compliance with the limitations of Rule 144 described below.
The remaining 14,002,180 shares of common stock outstanding after this
offering will be restricted shares under the terms of the Securities Act. Of
the restricted shares to be outstanding after this offering, transfer of
substantially all of these shares will be limited by lock-up agreements as
described below.
Before this offering, there has been no public market for our common stock,
and we cannot predict what effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices and could impair our future ability
to raise capital through the sale of our equity securities.
Rule 144
In general, under Rule 144, beginning 90 days after the effective date of
the offering, a stockholder who owns restricted shares that have been
outstanding for at least one year is entitled to sell, within any three-month
period, a number of these restricted shares that does not exceed the greater
of:
. one percent of the then outstanding shares of our common stock, or
approximately shares immediately after this offering; or
. the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
to sell shares of common stock that are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.
Rule 701
Our employees, officers, directors and consultants who purchased our shares
of common stock pursuant to our restricted stock program are entitled to rely
on the resale provisions of Rule 701 under the Securities Act, which permits
affiliates and non-affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the date of this prospectus. In addition, non-affiliates may sell
Rule 701 shares without complying with the public information, volume and
notice provisions of Rule 144.
As a result of contractual restrictions and the provisions of Rules 144 and
701, additional shares will be available for sale in the public market as
follows:
. no restricted securities will be eligible for immediate sale on the date
of this prospectus;
. approximately restricted securities will be eligible for sale
beginning 90 days after the date of this prospectus, subject in some
cases to compliance with Rule 144;
. approximately additional restricted securities will be eligible
for sale beginning 180 days after the effective date of this offering
upon expiration of lock-up agreements, subject in some cases to
compliance with Rule 144; and
. the remainder of the restricted securities will be eligible for sale
from time to time thereafter, subject in some cases to compliance with
Rule 144.
56
<PAGE>
Registration Rights
We have entered into an investor rights agreement with some of our
stockholders, who own an aggregate of 8,934,000 shares of our common stock and
holders of warrants to purchase an aggregate of 550,000 shares of our common
stock and warrants to purchase 63,270 shares of our preferred stock, which
preferred stock warrants will be exercisable for common stock following this
offering. These stockholders have certain registration rights. See "Description
of our Capital Stock--Registration Rights."
Common Stock and Options Issuable under our Stock Incentive Plan
We intend to file one or more registration statements under the Securities
Act within 180 days after this offering to register up to 6,000,000 shares of
our common stock underlying outstanding stock options or reserved for issuance
under our Stock Incentive Plan. We expect these registration statements will
become effective upon filing, and shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of these registration statements, subject to the lock up
agreement with the underwriters.
Lock-up Agreements
Our officers and directors and substantially all of our other stockholders,
who will hold an aggregate of shares of common stock after this offering,
have agreed that they will not, without the prior written consent of Credit
Suisse First Boston Corporation, offer, sell, pledge or otherwise dispose of
any shares of our capital stock or any securities convertible into or
exercisable or exchangeable for, or any rights to acquire or purchase, any of
our capital stock or publicly announce an intention to effect any of these
transactions, for a period of 180 days after the date of the underwriting
agreement.
57
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Volpe
Brown Whelan & Company, LLC are acting as representatives, have severally but
not jointly agreed to purchase from us the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
J.P. Morgan Securities Inc.........................................
Volpe Brown Whelan & Company, LLC..................................
Wit Capital Corporation............................................
---
Total............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all of the shares of common stock offered in this
offering (other than those shares covered by the over-allotment option
described below) if any are purchased. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the common stock initially at the public
offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
the selling group members may allow a discount of $ per share on sales to
other dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses that
we will pay.
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us.............................................. $ $ $
Expenses payable by us........................... $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales by them to exceed 5% of the common stock being offered.
We, our officers and directors and substantially all of our existing
stockholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or, in our case file with the
Securities
58
<PAGE>
and Exchange Commission a registration statement under the Securities Act
relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose an intention to make any such offer, sale, pledge
or disposal, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case for grants of employee stock options pursuant to the terms of our
plan in effect on the date hereof, issuances of securities pursuant to the
exercise of employee stock options outstanding on the date hereof or the
exercise of any other stock options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial offering price, up
to shares of common stock for employees and certain other persons
associated with Audible who have expressed an interest in purchasing common
stock in this offering. The number of shares of common stock available for sale
to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have asked the underwriters to reserve for sale at the initial public
offering price shares of common stock for our customers who express an interest
in purchasing these shares. The sales of these shares will be made by .
Purchases of reserved shares are to be made through an account at in
accordance with procedures for opening an account and transacting in
securities. Any reserved shares not purchased by subscribers will be offered by
the underwriters on the same basis as the other shares.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect thereof.
We have applied to list the shares of common stock on The Nasdaq National
Market under the symbol "ADBL".
Prior to the offering, there has been no public market for our common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives.The principal factors to be
considered in determining the initial public offering price include:
. the information set forth in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we compete;
. our past and present operations;
. our past and present earnings;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial
condition;
. the recent market prices of, and the demand for, publicly traded common
stock of companies in businesses similar to ours;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurances that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to the offering or that an active trading market for our
common stock will develop and continue after the offering.
59
<PAGE>
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase shares of the common stock so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally sold by
such syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on The Nasdaq Stock Market's National Market or
otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, all dealers purchasing shares from
Wit Capital in this offering have agreed to make a prospectus in electronic
format available on Web sites maintained by each of these dealers.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Audible prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the
common stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Audible and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be readily available,
including common law rights of action for damages or recision or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein may be
located outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon the issuer or such
persons. All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
60
<PAGE>
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Audible. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
61
<PAGE>
VALIDITY OF THE SHARES
Piper & Marbury L.L.P., Washington, D.C., will pass upon the validity of the
shares of common stock on our behalf. Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts, will pass upon legal matters for the underwriters.
EXPERTS
The financial statements of Audible, Inc. as of December 31, 1997 and 1998
and for each of the years in the three year period ended December 31, 1998 and
the period November 3, 1995 (date of inception) to December 31, 1998, have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information that we believe is material to an
investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about us,
our common stock and this offering, including the full texts of the exhibits,
some of which have been summarized in this prospectus. The registration
statement is available for inspection and copying at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that
contains the registration statement. The address of the SEC's Internet site is
"http://www.sec.gov."
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
62
<PAGE>
AUDIBLE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Deficit......................................... F-5
Statements of Cash Flows ................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Audible, Inc.:
We have audited the accompanying balance sheets of Audible, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' deficit, and cash flows for each of the
years in the three-year period ended December 31, 1998 and the period November
3, 1995 (date of inception) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Audible, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the results of
its operations and its cash flows for each of the years in the three-year
period ended December 31, 1998 and the period November 3, 1995 (date of
inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Short Hills, New Jersey
April 14, 1999
F-2
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
Assets ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 646,186 $10,526,299 $ 9,652,493
Accounts receivable, net of allowance
for doubtful accounts of $4,556,
$21,043 and $7,653 at December 31,
1997 and 1998 and March 31, 1999,
respectively......................... 1,774 8,516 234,863
Advance royalty payments.............. 259,209 228,402 213,464
Advance to manufacturer............... 350,000 -- --
Prepaid expenses...................... 119,481 102,916 94,279
Inventory............................. 240,453 129,535 189,667
----------- ----------- -----------
Total current assets................. 1,617,103 10,995,668 10,384,766
Property and equipment, net............ 1,167,612 397,837 404,536
Intangible assets, net of accumulated
amortization of $30,730 at December
31, 1997.............................. 15,365 -- --
Note receivable due from stockholder... 100,000 100,000 100,000
Other assets........................... 113,298 106,153 101,468
----------- ----------- -----------
Total assets......................... $ 3,013,378 $11,599,658 $10,990,770
=========== =========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable...................... $ 372,786 $ 482,971 $ 429,327
Accrued expenses...................... 204,439 208,518 176,263
Accrued compensation.................. 211,607 263,235 248,031
Current maturities of obligations
under capital leases................. 432,497 471,224 471,224
Deferred revenue...................... -- 1,500,000 1,520,000
----------- ----------- -----------
Total current liabilities............ 1,221,329 2,925,948 2,844,845
Deferred compensation.................. 129,508 167,318 189,032
Obligations under capital leases, net
of current maturities................. 712,348 310,507 187,708
Redeemable convertible preferred stock
(non-cumulative):
Series A, par value $.01. Authorized
1,068,000 shares; issued and
outstanding 534,000 shares at
December 31, 1997, 1998 and March 31,
1999 (liquidation value $504,514;
redemption value $400,500)........... 389,189 389,189 389,189
Series B, par value $.01. Authorized
2,100,000 shares; issued and
outstanding 2,050,000 shares at
December 31, 1997, 1998 and March 31,
1999
(liquidation value and redemption
value $3,075,000).................... 3,040,581 3,040,581 3,040,581
Series C, par value $.01. Authorized
2,300,000 shares; issued and
outstanding 2,250,000 shares at
December 31, 1997, 1998 and March 31,
1999 (liquidation value and
redemption value $9,000,000)......... 8,947,875 8,947,875 8,947,875
Series D, par value $.01. Authorized
4,375,000 shares; issued and
outstanding 3,850,000 shares at
December 31, 1998 and 4,100,000
shares at
March 31, 1999 (liquidation value and
redemption value $15,400,000 at
December 31, 1998 and $16,400,000 at
March 31, 1999)...................... -- 15,347,009 16,341,481
Stockholders' deficit:
Common stock, par value $.01.
Authorized 12,000,000 and 16,000,000
shares; issued and outstanding
4,066,136, 4,929,570 and 5,068,180
shares at
December 31, 1997, 1998 and March 31,
1999, respectively.................... 40,661 49,295 50,681
Additional paid-in capital............. 715,163 1,187,069 1,248,662
Notes due from stockholders for common
stock................................. (596,375) (1,040,158) (1,063,125)
Deficit accumulated during the
development stage..................... (11,586,901) (19,724,975) (21,186,159)
----------- ----------- -----------
Total stockholders' deficit............ (11,427,452) (19,528,769) (20,949,941)
----------- ----------- -----------
Commitments (note 10)
Total liabilities and stockholders'
deficit............................... $ 3,013,378 $11,599,658 $10,990,770
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period
November 3, 1995 Three months ended Period
Year ended December 31, (date of inception) March 31, November 3, 1995
------------------------------------- to December 31, ------------------------- (date of inception)
1996 1997 1998 1998 1998 1999 to March 31, 1999
----------- ----------- ----------- ------------------- ------------ ----------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Content and
services........ $ -- $ 2,834 $ 132,357 $ 135,191 $ 30,178 $ 57,882 $ 193,073
Hardware......... -- 57,440 243,733 301,173 90,288 57,173 358,346
Other............ -- -- -- -- -- 200,000 200,000
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total revenue... -- 60,274 376,090 436,364 120,466 315,055 751,419
----------- ----------- ----------- ------------ ------------ ----------- ------------
Operating
expenses:
Cost of content
and
services revenue
................ -- 78,352 372,114 450,466 75,443 152,182 602,648
Cost of hardware
revenue......... -- 252,010 555,575 807,585 255,426 63,039 870,624
Production
expenses........ 683,652 1,982,098 1,639,420 4,305,170 485,602 494,612 4,799,782
Research and
development..... 1,809,772 2,672,179 1,641,458 6,172,213 389,267 320,434 6,492,647
Write-down
related to
hardware
business........ -- -- 952,389 952,389 -- -- 952,389
Sales and
marketing....... 256,300 1,227,482 1,453,196 2,936,978 272,041 396,098 3,333,076
General and
administrative.. 786,506 1,921,126 1,838,365 4,546,077 480,553 417,319 4,963,396
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total operating
expenses....... 3,536,230 8,133,247 8,452,517 20,170,878 1,958,332 1,843,684 22,014,562
----------- ----------- ----------- ------------ ------------ ----------- ------------
Loss from
operations...... (3,536,230) (8,072,973) (8,076,427) (19,734,514) (1,837,866) (1,528,629) (21,263,143)
Other (income)
expense:
Interest income.. (28,208) (150,998) (53,081) (232,287) (11,020) (82,798) (315,085)
Interest expense. 748 107,272 114,728 222,748 16,924 15,353 238,101
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total other
(income)
expense........ (27,460) (43,726) 61,647 (9,539) 5,904 (67,445) (76,984)
----------- ----------- ----------- ------------ ------------ ----------- ------------
Net loss.......... $(3,508,770) $(8,029,247) $(8,138,074) $(19,724,975) $ (1,843,770) $(1,461,184) $(21,186,159)
=========== =========== =========== ============ ============ =========== ============
Basic and diluted
net loss per
common share..... $ (1.66) $ (2.24) $ (1.72) $ (5.76) $ (0.42) $ (0.29) $ (5.98)
=========== =========== =========== ============ ============ =========== ============
Weighted average
shares
outstanding...... 2,117,883 3,586,002 4,731,296 3,424,924 4,372,192 4,968,043 3,540,658
=========== =========== =========== ============ ============ =========== ============
Pro forma basic
and diluted net
loss per common
share............ $ (0.96) $ (1.00) $ (0.75) $ (2.68) $ (0.19) $ (0.11) $ (2.70)
=========== =========== =========== ============ ============ =========== ============
Pro forma weighted
average shares
outstanding...... 3,660,217 8,045,002 10,861,130 7,373,789 9,806,192 13,818,710 7,857,158
=========== =========== =========== ============ ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Stockholders' Deficit
Period November 3, 1995 (Date of Inception)
to March 31, 1999
<TABLE>
<CAPTION>
Common stock Additional Notes due from Deficit accumulated Total
-------------------- paid-in stockholders for during the stockholders'
Shares Par value capital common stock development stage deficit
--------- --------- ---------- ---------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 3, 1995 (date
of inception).................... -- -- -- -- -- --
Common stock issued, net of
issuance costs................... 1,000,000 $10,000 $ 54,646 $ (70,000) $ -- $ (5,354)
Issuance of common stock in
exchange for patent.............. 500,000 5,000 30,000 -- -- 35,000
Net loss.......................... -- -- -- -- (48,884) (48,884)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1995...... 1,500,000 15,000 84,646 (70,000) (48,884) (19,238)
Common stock issued............... 1,718,400 17,184 178,605 (195,789) -- --
Issuance of common stock for
services rendered................ 94,100 941 34,285 -- -- 35,226
Payments received on notes due
from stockholders................ -- -- -- 5,100 -- 5,100
Common stock repurchased.......... (143,400) (1,434) (10,755) 12,189 -- --
Net loss.......................... -- -- -- -- (3,508,770) (3,508,770)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1996...... 3,169,100 31,691 286,781 (248,500) (3,557,654) (3,487,682)
Common stock issued............... 1,003,750 10,037 354,837 (364,874) -- --
Issuance of common stock for
services rendered................ 48,656 487 87,397 -- -- 87,884
Payments received on notes due
from stockholders................ -- -- -- 1,593 -- 1,593
Common stock repurchased.......... (155,370) (1,554) (13,852) 15,406 -- --
Net loss.......................... -- -- -- -- (8,029,247) (8,029,247)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1997...... 4,066,136 40,661 715,163 (596,375) (11,586,901) (11,427,452)
Common stock issued............... 1,637,750 16,377 638,427 (654,804) -- --
Issuance of common stock for
services rendered................ 7,500 75 16,175 -- -- 16,250
Payments received on notes due
from stockholders................ -- -- -- 20,507 -- 20,507
Common stock repurchased.......... (781,816) (7,818) (182,696) 190,514 -- --
Net loss.......................... -- -- -- -- (8,138,074) (8,138,074)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1998...... 4,929,570 49,295 1,187,069 (1,040,158) (19,724,975) (19,528,769)
Common stock issued (unaudited)... 153,000 1,530 59,670 (61,200) -- --
Non-cash compensation charge
(unaudited)...................... -- -- 4,896 -- -- 4,896
Cancellation of common stock
issued for services rendered
(unaudited)...................... -- -- (1,250) -- -- (1,250)
Payments received on notes due
from stockholders (unaudited).... -- -- -- 36,366 -- 36,366
Common stock repurchased
(unaudited)...................... (14,390) (144) (1,723) 1,867 -- --
Net loss (unaudited).............. -- -- -- -- (1,461,184) (1,461,184)
--------- ------- ---------- ----------- ------------ ------------
Balance at March 31, 1999
(unaudited)...................... 5,068,180 $50,681 $1,248,662 $(1,063,125) $(21,186,159) $(20,949,941)
========= ======= ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period
Period November 3,
November 3, 1995 Three Months 1995 (date of
Year ended December 31, (date of inception) ended March 31, inception) to
------------------------------------- to December 31, ------------------------ March 31,
1996 1997 1998 1998 1998 1999 1999
----------- ----------- ----------- ------------------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(3,508,770) $(8,029,247) $(8,138,074) $(19,724,975) $(1,843,770) $(1,461,184) $(21,186,159)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 44,048 394,688 681,076 1,119,812 169,598 89,911 1,209,723
Services rendered for
common stock......... 35,226 87,884 16,250 139,360 16,250 -- 139,360
Non-cash compensation
charge............... -- -- -- -- -- 4,896 4,896
Cancellation of common
stock issued for
services rendered.... -- -- -- -- -- (1,250) (1,250)
Deferred compensation. 23,788 105,720 37,810 167,318 (9,376) 21,714 189,032
Write-down of
inventory............ -- 195,317 656,740 852,057 -- -- 852,057
Impairment loss on
equipment............ -- -- 181,151 181,151 -- -- 181,151
Changes in assets and
liabilities:
Increase in accounts
receivable.......... -- (1,774) (6,742) (8,516) (8,534) (226,347) (234,863)
Decrease (increase)
in advance royalty
payments............ (53,500) (205,709) 30,807 (228,402) 59,130 14,938 (213,464)
Decrease (increase)
in advance to
manufacturer........ -- (350,000) 350,000 -- -- -- --
Decrease (increase)
in prepaid expenses. (24,571) (94,010) 16,565 (102,916) (75,162) 8,637 (94,279)
Increase in
inventory........... -- (435,770) (545,822) (981,592) (235,052) (60,132) (1,041,724)
Decrease (increase)
in other assets..... -- (113,298) 7,145 (106,153) 113,298 4,685 (101,468)
Increase (decrease)
in accounts payable. 12,753 294,545 110,185 482,971 (46,092) (53,644) 429,327
Increase (decrease)
in accrued expenses. 759,419 (554,980) 4,079 208,518 (93,624) (32,255) 176,263
Increase (decrease)
in accrued
compensation........ 91,639 119,968 51,628 263,235 (59,348) (15,204) 248,031
Increase in deferred
revenue............. -- -- 1,500,000 1,500,000 -- 20,000 1,520,000
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used in
operating
activities......... (2,619,968) (8,586,666) (5,047,202) (16,238,132) (2,012,682) (1,685,235) (17,923,367)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of property
and equipment........ (56,171) (176,171) (3,907) (236,249) (17,996) (96,610) (332,859)
Purchase of patent.... -- -- -- (11,095) -- -- (11,095)
Note receivable issued
to stockholder....... -- (100,000) -- (100,000) -- -- (100,000)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities......... (56,171) (276,171) (3,907) (347,344) (17,996) (96,610) (443,954)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from issuance
of Series A
redeemable
convertible preferred
stock, net of
issuance costs....... -- -- -- 389,189 -- -- 389,189
Proceeds from issuance
of Series B
redeemable
convertible preferred
stock, net of
issuance costs....... 3,040,581 -- -- 3,040,581 -- -- 3,040,581
Proceeds from issuance
of Series C
redeemable
convertible preferred
stock, net of
issuance costs....... -- 8,947,875 -- 8,947,875 -- -- 8,947,875
Proceeds from issuance
of Series D
redeemable
convertible preferred
stock, net of
issuance costs....... -- -- 15,347,009 15,347,009 3,574,509 994,472 16,341,481
Payment of costs
associated with the
issuance of common
stock................ -- -- -- (5,354) -- -- (5,354)
Payments received on
notes due from
stockholders for
common stock......... 5,100 1,593 20,507 27,200 2,550 36,366 63,566
Payment of principal
on obligations under
capital leases....... -- (198,431) (436,294) (634,725) (91,630) (122,799) (757,524)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash provided by
financing
activities......... 3,045,681 8,751,037 14,931,222 27,111,775 3,485,429 908,039 28,019,814
----------- ----------- ----------- ------------ ----------- ----------- ------------
Increase (decrease) in
cash and cash
equivalents.......... 369,542 (111,800) 9,880,113 10,526,299 1,454,751 (873,806) 9,652,493
Cash and cash
equivalents at
beginning of period... 388,444 757,986 646,186 -- 646,186 10,526,299 --
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash and cash
equivalents at end of
period................ $ 757,986 $ 646,186 $10,526,299 $ 10,526,299 $ 2,100,937 $ 9,652,493 $ 9,652,493
=========== =========== =========== ============ =========== =========== ============
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for interest... $ 748 $ 107,272 $ 114,728 $ 222,748
=========== =========== =========== ============
Supplemental noncash
investing and
financing activities:
Common stock issued
for notes receivable,
net.................. $ 183,600 $ 349,468 $ 464,290 $ 1,067,358
Common stock issued
for patent........... -- -- -- 35,000
Acquisition of
property and
equipment under
capital leases....... $ 140,840 $ 1,202,436 $ 73,180 $ 1,416,456
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
(1)Description of Business
Audible, Inc. (Audible or the Company) was incorporated on November 3,
1995 and is currently in the development stage. The Company was formed to
create the Audible service, a solution delivering premium digital spoken
audio content over the Internet for playback on personal computers and
mobile devices. The Company commenced commercial operations in October
1997. Currently, Audible has spoken audio programming available for
download from its Web site, audible.com. Customers can purchase programs
and listen from their personal computers or on the Audible MobilePlayer,
the Company's proprietary playback device.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The Company is currently in the development stage, as revenue generated
from the Company's principal operations is not yet significant.
Interim Financial Information
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1999 and 1998 and the period November 3, 1995 (date of
inception) to March 31, 1999 are unaudited but, in the opinion of
management, reflect all adjustments which are of a normal, recurring
nature, necessary for the fair presentation of financial position and
results of operations. Operating results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be expected
for a full year.
Cash Equivalents
The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1997 and 1998 were $546,577 and $10,294,043,
respectively.
Royalties
Advance royalty payments in the accompanying balance sheets represent
payments made to various content providers pursuant to minimum guarantees
under their royalty agreements. These agreements give the Company the right
to sell digital audio content over the Internet. These payments are being
amortized on a straight-line basis over the term of the royalty agreements
or are expensed as royalties are earned by the content providers under the
agreements, whichever is sooner. Royalty expense is included in cost of
content and services revenue in the accompanying statements of operations
and includes the following
components:
F-7
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
<TABLE>
<CAPTION>
Period
Period Three months November 3, 1995
Year ended November 3, 1995 ended (date of
December 31, (date of inception) March 31, inception)
---------------------- to December 31, ---------------- to March 31,
1996 1997 1998 1998 1998 1999 1999
----- ------- -------- ------------------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited) (unaudited)
Amortization of minimum
guarantees ............ $ -- $76,041 $348,561 $424,602 $71,630 $141,362 $565,964
Earned royalties........ -- 2,311 23,553 25,864 3,813 10,820 36,684
----- ------- -------- -------- ------- -------- -----------
$ -- $78,352 $372,114 $450,466 $75,443 $152,182 $602,648
===== ======= ======== ======== ======= ======== ===========
</TABLE>
Inventory
Inventory is stated at the lower of cost, principally using the first-
in, first-out method, or market (net realizable value). Inventory consists
of Audible MobilePlayers and accessories to the Audible MobilePlayers. The
Company recorded a charge of $195,317 and $286,603 in 1997 and 1998,
respectively, to write down inventory to market value. These charges are
included in cost of hardware revenue in the accompanying statements of
operations. The 1998 write-down is in addition to the write-down discussed
in note 5.
F-8
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives, which are
three years for computer server and Web site equipment and two years for
office furniture and equipment, studio equipment, and molds and
manufacturing equipment.
Leasehold improvements are amortized on a straight-line basis over the
lease term or the estimated useful life of the improvement, whichever is
shorter.
Maintenance and repairs are expensed as incurred.
Stock Issued for Goods and Services
The Company accounts for stock issued to nonemployees in which goods or
services are the consideration received for the stock issued based on the
fair value of the goods or services received or the fair value of the stock
issued, whichever is more reliably measurable.
Intangible Assets
Intangible assets consist of a patent which is carried at cost and
amortized on a straight-line basis over the estimated useful life of three
years.
Risks and Uncertainties
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, unproven business model and the
limited history of electronic commerce on the Internet. The Company's
success will depend in part upon the emergence of the Internet as a
communications medium, the availability of spoken audio content, sales of
third party mobile devices and market acceptance of the Audible service.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
Revenue Recognition
Hardware revenue is recognized upon shipment. Content revenue is
recognized in the period when the content is downloaded and the customer's
credit card is processed. Service revenue is recognized as services are
performed and consists of audio production and hosting services. Deferred
revenue represents cash received in advance of revenue being earned (see
note 7).
Other revenue for the three months ended March 31, 1999 and the period
November 3, 1995 (date of inception) to March 31, 1999 relates to fees
billed for services under the agreement with Microsoft Corporation
(Microsoft).
F-9
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Research and Development
Research and development expenses are expensed as incurred. Included in
research and development are costs incurred under an agreement with IDEO
Development Corporation (IDEO), under which IDEO developed the Audible
MobilePlayer, as well as costs incurred in developing the Company's Web
site and the software that enables customers to download content from the
Company's Web site. The Company paid IDEO related costs of $913,244,
$1,044,420, $70,937 and $2,028,601 in 1996, 1997, 1998 and the period
November 3, 1995 (date of inception) to December 31, 1998, respectively.
Production Expenses
Production expenses are expensed as incurred and consist primarily of
personnel and outsourced costs to support the Company's infrastructure and
systems including its Web site, internal data communications, audio
production activities and acquisition of content.
Advertising Expenses
The Company expenses the costs of advertising and promoting its products
and services as incurred. These costs are included in sales and marketing
in the accompanying statements of operations and totaled $0, $91,295,
$310,033 and $401,328 for the years ended December 31, 1996, 1997 and 1998
and for the period November 3, 1995 (date of inception) to December 31,
1998, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability
method of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under the asset and liability method,
deferred tax assets and deferred tax liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
results of operations in the period in which the tax change occurs.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
F-10
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Basic and Diluted Net Loss Per Common Share
Basic and diluted net loss per common share is presented in accordance
with the provisions of SFAS No. 128, "Earnings Per Share." Basic net loss
per common share excludes dilution for common stock equivalents and is
computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted net loss per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock and resulted in the issuance of
common stock. Diluted net loss per common share is equal to basic net loss
per common share, since all common stock equivalents are antidilutive for
each of the periods presented.
Diluted net loss per common share for the years ended December 31, 1996,
1997, 1998 and the period November 3, 1995 (date of inception) to December
31, 1998 does not include the effects of warrants to purchase 0, 450,000,
450,000 and 450,000 shares of common stock, respectively; warrants to
purchase 46,082, 58,270, 63,270 and 63,270 shares of preferred stock
warrants, respectively; 2,584,000, 4,834,000, 8,684,000 and 8,684,000
shares of convertible preferred stock on an "as-if" converted basis,
respectively; as the effect of their inclusion is antidilutive during each
period.
Pro Forma Basic and Diluted Net Loss Per Common Share
Pro forma basic and diluted net loss per common share has been presented
as if the convertible preferred stock were converted into common stock for
all periods presented due to the automatic conversion upon the Company's
initial public offering.
Financial Instruments and Concentration of Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses. At
December 31, 1997 and 1998, the fair values of these financial instruments
approximated their carrying value due to the short-term nature of these
instruments.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. The adoption of this standard
has had no impact on the Company's financial statements. Accordingly, the
Company's comprehensive net loss is equal to its net loss for all periods
presented.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for the way that a public
enterprise reports information about operating segments in annual financial
statements, and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
is effective for fiscal years beginning after December 1, 1997. In the
initial year of application, comparative information for earlier years must
be restated. The Company has determined that it does not have any
separately reportable business segments.
F-11
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which
provides guidance (i) for determining whether computer software is
internal-use software and (ii) on accounting for the proceeds of computer
software originally developed or obtained for internal use and then
subsequently sold to the public. It also provides guidance on
capitalization of the costs incurred for computer software developed or
obtained for internal use. SOP 98-1 is effective for fiscal years beginning
after December 31, 1998. The Company does not expect the adoption of SOP
98-1 in 1999 to have a material effect on its financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5, which is
effective for fiscal years beginning after December 15, 1998, provides
guidance on the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to
be expensed as incurred. The Company does not expect the adoption of SOP
98-5 in 1999 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement is not expected to affect the Company,
as it currently does not engage or plan to engage in derivative instruments
or hedging activities.
(3) Stockholders' Equity
Common Stock
In 1997, the Company increased the number of shares of common stock
authorized from 7,000,000 to 12,000,000. In 1998, the Company increased the
number of shares of common stock authorized from 12,000,000 to 16,000,000.
At December 31, 1997 and 1998, the Company had 4,066,136 and 4,929,570,
respectively, common stock shares issued and outstanding and 4,892,270 and
8,747,270 common stock shares, respectively, reserved for conversion of
Series A convertible preferred stock, Series B convertible preferred stock,
Series C convertible preferred stock, Series D convertible preferred stock
and related convertible preferred stock warrants. Additionally, the Company
had 450,000 shares reserved for common stock warrants issued in conjunction
with the Series C convertible preferred stock.
Shares of common stock outstanding were purchased under the Company's
Stock Restriction Agreements, which contain certain restrictions related to
the sale and transfer of the shares and certain vesting and buyback
provisions. Under the Stock Restriction Agreements, shares may be purchased
by employees and consultants of the Company through the issuance of
promissory notes (see note 11). In general, shares sold to employees vest
over a 50-month period, with the Company maintaining an option to
repurchase unvested shares. Shares of common stock are also, on occasion,
issued in exchange for services.
F-12
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
A summary of common stock issued under Stock Restriction Agreements
follows:
<TABLE>
<CAPTION>
Number of
shares Weighted average issue price
--------- -------------------------------
<S> <C> <C>
Balance at November 3, 1995 (date
of inception)................... -- --
Issued for notes................. 1,000,000 $.07
Issued in exchange for patent.... 500,000 Fair value of patent--$35,000
---------
Balance at December 31, 1995..... 1,500,000
Issued for notes................. 1,718,400 $.11
Issued in exchange for services.. 94,100 Fair value of services--$35,226
Repurchased...................... (143,400) $.09
---------
Balance at December 31, 1996..... 3,169,100
Issued for notes................. 1,003,750 $.36
Issued in exchange for services.. 48,656 Fair value of services--$87,884
Repurchased...................... (155,370) $.10
---------
Balance at December 31, 1997..... 4,066,136
Issued for notes................. 1,637,750 $.40
Issued in exchange for services.. 7,500 Fair value of services--$16,250
Repurchased...................... (781,816) $.24
---------
Balance at December 31, 1998 (of
which 2,895,942 shares are
vested at December 31, 1998).... 4,929,570
=========
</TABLE>
Warrants
In 1996, the Company issued warrants to purchase 12,500 shares of Series
B convertible preferred stock. The warrants have an exercise price of $3.00
per share and expire on November 20, 2001. Also in 1996, the Company issued
warrants to purchase 33,582 shares of Series B convertible preferred stock.
These warrants have an exercise price of $2.68 and expire on the later of
November 19, 2006 or five years from an initial public offering by the
Company.
In 1997, the Company issued warrants to purchase 12,188 shares of Series
C convertible preferred stock with an exercise price of $4.00 per share.
The warrants expire on the later of July 24, 2007 or five years from an
initial public offering by the Company.
In conjunction with the issuance of the Series C convertible preferred
stock in 1997, the Company issued warrants to purchase 450,000 shares of
common stock at an exercise price of $6.00 per share. Such exercise price
was above the fair value of common stock at the date of grant. The warrants
expire on March 31, 2002.
In conjunction with a $1 million line of credit entered into in 1998
(see note 12), the Company issued warrants to purchase 5,000 shares of
Series D convertible preferred stock with an exercise price of $4.00 per
share. The warrants expire on April 5, 2003.
F-13
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Using a Black-Scholes option model, the fair value of the warrants
issued by the Company was deemed insignificant on the date of grant.
(4) Redeemable Convertible Preferred Stock
Series A
In December 1995, the Company authorized 1,350,000 shares of Series A
convertible preferred stock. In March 1997, the Company decreased the
number of shares of Series A convertible preferred stock authorized from
1,350,000 to 1,068,000. In 1995, the Company issued 534,000 shares of
Series A convertible preferred stock at $.75 per share for net proceeds of
$389,189. Each holder of outstanding shares of Series A convertible
preferred stock has voting rights equal to the number of shares of common
stock into which the shares of Series A convertible preferred stock are
convertible, which is a share for share basis, subject to certain
adjustments for antidilution, at the option of the stockholder, as defined
in the Company's Certificate of Incorporation, as amended.
Stockholders of the Series A convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of $.075 per share. Such dividends are not cumulative.
Whenever a dividend or other distribution is declared on any shares of
Series B, Series C or Series D convertible preferred stock, the Board of
Directors must simultaneously declare a dividend or distribution on Series
A convertible preferred stock based on the relative aggregated liquidation
value of the outstanding shares of Series A, Series B, Series C and Series
D convertible preferred stock so that the outstanding shares of Series A,
Series B, Series C and Series D convertible preferred stock will
participate equally with each other.
Series B
In July 1996, the Company authorized 2,000,000 shares of Series B
convertible preferred stock. The number of shares of Series B convertible
preferred stock authorized was increased to 2,200,000 in November 1996. In
March 1997, the Company decreased the number of shares of Series B
convertible preferred stock authorized to 2,100,000 shares. In July and
November 1996, the Company issued an aggregate of 2,050,000 shares of
Series B convertible preferred stock at $1.50 per share for aggregate net
proceeds of $3,040,581. Each holder of outstanding shares of Series B
convertible preferred stock has voting rights equal to the number of shares
of common stock into which the shares of Series B convertible preferred
stock are convertible, which is a share for share basis, subject to certain
adjustments for antidilution, at the option of the stockholder, as defined
in the Company's Certificate of Incorporation, as amended.
Stockholders of Series B convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of $.15 per share. Such dividends are not cumulative.
Series C
In March 1997, the Company authorized 2,300,000 shares of Series C
convertible preferred stock. In March 1997, the Company issued 2,250,000
shares of Series C convertible preferred stock at $4.00 per share for net
proceeds of $8,947,875. Each holder of outstanding shares of Series C
convertible preferred stock has voting rights equal to the number of shares
of common stock into which the Series C convertible
F-14
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
preferred stock are convertible, which is a share for share basis, subject
to certain adjustments for antidilution, at the option of the stockholder,
as defined in the Company's Certificate of Incorporation, as amended.
Stockholders of Series C convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of 10% of the initial Series C convertible preferred stock
value ($4.00 per share). Such dividends are not cumulative.
Series D
In February 1998, the Company authorized 1,375,000 shares of Series D
convertible preferred stock. The number of shares of Series D convertible
preferred stock authorized was increased to 4,375,000 in December 1998. In
February, June and December 1998, the Company issued an aggregate of
3,850,000 shares of Series D convertible preferred stock at $4.00 per share
for aggregate net proceeds of $15,347,009. Each holder of outstanding
shares of Series D convertible preferred stock has voting rights equal to
the number of shares of common stock into which the Series D convertible
preferred stock are convertible, which is a share for share basis, subject
to certain adjustments for antidilution, at the option of the stockholder,
as defined in the Company's Certificate of Incorporation, as amended.
Stockholders of Series D convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of 10% of the initial Series D convertible preferred stock
value ($4.00 per share). Such dividends are not cumulative.
On February 9, 1999, the Company issued 250,000 shares of Series D
convertible preferred stock at $4.00 per share, for net proceeds of
$994,472. These shares have the same rights as the Series D convertible
preferred stock shares outstanding as of December 31, 1998.
Automatic Conversion
Upon the closing of a Qualified Offering (as defined below), all of the
then outstanding shares of preferred stock are automatically converted into
shares of common stock at the conversion price at the time in effect for
such preferred stock, and any dividends declared but unpaid are immediately
payable in cash. A "Qualified Offering" is defined as an underwritten
offering by the Company of authorized but unissued shares of common stock
at a price per share which (after deducting underwriting commissions and
offering expenses) is not less than $6.00 per share, subject to adjustment,
and resulting in net proceeds to the Company (after deducting underwriting
commissions and offering expenses) of not less than $15,000,000. An
"Underwritten Offering" is defined as a distribution of common stock in a
firm commitment underwritten public offering to the general public pursuant
to a registration statement filed with and declared effective by the
Securities and Exchange Commission pursuant to the Securities Act of 1933.
Liquidation and Dividend Preferences
Upon liquidation, holders of Series A convertible preferred stock are
entitled to $.75 per share of Series A convertible preferred stock
outstanding, plus 8% of the original purchase price of Series A convertible
preferred stock ($.75), compounded annually from the date of issuance, and
any declared but unpaid dividends.
Holders of Series B convertible preferred stock are entitled to the
greater of (a) the sum of $1.50 per share of Series B convertible preferred
stock outstanding (subject to adjustment, as defined in the
F-15
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Company's Certificate of Incorporation, as amended) plus all declared but
unpaid dividends or (b) the amount that would have been received if all
shares of Series B convertible preferred stock had been converted to common
stock prior to such liquidation.
Holders of Series C convertible preferred stock are entitled to the
greater of (a) the sum of $4.00 per share of Series C convertible preferred
stock outstanding (subject to adjustment as defined in the Company's
Certificate of Incorporation, as amended) plus all declared but unpaid
dividends or (b) the amount that would be received if all shares of Series
C convertible preferred stock had been converted to common stock prior to
such liquidation.
Holders of Series D convertible preferred stock are entitled to the
greater of (a) the sum of $4.00 per share of Series D convertible preferred
stock outstanding (subject to adjustment as defined in the Company's
Certificate of Incorporation, as amended) plus all declared but unpaid
dividends or (b) the amount that would be received if all shares of Series
D convertible preferred stock had been converted to common stock prior to
such liquidation.
Series A, Series B, Series C and Series D convertible preferred stock
rank as to dividends and upon liquidation at parity and senior to common
stock and to all other classes or series issued by the Company. If upon
liquidation the assets remaining in the Company are not sufficient to pay
the holders of Series A, Series B, Series C and Series D convertible
preferred stock the full amount to which the stockholders are entitled, the
holders of the Series A, Series B, Series C and Series D convertible
preferred stock share ratably in the distribution of the remaining assets.
The Company has not declared any dividends.
Redemption Features
The Company is required to redeem, at the option of a majority of the
holders of Series A convertible preferred stock, a maximum number of shares
of Series A convertible preferred stock held by such holders at $.75 per
share on the following dates:
<TABLE>
<CAPTION>
Maximum number
of outstanding
Redemption date shares to be redeemed
--------------- ---------------------
<S> <C>
January 1, 2000........................................ 33.33%
January 1, 2001........................................ 50.00%
January 1, 2002........................................ All remaining shares
</TABLE>
The Company is required to redeem, at the option of a majority of the
holders of each series of convertible preferred stock, such shares of such
series of convertible preferred shares outstanding sought to be redeemed by
such holders on the following date, if the Company has not completed an
initial public offering resulting in net proceeds of at least $15,000,000,
or a qualified merger or liquidation. The price at which these shares are
redeemable is the greater of the fair market value of the common stock at
the redemption date or the redemption price, as shown below.
<TABLE>
<CAPTION>
Maximum number Redemption
Redemption date shares to be redeemed price per share
--------------- ---------------------- ---------------
<S> <C> <C> <C>
February 25, 2003..................... Series B 2,050,000 $1.50
Series C 2,250,000 4.00
Series D 3,850,000 4.00
</TABLE>
F-16
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
If funds are not legally available to redeem the Series A, Series B,
Series C and Series D convertible preferred shares outstanding on the
redemption dates specified, the Company will use those funds which are
legally available to redeem the maximum possible number of such shares pro
rata among the preferred stockholders.
(5) Write-down Related to Hardware Business
In 1998, the Company decided to discontinue manufacturing the Audible
MobilePlayer and instead to focus its efforts on developing the technology
to enable third-party hand-held devices to download Audible's content. As a
result, the Company recorded a charge of approximately $370,000 to reduce
the remaining inventory to its net realizable value. The Company also
recorded an impairment loss of approximately $181,000 on certain molds and
manufacturing equipment that were used by Flextronics, Inc. (Flextronics)
in manufacturing the Audible MobilePlayer. The impairment loss was measured
as the difference between the fair value, determined to be zero, and the
carrying value of the molds and manufacturing equipment. In addition, the
Company recorded a charge of $51,000 and agreed to use its $350,000 deposit
with Flextronics to satisfy $401,000 in remaining purchase commitments.
These charges comprise the write-down of approximately $952,000 recorded in
the accompanying 1998 statement of operations.
(6) Property and Equipment
Property and equipment at December 31, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Construction in progress................................. $ -- $ 16,428
Studio equipment......................................... 155,935 155,935
Computer server and Web site equipment................... 498,856 510,118
Molds and manufacturing equipment........................ 443,257 302,463
Office furniture and equipment........................... 383,741 392,781
Leasehold improvements................................... 93,829 93,829
---------- ----------
1,575,618 1,471,554
Less accumulated depreciation and amortization........... 408,006 1,073,717
---------- ----------
$1,167,612 $ 397,837
========== ==========
</TABLE>
Property and equipment includes equipment under capital leases.
Depreciation and amortization expense on property and equipment, including
equipment under capital leases, totaled $28,683, $379,323, $665,711 and
$1,073,717 in 1996, 1997, 1998 and the period November 3, 1995 (date of
inception) to December 31, 1998, respectively.
An impairment loss of approximately $181,000 was recorded on molds and
manufacturing equipment in 1998 to reduce the net book value to zero since
the Company determined that the carrying amount of the molds and
manufacturing equipment was not recoverable.
F-17
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
(7)Microsoft Agreement
In November 1998, the Company entered into a five-year agreement with
Microsoft to develop certain integration of products, grant various rights
and licenses, and provide for Microsoft to be paid future royalties for
content distributed as a result of the software developed in the agreement.
Under the terms of the agreement, Microsoft committed a minimum of $2.0
million in payments to the Company to integrate certain products and
acquire various rights and licenses.
Microsoft advanced Audible $1,500,000 in November 1998 in consideration
of Audible granting Microsoft a license to distribute certain customized
software enabling access from users of Microsoft platforms to Audible
content. This advance has been deferred until the Company has met certain
conditions.
Audible will pay Microsoft a royalty on content licensed and distributed
by Audible to each end user that accesses its content using the customized
software. During 1998, Audible had not made any royalty payments to
Microsoft.
Also under the agreement, Audible (i) has performed technology
integration services for which the Company has recognized revenue of
$200,000, (ii) will deliver a license for certain technology rights in
exchange for $250,000 and (iii) will deliver 300 Audible MobilePlayers in
exchange for $50,000. Microsoft has options under the agreement to acquire
additional rights and licenses and extend the term of the agreement for
additional financial consideration.
(8) Income Taxes
There is no provision for income tax expense in 1996, 1997 or 1998 or in
the period November 3, 1995 (date of inception) to December 31, 1998 due to
the Company's net losses in each of the years and the cumulative period
since inception. No income tax payments have been made in 1996, 1997, 1998
or the period November 3, 1995 (date of inception) to December 31, 1998.
F-18
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
The difference between the actual income tax provision and that computed
by applying the U.S. federal income tax rate of 34% to pretax loss is
summarized below:
<TABLE>
<CAPTION>
Period
November 3, 1995
Year ended December 31, (date of inception)
------------------------------------- to December 31,
1996 1997 1998 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Computed "expected" tax
benefit................ $(1,192,982) $(2,729,944) $(2,766,945) $(6,706,490)
(Increase) decrease in
tax benefit resulting
from:
Increase in the
valuation allowance... 1,391,121 3,208,000 3,251,000 7,869,000
State and local income
tax benefit, net of
federal benefit....... (208,421) (476,937) (483,401) (1,171,018)
Other, net............. 10,282 (1,119) (654) 8,508
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 766,000 $4,288,000
Capitalized start-up costs.............................. 891,000 1,115,000
Capitalized research and developmental costs............ 2,751,000 1,876,000
Book depreciation in excess of tax depreciation......... 117,000 229,000
Deferred compensation and accrued vacation.............. 52,000 105,000
Inventory write-down.................................... -- 148,000
Molds and equipment impairment.......................... -- 72,000
Other, net.............................................. 47,000 36,000
---------- ----------
Total deferred tax assets.............................. 4,624,000 7,869,000
Less valuation allowance................................ 4,618,000 7,869,000
---------- ----------
Net deferred taxes..................................... 6,000 --
Deferred tax liability--deductible patent costs.......... 6,000 --
---------- ----------
Net deferred taxes..................................... $ -- $ --
========== ==========
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income. Based on the Company's historical net losses, management believes
it is more likely than not that the Company will not realize the benefits
of these deferred tax assets, and accordingly, a full valuation allowance
has been recorded on the deferred tax assets as of December 31, 1997 and
1998.
F-19
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
As of December 31, 1998, the Company has net operating loss
carryforwards for federal income tax purposes of approximately $10.7
million which expire between 2010 and 2013 if not used to offset future
taxable income. The Company has experienced certain ownership changes
which, under the provisions of Section 382 of the Internal Revenue Code of
1986, as amended, may result in an annual limitation on the Company's
ability to utilize its net operating losses in the future.
(9) Related-party Transactions
The Company has an agreement with Flextronics to manufacture the Audible
MobilePlayer. The chief executive officer of Flextronics is also a
principal of one of the Company's stockholders. Included in accounts
payable is approximately $173,000 and $51,000 which is due to Flextronics
at December 31, 1997 and 1998, respectively. The Company intends to
terminate this agreement in 1999 in connection with the decision to
discontinue manufacturing the Audible MobilePlayer (see note 5).
The note receivable due from stockholder of $100,000 at December 31,
1997 and 1998 bears interest at 6% annually. The principal amount plus
accrued interest is due the earlier of March 28, 2002 or the effective date
of an initial public offering by the Company. The stockholder has pledged
25,000 shares of common stock as security under the promissory note.
In April 1999, the note was amended to extend its maturity date to one
year following the closing of an initial public offering of the Company's
common stock.
(10) Commitments
Lease Obligations
The Company entered into a capital lease line of credit with Comdisco,
Inc. whereby the Company may lease up to $1,750,000 of equipment. The
Company has leased $1,240,585 of equipment under this capital lease line as
of December 31, 1998. The Company has operating leases on its office space
and certain equipment. Future minimum lease obligations under these lease
arrangements are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
<S> <C> <C>
Year ending December 31:
1999.................................................... $517,051 $206,478
2000.................................................... 276,898 215,571
2001.................................................... 48,271 218,732
2002.................................................... -- 218,732
2003.................................................... -- 19,225
-------- --------
Total future minimum lease payments.................... 842,220 $878,738
========
Less amount representing interest (8% to 11.5%)......... 60,489
--------
Present value of obligation under capital lease........ 781,731
Less current maturities 471,224
--------
Obligation under capital lease, net of current
maturities............................................ $310,507
========
</TABLE>
Rent expense of $58,173, $144,914, $209,128 and $412,215 was recorded
for operating leases for the years ended December 31, 1996, 1997 and 1998
and the period November 3, 1995 (date of inception) to December 31, 1998,
respectively.
F-20
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
Equipment under capital leases as of December 31, 1997 and 1998 is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Studio equipment..................................... $ 135,855 $ 135,855
Computer server and Web site equipment............... 492,793 504,055
Molds and manufacturing equipment.................... 419,332 301,406
Office furniture and equipment....................... 295,296 299,269
---------- ----------
1,343,276 1,240,585
Less accumulated amortization........................ (351,567) (953,303)
---------- ----------
$ 991,709 $ 287,282
========== ==========
</TABLE>
Content Royalty Agreements
The Company enters into content royalty agreements with various content
providers. Royalties for licensed content are based on a percentage of
content revenue. Minimum royalties of approximately $702,000 are required
to be paid over the next two to three years. Payment dates are based upon
specific terms within each agreement.
Purchase Commitment
Under the Company's manufacturing agreement with Flextronics, the
Company is required to reimburse Flextronics for all purchases of
components in connection with its decision to discontinue manufacturing
Audible MobilePlayers, which amount is approximately $401,000 as of
December 31, 1998. As of December 31, 1998, the parties agreed to use the
Company's $350,000 deposit to satisfy a portion of this commitment and the
Company recorded a charge of $51,000 for the remaining amount (see note 5).
The Company has committed to purchase a limited quantity of enhanced
Audible MobilePlayers for approximately $141,000 in early 1999 which are
expected to be sold at or above cost.
License Agreements
In November 1998, the Company entered into a two-year agreement for
certain joint software development, licensing and marketing. Audible is
required to pay $250,000 in the aggregate at various dates during 1999
under the terms of this agreement, for both royalties, based on future
sales, and advertising costs.
The Company has entered into several other agreements whereby certain
device manufacturers will license software from Audible. Under the terms of
these agreements, the Company would be required to pay the device
manufacturer revenue sharing on content sales by customers referred to the
Company through the efforts of the device manufacturers.
Web Hosting Agreement
During 1998, the Company entered into an agreement for Web hosting and
Internet access services effective until May 1999. Future payments by the
Company under this agreement total approximately $33,800, to be paid
monthly.
F-21
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
(11) Notes Due from Stockholders for Common Stock
Notes due from stockholders of $596,375 and $1,040,158 at December 31,
1997 and 1998, respectively, were received by the Company for payment for
shares of common stock purchased by employees and consultants under the
Company's Stock Restriction Agreements (see note 3). These notes have been
reflected as a reduction to stockholders' deficit. The notes are full
recourse promissory notes bearing interest at fixed rates ranging from 7.0%
to 8.5%. The notes mature beginning in the year 2000.
The Company has exercised its right to purchase shares of unvested stock
from employees who were terminated (under the terms of the Company's Stock
Restriction Agreement). During 1996, 1997, 1998 and the period November 3,
1995 (date of inception) to December 31, 1998, the Company repurchased
143,400, 155,370, 781,816 and 1,080,586 shares, respectively. The Company
paid for these shares by reducing the indebtedness under the promissory
notes issued to the Company.
Certain Stock Restriction Agreements with employees contain a provision
whereby the employee is awarded a one-time bonus if still employed by the
Company on the due date of the promissory note equal to the amount of the
promissory note. Compensation expense is recognized on a straight-line
basis over the term of the promissory note. Deferred compensation in the
accompanying balance sheets represents the earned, unpaid portion of such
bonuses.
(12) Credit Facilities
The Company had a bank line of credit which provided for borrowings of
up to $500,000. No amounts were outstanding under this line of credit as of
December 31, 1997. This credit facility was secured by interests in various
Company assets. The credit facility expired on December 31, 1997.
In April 1998, the Company entered into a $1,000,000 bank line of credit
agreement. The agreement matures on April 5, 1999 and contains a minimum
tangible net worth covenant, as defined in the agreement, of $1,500,000.
Any loan amount bears interest at a per annum rate equal to one percentage
point above the prime rate (8.75% as of December 31, 1998) and is limited
to a borrowing base formula based on eligible accounts. As of December 31,
1998, the amount available for borrowing under the line of credit was
nominal. The Company did not draw on this line of credit and was in
compliance with the covenant as of December 31, 1998.
In connection with securing the $1,000,000 line of credit, the Company
issued warrants to the bank to purchase 5,000 shares of Series D
convertible preferred stock. These warrants have an exercise price of $4.00
per share and expire on April 5, 2003.
The Company pledged all goods and equipment, including inventory,
accounts receivable, contract rights and intangibles currently owned or
hereafter acquired, as collateral under this loan agreement.
The bank line of credit expired as of April 5, 1999 and was not renewed.
(13) Corporate Restructuring
On February 2, 1998, the Company reduced its workforce by 32%,
eliminating 15 full-time positions in a variety of functions. The Company
offered a severance package to all the terminated employees. The total
charge resulting from severance of $44,462 was paid in 1998.
F-22
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998
Three Months Ended March 31, 1998 and 1999 and the period November 3, 1995
(Date of Inception) to March 31, 1999
(All information subsequent to December 31, 1998 is unaudited)
(14) Employee Benefit Plan
On July 1, 1998, the Company adopted and made available to all of its
employees a 401(k) savings plan (the Plan). The Plan is based on
contributions from employees and discretionary Company contributions. The
Company has not contributed to the Plan to date.
(15) Subsequent Events
In April 1999, the Company established the 1999 Stock Incentive Plan
(the "Stock Incentive Plan") and has reserved 6,000,000 shares to be issued
under the Stock Incentive Plan. The Stock Incentive Plan permits the
granting of stock options, stock appreciation rights, restricted or
unrestricted stock awards, phantom stock, performance awards and other
stock-based awards. No awards have been granted under the Stock Incentive
Plan.
In April 1999, the Company increased the number of shares of common
stock authorized from 16,000,000 to 50,000,000 and the number of shares of
preferred stock authorized from 9,843,000 to 19,843,000.
In April 1999, in connection with an amendment to the agreements with
Microsoft, the Company issued to Microsoft a warrant to purchase 100,000
shares of common stock at the initial public offering price, or, if the
initial public offering does not occur within 24 months of the date of
issuance, such warrant is exercisable for 100,000 shares of common stock at
$6.00 per share. Microsoft has a right of first negotiation in the event of
a potential sale of the Company.
F-23
<PAGE>
[AUDIBLE, INC. LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered hereby,
other than underwriting discounts and commissions. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
National Association Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $12,788
National Association of Securities Dealers, Inc. filing fee......... 5,100
Nasdaq National Market listing fee.................................. 1,000
Transfer agent's and registrar's fees............................... *
Printing expenses................................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky filing fees and expenses................................... 10,000
Miscellaneous expenses.............................................. *
-------
Total............................................................. *
=======
</TABLE>
- --------
* To be filed by amendment.
14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. Our
bylaws include provisions to require us to indemnify our directors and officers
to the fullest extent permitted by Section 145, including circumstances in
which indemnification is otherwise discretionary. Section 145 also empowers us
to purchase and maintain insurance that protects our officers, directors,
employees and agents against any liabilities incurred in connection with their
service in such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are
we aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification of our directors and officers by the
Underwriters, for certain liabilities arising under the Securities Act.
15. Recent Sales of Unregistered Securities
During the last three years, we have issued unregistered securities in the
transactions described below. These securities were offered and sold by us in
reliance upon the exemptions provided for in Section 4(2) of the Securities
Act, relating to sales not involving any public offering, Rule 506 of the
Securities Act relating to sales to accredited investors and Rule 701 of the
Securities Act relating to a compensatory benefit plan. The sales were made
without the use of an underwriter and the certificates representing the
securities sold contain a restrictive legend that prohibits transfer without
registration or an applicable exemption.
(1) In July 1996, we issued 2,000,000 shares of Series B preferred stock to a
group of accredited investors at a purchase price of $1.50 per share for an
aggregate of $3,000,000.
(2) In November 1996, we issued an additional 50,000 shares of Series B
preferred stock to two accredited investors at a purchase price of $1.50
per share for an aggregate of $75,000.
II-1
<PAGE>
(3) In November 1996, we issued warrants to purchase an aggregate of 46,082
shares of Series B preferred stock in connection with loans made to us.
(4) In March 1997, we issued 2,250,000 shares of Series C preferred stock to a
group of accredited investors at a purchase price of $4.00 per share for an
aggregate of $9,000,000.
(5) In March 1997, we issued warrants to purchase 450,000 shares of common
stock to holders of Series C preferred stock in connection with the Series
C preferred stock financing.
(6) In July 1997, we issued a warrant to purchase 12,188 shares of Series C
preferred stock in connection with a loan made to us.
(7) In February 1998, we issued 1,350,000 shares of Series D preferred stock to
a group of accredited investors at a purchase price of $4.00 per share for
an aggregate of $5,400,000.
(8) In April 1998, we issued a warrant to purchase 5,000 shares of Series D
preferred stock in connection with a loan made to us.
(9) In December 1998, we issued an additional 2,500,000 shares of Series D
preferred stock to a group of accredited investors at a purchase price of
$4.00 per share for an aggregate of $10,000,000.
(10) In February 1999, we issued an additional 250,000 shares of Series D
preferred stock to an accredited investor at a purchase price of $4.00 per
share for an aggregate of $1,000,000.
(11) In April 1999, we issued a warrant to purchase 100,000 shares of common
stock to an accredited investor.
(12) From December 1995 through March 1999, we sold an aggregate of 5,068,180
shares of common stock at purchase prices ranging from $.07 to $4.00 per
share, for an aggregate of $1,526,384.
16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No. Description
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Audible, dated March 31,
1997
3.1.1 Certificate of Amendment of Certificate of Incorporation, dated
July 22, 1997
3.1.2 Certificate of Amendment of Certificate of Incorporation, dated
February 25, 1998
3.1.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1998
3.2* Form of Amended and Restated Certificate of Incorporation of
Audible
3.3 Bylaws of Audible
3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998
3.4* Form of Amended and Restated Bylaws of Audible
4.1* Specimen stock certificate for shares of common stock of Audible
5.1* Opinion of Piper & Marbury L.L.P.
10.1* License Agreement dated November 4, 1998, by and between Microsoft
Corporation and Audible
10.2* Digital Rights Management Agreement dated November 4, 1998,
between Microsoft Corporation and Audible
10.3* Development Agreement dated November 12, 1998, by and between
RealNetworks, Inc. and Audible
10.4* RealMedia Architecture Partner Program Internet Agreement dated
November 12, 1998, between RealNetworks, Inc. and Audible
10.5 Master Lease Agreement dated November 19, 1996, by and between
Comdisco, Inc. as lessor, and Audible as lessee
10.5.1
Addendum to Master Lease Agreement dated November 20, 1996, by and
between Comdisco, Inc., as lessor, and Audible, as lessee
(relating to Exhibit 10.5)
II-2
<PAGE>
10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred
stock at a price of $2.68 per share, dated November 19, 1996, and
re-issued as of August 17, 1998, by Audible to Comdisco, Inc.
10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred
stock at a price of $4.00 per share, dated July 24, 1997, issued
by Audible to Comdisco, Inc.
10.8 Loan and Security Agreement dated April 6, 1998, by and between
Silicon Valley Bank, as lender, and Audible, as borrower, for a
revolving line of credit of up to $1,000,000
10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to
Silicon Valley Bank, entitling Silicon Valley Bank to purchase
5,000 shares of common stock at a price of $4.00 per share
10.10 Security and Loan Agreement dated November 20, 1996, between
Audible, as borrower, and Imperial Bank, as lender, for up to
$500,000
10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred
stock at a price of $3.00 per share, dated November 20, 1996,
issued by Audible to Imperial Bank
10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of
Audible, in the principal amount of $100,000
10.12.1 Allonge to Note dated April 21, 1999 between Donald Katz and
Audible (relating to Exhibit 10.12.1)
10.13 Security Agreement dated March 28, 1997, by and between Donald
Katz and Audible
10.14 Amended and Restated Registration Rights Agreement dated February
26, 1998, by and among Audible and certain stockholders named
therein
10.14.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated December 18, 1998 (relating to Exhibit 10.14)
10.15 1999 Stock Incentive Plan
10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to
various investors in connection with the Series C preferred stock
financing
10.17 Form of Stock Restriction Agreement by and between Audible and the
Named Executive Officers made in connection with various purchases
and sales of shares of restricted common stock
10.18 Form of Promissory Note made by the Named Executive Officers in
favor of Audible in connection with various purchases and sales of
shares of restricted common stock
10.19 Office Lease dated June 20, 1997, by and between Audible, as
tenant, and Passaic Investment LLC, Sixty-Five Willowbrook
Investment LLC and Wayne Investment LLC, as tenants-in-common, as
landlord
10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as
sublessee, and Painewebber Incorporated, as sublessor
10.21* Letter Agreement, dated April 22, 1999, by and between Audible and
Microsoft Corporation
10.22* Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft
Corporation
11.1 Statement of computation of loss per share
23.1 Consent of KPMG LLP
23.2* Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
- --------
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
II-3
<PAGE>
17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wayne, New Jersey, on
the 23rd day of April, 1999.
AUDIBLE, INC.
/s/ Andrew J. Huffman
By: _________________________________
Andrew J. Huffman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appointed Andrew J. Huffman and Nancy
A. Spangler, and each of them acting alone, his true and lawful attorney-in-
fact, with full power of substitution, for him in any and all capacities, to
execute and cause to be filed with the Securities and Exchange Commission any
and all amendments and post-effective amendments to this Registration
Statement, with exhibits thereto and other documents in connection therewith,
and hereby ratifies and confirms all that said attorney-in-fact or his or her
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Andrew J. Huffman President, Chief Executive April 22, 1999
_________________________________ Officer and Director
Andrew J. Huffman (Principal Executive
Officer)
/s/ Anthony Nash Director of Finance and April 22, 1999
_________________________________ Administration (Principal
Anthony Nash Financial Officer)
/s/ Donald R. Katz Chairman of the Board of April 19, 1999
_________________________________ Directors
Donald R. Katz
/s/ Timothy Mott Director April 22, 1999
_________________________________
Timothy Mott
/s/ R. Bradford Burnham Director April 21, 1999
_________________________________
R. Bradford Burnham
/s/ Thomas Hirschfeld Director April 20, 1999
_________________________________
Thomas Hirschfeld
/s/ W. Bingham Gordon Director April 22, 1999
_________________________________
W. Bingham Gordon
/s/ Winthrop Knowlton Director April 22, 1999
_________________________________
Winthrop Knowlton
/s/ Richard Brass Director April 22, 1999
_________________________________
Richard Brass
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- -----------------------
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Audible, dated March 31,
1997
3.1.1 Certificate of Amendment of Certificate of Incorporation, dated
July 22, 1997
3.1.2 Certificate of Amendment of Certificate of Incorporation, dated
February 25, 1998
3.1.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1998
3.2* Form of Amended and Restated Certificate of Incorporation of
Audible
3.3 Bylaws of Audible
3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998
3.4* Form of Amended and Restated Bylaws of Audible
4.1* Specimen stock certificate for shares of common stock of Audible
5.1* Opinion of Piper & Marbury L.L.P.
10.1* License Agreement dated November 4, 1998, by and between Microsoft
Corporation and Audible
10.2* Digital Rights Management Agreement dated November 4, 1998,
between Microsoft Corporation and Audible
10.3* Development Agreement dated November 12, 1998, by and between
RealNetworks, Inc. and Audible
10.4* RealMedia Architecture Partner Program Internet Agreement dated
November 12, 1998, between RealNetworks, Inc. and Audible
10.5 Master Lease Agreement dated November 19, 1996, by and between
Comdisco, Inc. as lessor, and Audible as lessee
10.5.1 Addendum to Master Lease Agreement dated November 20, 1996, by and
between Comdisco, Inc., as lessor, and Audible, as lessee
(relating to Exhibit 10.5)
10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred
stock at a price of $2.68 per share, dated November 19, 1996, and
re-issued as of August 17, 1998, by Audible to Comdisco, Inc.
10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred
stock at a price of $4.00 per share, dated July 24, 1997, issued
by Audible to Comdisco, Inc.
10.8 Loan and Security Agreement dated April 6, 1998, by and between
Silicon Valley Bank, as lender, and Audible, as borrower, for a
revolving line of credit of up to $1,000,000
10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to
Silicon Valley Bank, entitling Silicon Valley Bank to purchase
5,000 shares of common stock at a price of $4.00 per share
10.10 Security and Loan Agreement dated November 20, 1996, between
Audible, as borrower, and Imperial Bank, as lender, for up to
$500,000
10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred
stock at a price of $3.00 per share, dated November 20, 1996,
issued by Audible to Imperial Bank
10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of
Audible, in the principal amount of $100,000
10.12.1
Allonge to Note dated April 21, 1999 between Donald Katz and
Audible (relating to Exhibit 10.12.1)
<PAGE>
10.13 Security Agreement dated March 28, 1997, by and between Donald
Katz and Audible
10.14 Amended and Restated Registration Rights Agreement dated February
26, 1998, by and among Audible and certain stockholders named
therein
10.14.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated December 18, 1998 (relating to Exhibit 10.14)
10.15 1999 Stock Incentive Plan
10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to
various investors in connection with the Series C preferred stock
financing
10.17 Form of Stock Restriction Agreement by and between Audible and the
Named Executive Officers made in connection with various purchases
and sales of shares of restricted common stock
10.18 Form of Promissory Note made by the Named Executive Officers in
favor of Audible in connection with various purchases and sales of
shares of restricted common stock
10.19 Office Lease dated June 20, 1997, by and between Audible, as
tenant, and Passaic Investment LLC, Sixty-Five Willowbrook
Investment LLC and Wayne Investment LLC, as tenants-in-common, as
landlord
10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as
sublessee, and Painewebber Incorporated, as sublessor
10.21* Letter Agreement, dated April 22, 1999, by and between Audible and
Microsoft Corporation
10.22* Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft
Corporation
11.1 Statement of computation of loss per share
23.1 Consent of KPMG LLP
23.2* Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
hereto)
24.1
Power of Attorney (included in signature pages)
27 Financial Data Schedule
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
________________ Shares
Audible, Inc.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
__________, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
VOLPE BROWN WHELAN & COMPANY, LLC
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Audible, Inc., a Delaware corporation ("Company"), proposes
to issue and sell ________________ shares ("Firm Securities") of its common
stock, $.01 par value per share ("Securities"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than _____________ additional shares ("Optional Securities") of its
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities". The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
as follows:
2. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-_______) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
<PAGE>
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all respects to the
-2-
<PAGE>
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus will
conform, in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(d) Each subsidiary of the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; and the stockholders of
the Company have no preemptive rights with respect to the Securities.
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(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act, except for agreements, the requirements of which have been waived
prior to the filing of the Registration Statement.
(h) The Offered Securities have been approved for listing on Nasdaq
Stock Market's National Market.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities, will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties, or
any agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
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determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect").
(n) No labor dispute with the employees of the Company or any subsidiary
exists or, to the knowledge of the Company, is imminent that might have a
Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have no knowledge of any infringement of or conflict
with the intellectual property rights of others that would individually or
in the aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic
or foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively,
"environmental laws"), owns or operates any real property contaminated with
any substance that is subject to any environmental laws, is liable for any
off-site disposal or contamination pursuant to any environmental laws, or
is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of
any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending actions,
suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement and
the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and, except as otherwise
disclosed in the Prospectus, such financial statements have been prepared
in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis and the schedules included in
each Registration Statement present fairly the information required to be
stated therein.
(s) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the
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Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and sale
of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $________ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of the Company, at the office of ________________________, at 10:00
A.M., New York time, on _________________, or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "First Closing Date". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at such location as CSFBC shall reasonably request at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the
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accounts of the several Underwriters, against payment of the purchase price
therefor in Federal (same day) funds by official bank check or checks or wire
transfer to an account at a bank acceptable to CSFBC drawn to the order of the
Company, at the above office of ___________________. The certificates for the
Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at such location as CSFBC shall
reasonably request at a reasonable time in advance of such Optional Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify CSFBC
of such event and will
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promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent to,
nor the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of its
obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees
and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities and
for expenses incurred in distributing preliminary
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prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
or issuances of Securities pursuant to the exercise of such options.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of KPMG LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the
effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects
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with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year, in consolidated
net sales, or net operating income, or in the total or per
share amounts of consolidated income before extraordinary
items or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
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(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there shall
not have occurred (i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as one
enterprise which, in the judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the public offering or the sale of
and payment for the Offered Securities; (ii) any material suspension or material
limitation of trading in securities generally on the New York Stock Exchange, or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iii) any banking moratorium declared by U.S. Federal
or New York authorities; or (iv) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated such Closing
Date, of Piper & Marbury L.L.P., counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and all
other outstanding shares of the Securities of the Company have been
duly authorized and validly issued, are fully paid and nonassessable
and conform to the description thereof contained in the Prospectus;
and the stockholders of the Company have no preemptive rights with
respect to the Offered Securities;
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<PAGE>
(iii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Act, except for agreements, the requirements of which have been waived
prior to the filing of the Registration Statement;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws;
(v) The execution, delivery and performance of this Agreement and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any
such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
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misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
be described in a Registration Statement or the Prospectus or to be
filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial
data contained in the Registration Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal financial
or accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this
Section, except that the specified date referred to in such subsection will be a
date not more than three days prior to such Closing Date for the purposes of
this subsection.
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<PAGE>
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: (i) the table under the first paragraph under the caption
"Underwriting", (ii) the concession and reallowance figures
-14-
<PAGE>
appearing in the [fourth] paragraph under the caption "Underwriting" and (iii)
the information contained in the [sixth and eighth] paragraphs under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
-15-
<PAGE>
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition to
any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated
pursuant to Section 8 or if for any reason the purchase of the Offered
Securities by the Underwriters is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Underwriters pursuant to
Section 7 shall remain in effect, and if any Offered Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (ii), (iii) or (iv) of
Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Offered Securities.
-16-
<PAGE>
10. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to the
Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 65 Willowbrook Boulevard, Wayne,
New Jersey 07470, Attention: President; provided, however, that any notice to
an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws. The Company hereby submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
-17-
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
AUDIBLE, INC.
By:
-----------------------------------
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
VOLPE BROWN WHELAN & COMPANY, LLC
Acting on behalf of themselves and as
the Representatives of the several
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
----------------------------------------
Name:
Title:
374RDF3716/1.A766815-1
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<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
- ----------- ---------------
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
Volpe Brown Whelan & Company, LLC
--------------
Total........................
==============
<PAGE>
Exhibit 3.1
AUDIBLE, INC.
RESTATED CERTIFICATE OF INCORPORATION
Audible, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
1. The name of the Corporation is Audible, Inc., formerly The Audible
Words Corporation. The original Certificate of Incorporation was filed with the
Secretary of the State of Delaware on November 3, 1995, and was amended by
filings with the Secretary of the State of Delaware on December 11, 1995, July
24, 1996, November 19, 1996 and December 30, 1996.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is:
Audible, Inc.
SECOND: The address of the registered office in Delaware is The
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 12,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock"), (ii) 534,000 shares of Series
A Convertible Preferred Stock, $.01 par value per share (the "Series A Preferred
Stock"), (iii) 534,000 shares of Series A-1 Convertible Preferred Stock, par
value $.01 per share (the "Series A-1 Preferred Stock"), (iv) 2,100,000 shares
of Series B Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock"), and (v) 2,250,000 shares of Series C Preferred Stock, par value $.01
per share (the "Series C Preferred Stock") (the Series A Preferred Stock, Series
A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are
sometimes collectively referred herein as the "Preferred Stock"). As used
herein, the term "Series A Preferred Stock" means the Series A Preferred Stock
and the Series A-1 Preferred Stock share-for-share alike and without
distinction, as except as the context otherwise requires.
<PAGE>
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof, in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
l. General. The voting, dividend and liquidation rights of the holders of
-------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. Redemption. The Common Stock is not redeemable.
----------
B. PREFERRED STOCK.
---------------
The Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall rank, as to dividends and upon Liquidation (as defined in
Section 2 (a) hereof) on a parity with each other, and senior and prior to the
Common Stock and to all other classes or series of shares issued by the
Corporation ("Junior Stock").
The Preferred Stock shall have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. Dividends. Whenever any dividend or other distribution is declared on
---------
any shares of Preferred Stock, the Board of Directors shall simultaneously
declare a dividend or distribution on those shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, if any, on which no
dividend or other distribution was declared, based on the relative aggregate
Liquidation value of the outstanding shares of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, so that the outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock will participate equally with each other in such dividend or other
distribution.
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<PAGE>
(a) Series A Preferred Stock Dividend.
---------------------------------
(i) The holders of the Series A Preferred Stock shall be entitled to
receive, out of funds legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation) on the Common Stock of the Corporation, when and if declared by the
Board of Directors, annual dividends at the rate per annum of 10% of the Series
A Stock Value (as defined below), as adjusted for stock splits, stock dividends,
recapitalizations, reclassifications and similar events which affect the number
of outstanding shares of the Series A Preferred Stock. Such dividends shall not
be cumulative. The "Series A Stock Value" shall be equal to $0.75.
(ii) Thereafter, the Board of Directors of the Corporation may declare
and pay additional dividends for such period out of funds of the Corporation
legally available therefor; provided, however, that any such additional
-------- -------
dividends shall be declared and paid in cash upon the Common Stock and Preferred
Stock as a single class, with each holder of Common Stock and Series A Preferred
Stock being entitled to receive the product of the per share amount of such
additional cash dividend, multiplied by the number of shares of Common Stock (i)
held by such stockholder or (ii) into which the shares of Series A Preferred
Stock held by such stockholder are convertible, as the case may be.
(b) Series B Preferred Stock Dividend.
---------------------------------
(i) General. Dividends are payable on the Series B Preferred Stock,
-------
when, as and if declared by the Board of Directors.
(ii) Quarterly Dividends. The holders of the Series B Preferred Stock
-------------------
shall be entitled to receive, out of funds legally available therefor, dividends
payable quarterly on the first day of January, April, July and October, when,
as, and if declared by the Board of Directors, at the annual rate of 10% of the
Series B Stock Value (as defined below) per annum, subject to adjustment for
stock dividends, stock splits, combinations, recapitalizations or similar events
which affect such shares (collectively, "Adjustment"). Such dividends shall not
be cumulative. The "Series B Stock Value" shall be equal to $1.50.
(iii) Other. So long as any shares of Series B Preferred Stock are
-----
outstanding, the Corporation shall not declare or pay any dividend or make any
distribution (whether in cash or other property, other than stock dividends
referred to in subsection (vii) of Subsection 4(d)) to the holders of Junior
Stock or any holders of Series A Preferred Stock or Series C Preferred Stock,
unless such dividend or distribution also is payable to the holders of Series B
Preferred Stock.
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<PAGE>
(c) Series C Preferred Stock Dividend.
---------------------------------
(i) General. Dividends are payable on the Series C Preferred Stock,
-------
when, as and if declared by the Board of Directors.
(ii) Quarterly Dividends. The holders of the Series C Preferred Stock
-------------------
shall be entitled to receive, out of funds legally available therefor, dividends
payable quarterly on the first day of January, April, July and October, when,
as, and if declared by the Board of Directors, at the annual rate of 10% of the
Series C Stock Value (as defined below) per annum, subject to Adjustment. Such
dividends shall not be cumulative. The "Series C Stock Value" shall be equal to
$4.00.
(iii) Other. So long as any shares of Series C Preferred Stock are
-----
outstanding, the Corporation shall not declare or pay any dividend or make any
distribution (whether in cash or other property, other than stock dividends
referred to in subsection (vii) of Subsection 4(d)) to the holders of Junior
Stock or any holders of Series A Preferred Stock or Series B Preferred Stock,
unless such dividend or distribution also is payable to the holders of Series C
Preferred Stock.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Series A Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (a "Liquidation"), the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series A
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Junior Stock by reason of
their ownership thereof and at the same time as any payment shall be made to any
other series of Preferred Stock, an amount equal to the sum of (i) the Series A
Stock Value (subject to Adjustment); (ii) 8% of the Series A Stock Value
(subject to Adjustment), compounded annually from the date of issuance of the
Series A Preferred Stock; and (iii) all declared but unpaid dividends thereon.
If upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Series A Preferred Stock shall share ratably in
the distribution of the entire remaining assets and funds of the Corporation
legally available for distribution in proportion to the respective amounts which
would otherwise
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<PAGE>
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(ii) Upon the completion of the distribution required by subparagraph
(i) of this Section 2(a) and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of Series A Preferred Stock
and Common Stock pro rata based on the number of shares of Common Stock held by
each, treating such Series A Preferred Stock on an as-if-converted basis.
(b) Series B Preferred Stock. In the event of any Liquidation, the holders
------------------------
of shares of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock
and at the same time as any payment shall be made to any other series of
Preferred Stock, an amount per share equal to the greater of (A) the sum of (i)
the Series B Stock Value (subject to Adjustment) and (ii) all declared but
unpaid dividends thereon and (B) the amount which would be received if all
shares of Series B Preferred Stock had been converted to Common Stock prior to
such Liquidation. If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series B Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series B Preferred Stock
and any class or series of stock ranking on Liquidation on a parity with the
Series B Preferred Stock shall share ratably in the distribution of the entire
remaining assets and funds of the Corporation legally available for distribution
in proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(c) Series C Preferred Stock. In the event of any Liquidation, the holders
------------------------
of shares of Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock
and at the same time as any payment shall be made to any other series of
Preferred Stock, an amount per share equal to the greater of (A) the sum of (i)
the Series C Stock Value (subject to Adjustment) and (ii) all declared but
unpaid dividends thereon and (B) the amount which would be received if all
shares of Series C Preferred Stock had been converted to Common Stock prior to
such Liquidation. If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series C Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series C Preferred Stock
and any class or series of stock ranking on Liquidation on a parity with the
Series C Preferred Stock shall share ratably in the distribution of the entire
remaining assets and funds of the Corporation legally available for distribution
in proportion to the respective amounts which would otherwise be payable in
respect
-5-
<PAGE>
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(d) Mergers, Reorganizations, Etc. The merger, reorganization or
------------------------------
consolidation of the Corporation into or with another corporation (except if the
Corporation is the surviving entity) or other similar transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of in exchange for property, rights or securities
distributed to holders by the acquiring person, firm or other entity, or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a Liquidation for purposes of this Section 2. Upon any such merger,
reorganization or consolidation, in addition to any other rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
herein, the holders of Preferred Stock may elect to a distribution in an amount
deemed to be the cash or the value of the property, rights or securities
distributed to such holders by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be determined in good
faith by the Board of Directors of the Corporation.
3. Voting.
------
(a) General. Each holder of outstanding shares of Preferred Stock shall be
-------
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration.
Except as provided by law, by the provisions of Subsection 3(b)(i), 3(b)(ii),
3(b)(iii), 3(c)(i), 3(c)(ii), 3(c)(iii), 3(d)(i), 3(d)(ii) and 3(d)(iii) below
or by the provisions establishing any other series of Preferred Stock, holders
of Preferred Stock shall vote together with the holders of Common Stock as a
single class.
(b) Series A Preferred Stock.
------------------------
(i) The holders of record of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one (1) director
of the Corporation. At any meeting held for the purpose of electing directors,
the presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of electing the director by holders of
the Series A Preferred Stock. A vacancy in the directorship filled by the
holders of Series A Preferred Stock shall be filled only by vote or written
consent in lieu of a meeting of the holders of the Series A Preferred Stock.
The rights of the holders of the Series A Preferred Stock under this Subsection
3(b)(i) shall terminate on the first date on which there are issued and
outstanding less than 25% of the shares of Series A Preferred Stock that may be
issued by the Corporation.
-6-
<PAGE>
(ii) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class:
(A) amend, alter or repeal the preferences, special rights or
other powers of the Series A Preferred Stock so as to affect adversely the
Series A Preferred Stock;
(B) effect any sale, conveyance or other disposition of, or
encumbrance upon, all or substantially all of its property or business or merge
into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of;
(C) create any new class or series of stock or any other
securities convertible into equity securities of the Corporation having a
preference over, or being on a parity with, the Preferred Stock with respect to
voting, dividends or upon liquidation;
(D) amend Section B 3(b)(i) of Article FOURTH;
(E) increase the number of directors above six (6); or
(F) pay any dividend on the Common Stock.
(iii) For purposes of subsection 3(b)(ii)(A), without limiting the
generality of the foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over, or on a parity with, the
Series A Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock.
(c) Series B Preferred Stock.
------------------------
(i) Amendment. Any amendment or change in the rights, preferences or
---------
privileges of the Series B Preferred Stock shall require the affirmative vote of
the holders of at least a majority of the outstanding shares thereof voting as a
separate class.
(ii) Board of Directors. The holders of record of the shares of
------------------
Series B Preferred Stock, exclusively and as a separate class, shall be entitled
to elect two (2) directors of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of at least a majority in interest of the shares of Series B Preferred Stock
then outstanding shall constitute a quorum of the Series B Preferred Stock for
-7-
<PAGE>
the purpose of electing directors by holders of the Series B Preferred Stock.
The two (2) directors shall be elected by vote of at least 66.67% in interest of
the holders of shares of Series B Preferred Stock. A vacancy in any directorship
filled by the holders of Series B Preferred Stock shall be filled only by vote
or written consent in lieu of a meeting of the holders of the Series B Preferred
Stock. The rights of the holders of the Series B Preferred Stock under this
subsection 3(c)(ii) shall terminate on the first date in which there are issued
and outstanding less than 25% of the shares of Series B Preferred Stock that may
be issued by the Corporation.
(iii) Protective Provisions. So long as any shares of Series B
---------------------
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the written consent or affirmative vote of the holders of at least a
majority in interest of the then outstanding shares of Series B Preferred Stock,
given in writing or by vote at a meeting, voting separately as a class:
(A) Extraordinary Transactions. Effect any sale, conveyance
--------------------------
or other disposition of, or encumbrance upon, all or substantially all of its
property, assets or business or merge with or into or consolidate with any other
corporation or entity or entities, or effect any transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Corporation is transferred or disposed of (other than in connection with
a Qualified Offering (as defined herein)), or effect any voluntary dissolution
or liquidation or partial liquidation or distribution or transaction in the
nature of any partial liquidation or distribution.
(B) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series B Preferred Stock.
(C) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series B Preferred Stock with respect to voting, dividends or upon Liquidation.
(D) Increase the Shares. Increase the number of shares of
-------------------
any series of Preferred Stock or Common Stock of the Corporation authorized to
be issued.
(E) Issue Capital Stock, Options or Convertible Securities.
------------------------------------------------------
Except for Excluded Stock (as defined herein), authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation or any Option
(as defined herein) or Convertible Security (as defined herein).
(F) Amend Charter or By-Laws. Amend, alter or repeal any
------------------------
provision of (A) the Certificate of Incorporation of the Corporation or (B) the
By-Laws of the Corporation so as to adversely affect the Series B Preferred
Stock.
-8-
<PAGE>
(G) Increase Directors. Increase the number of directors of
------------------
the Corporation above six (6).
(H) Declare Dividends. Declare or pay any dividend or make any
-----------------
distribution on the Common Stock.
(d) Series C Preferred Stock.
------------------------
(i) Amendment. Any amendment or change in the rights, preferences or
---------
privileges of the Series C Preferred Stock shall require the affirmative vote of
the holders of at least a majority of the outstanding shares thereof voting as a
separate class; provided, however, that any amendment or change in the rights,
-------- -------
preferences or privileges of Section 3(d)(iv) shall require the affirmative vote
of the holders of more than two-thirds of the outstanding shares of Series C
Preferred Stock, voting separately as a class.
(ii) Board of Directors. The holders of record of the shares of
------------------
Series C Preferred Stock, exclusively and as a separate class, shall be entitled
to elect one (1) director of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of at least a majority in interest of the shares of Series C Preferred Stock
then outstanding shall constitute a quorum of the Series C Preferred Stock for
the purpose of electing directors by holders of the Series C Preferred Stock.
The one (1) director shall be elected by vote of at least a majority in interest
of the holders of shares of Series C Preferred Stock. A vacancy in any
directorship filled by the holders of Series C Preferred Stock shall be filled
only by vote or written consent in lieu of a meeting of the holders of the
Series C Preferred Stock after notice to all holders of Series C Preferred
Stock. The rights of the holders of the Series C Preferred Stock under this
subsection 3(d)(ii) shall terminate on the first date in which there are issued
and outstanding less than 20% of the shares of Series C Preferred Stock that may
be issued by the Corporation.
(iii) Protective Provisions. Subject to 3(d)(iv) below, so long as
---------------------
any shares of Series C Preferred Stock are outstanding, the Corporation shall
not, without first obtaining the written consent or affirmative vote of the
holders of at least a majority in interest of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, voting
separately as a class:
(A) Extraordinary Transactions. Effect any sale, conveyance
--------------------------
or other disposition of, or encumbrance upon, all or substantially all of its
property, assets or business or merge with or into or consolidate with any other
corporation or entity or entities, or effect any transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Corporation is transferred or disposed of (other than in connection with
a
-9-
<PAGE>
Qualified Offering), or effect any voluntary dissolution or liquidation or
partial liquidation or distribution or transaction in the nature of any partial
liquidation or distribution.
(B) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series C Preferred Stock.
(C) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series C Preferred Stock with respect to voting, dividends or upon Liquidation.
(D) Increase the Shares. Increase the number of shares of
-------------------
any series of Preferred Stock or Common Stock of the Corporation authorized to
be issued.
(E) Issue Capital Stock, Options or Convertible Securities.
------------------------------------------------------
Except for Excluded Stock, authorize, issue or agree to authorize or issue any
shares of capital stock of the Corporation or any Option or Convertible
Security.
(F) Amend Charter or By-Laws. Amend, alter or repeal any
------------------------
provision of (A) the Certificate of Incorporation of the Corporation or (B) the
By-Laws of the Corporation so as to adversely affect the Series C Preferred
Stock.
(G) Increase Directors. Increase the number of directors of
------------------
the Corporation above six (6).
(H) Declare Dividends. Declare or pay any dividend or make any
-----------------
distribution on the Common Stock.
(iv) For a period of twenty-four (24) months from the date of issuance
of the Series C Preferred Stock, and provided that such shares remain
outstanding, the Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of more than two-thirds (2/3) in
interest of the then outstanding shares of Series C Preferred Stock, given in
writing or by vote at a meeting, voting separately as a class, effect any sale,
conveyance or other disposition of, or encumbrance upon, all or substantially
all of its property, assets or business or merge with or into or consolidate
with any other corporation or entity or entities, or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is transferred or disposed of (other than in
connection with a Qualified Offering), or effect any voluntary dissolution or
liquidation or partial liquidation or distribution or transaction in the nature
of any partial liquidation or distribution in which the price per share is less
than or equal to $8.00, subject to Adjustment.
-10-
<PAGE>
4. Optional Conversion. The holders of the Preferred Stock shall have
-------------------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be convertible,
----------------
at the option of the holder thereof, at any time and from time to time, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Stock Value for each Series of Preferred Stock by the
Conversion Price (as defined below) for such Series in effect at the time of
conversion. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price") shall initially be
$0.75 for the Series A Preferred Stock (the "Series A Conversion Price"), $1.50
for the Series B Preferred Stock (the "Series B Conversion Price") and $4.00 for
the Series C Preferred Stock (the "Series C Conversion Price"). Such initial
Conversion Price, and the rate at which shares of Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a Redemption Notice (as defined below) relating to shares
of Preferred Stock pursuant to Section 6 or upon the exercise of the rights set
forth in Sections 7 or 8 hereof, as applicable, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
second full day preceding the date fixed for redemption, unless the Redemption
Price (as defined below) is not paid when due, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the
event of a Liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on Liquidation to the holders of Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Preferred Stock to convert shares of
Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock, at the office of
the transfer agent for the Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the
-11-
<PAGE>
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Preferred
Stock, or to his or its nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act of 1933, as amended, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(ii) The Corporation shall at all times when the Preferred Stock shall
be outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of the Preferred Stock, such
number of its duly authorized shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding Preferred Stock.
Before taking any action which would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(iii) Upon any such conversion, no adjustment to the Conversion Price
shall be made for any accrued and unpaid dividends on the Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
-12-
<PAGE>
(iv) All shares of Preferred Stock which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and terminate on the
Conversion Date, except only the right of the holders thereof to receive shares
of Common Stock in exchange therefor and payment of any accrued and unpaid
dividends thereon. Any shares of Preferred Stock so converted shall be retired
and canceled and shall not be reissued, and the Corporation may from time to
time take such appropriate action as may be necessary to reduce the authorized
Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection 4(d), the
-------------------
following definitions shall apply:
(A) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or deemed to be issued (pursuant to Subsection 4(d)(iii)
below) by the Corporation after the Original Issue Date, other than Excluded
Stock.
(B) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(C) "Employee Stock Options" shall mean (i) existing stock and
options granted to employees, directors, or consultants of the Corporation
pursuant to any stock award or option plan, agreement or arrangement for
officers, directors, consultants, employees and others who render services to
the Corporation (a "Plan"), to acquire up to a maximum of 85,000 shares of
Common Stock (subject to any Adjustment), and (ii) stock and/or options to be
granted to employees, directors or consultants of the Corporation pursuant to
any Plan to purchase up to a maximum of 1,076,500 shares of Common Stock
(subject to any Adjustment).
(D) "Excluded Stock" shall mean (I) Common Stock issued or
issuable (a) upon conversion of the Preferred Stock, (b) upon the exercise of
Employee Stock Options, (c) pursuant to the Stock Restriction Agreements, (d)
upon exercise of the Common Stock Warrants and (e) in transactions referred to
in subsections (vi) and (vii) of this Subsection 4(d) and (II) Series B
Preferred Stock issuable upon exercise of the Series B Warrants.
(E) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding Employee Stock Options, Series B Warrants, or Common Stock
Warrants, as described below.
-13-
<PAGE>
(F) "Original Issue Date" shall mean the date on which a share
of Preferred Stock was first issued.
(G) "Stock Restriction Agreements" shall mean, collectively, (a)
the Stock Restriction Agreement, dated December 11, 1995, between the
Corporation and Donald Katz, (b) the Stock Purchase and Restriction Agreement,
dated December 11, 1995, between the Corporation and Ironwood Capital L.L.C.
("Ironwood"), (c) the Transfer of Technology and Sale of Stock Agreements, dated
as of December 1, 1995, between the Corporation and each of Donald Katz and
Edwin Lau, as amended as of July 17, 1996, (d) the Stock Restriction Agreements
dated July 17, 1996, between the Corporation and each of Robert Krulwich, Jim
Schwei, Nancy and Andy Clayman, John and Emily Alter, Howard Clowes, Bill
Jacobson, Mitch Ratcliffe, Marianne Radwan, Bing Gordon, Dan Farley, Diane
Franciose, Steven Spiro, Guy Story, Patrick Barry, Mimi Bloom and William
Fallon, (e) the Stock Purchase and Restriction Agreement dated July 23, 1996
between the Corporation and Ironwood, (f) the Stock Restriction Agreement dated
September 10, 1996, between the Corporation and Richard Lewis, (g) the Stock
Restriction Agreement dated August 7, 1996, between the Corporation and James
Harris, (h) the Stock Restriction Agreements dated December 6, 1996 between the
Corporation and each of Grey Voynow, William Bradley, Pauline Eden, Jonathan
Jones and Beth Anderson, (i) the Stock Restriction Agreement dated January 20,
1997 between the Corporation and Winthrop Knowlton, (j) the Stock Restriction
Agreement dated February 4, 1997 between the Corporation and Carol Markowitz,
(k) the Stock Restriction Agreements dated February 7, 1997 between the
Corporation and each of Aijt Rajasekharan, Erica Ceravolo, Helene Artz and Ehud
Ben-Joesph, (l) the Stock Restriction Agreement dated February 20, 1997 between
the Corporation and William Gordon, (m) the Stock Restriction Agreements dated
____, 1997 between the Corporation and each of Jim Russell and IDEO Product Dev.
(H) "Series B Warrants" shall mean (i) the Warrant Agreement
issued to Comdisco, Inc. and (ii) the Warrant to Purchase Stock issued to
Imperial Bancorp.
(I) "Common Stock Warrants" shall mean Warrants to purchase
Common Stock outstanding from time to time.
(ii) No Adjustment of Conversion Price. No adjustment in the number of
---------------------------------
shares of Common Stock into which the Preferred Stock is convertible shall be
made, by adjustment in the applicable Conversion Price thereof: (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares, or (b) if
prior to such issuance, the Corporation receives written notice from the holders
of at least 66 2/3% of the then outstanding shares of Preferred Stock agreeing
that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
-14-
<PAGE>
(iii) Issue of Options and Convertible Securities Deemed Issue of
-----------------------------------------------------------
Additional Shares of Common Stock. If the Corporation at any time or from time
- ---------------------------------
to time after the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities; and upon the expiration or termination of any unexercised Option,
the Conversion Price shall not be readjusted, but the Additional Shares of
Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price; and
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; provided, that no readjustment pursuant to this clause
--------
(b) shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
-15-
<PAGE>
(A) Series A and Series B Conversion Prices. In the event
---------------------------------------
the Corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii)), without consideration or for a consideration per share less than the
Series A or Series B Conversion Price, as the case may be, in effect on the date
of and immediately prior to such issue, then and in such event, such Series A or
Series B Conversion Price, as the case may be, shall be reduced, concurrently
with such issue, to a price determined by multiplying such Series A or Series B
Conversion Price, as the case may be, by a fraction, the numerator of which
---------
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A or Series B
Conversion Price, as the case may be; and the denominator of which shall be the
-----------
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; provided,
--------
however, that, for the purpose of this Subsection 4(d)(iv), (I) all shares of
- -------
Common Stock issuable upon conversion of shares of Series C Preferred Stock,
Series B Preferred Stock and Series A Preferred Stock outstanding immediately
prior to such issue shall be deemed to be outstanding, and (II) immediately
after any Additional Shares of Common Stock are deemed issued pursuant to
Subsection 4(d)(iii), such Additional Shares of Common Stock shall be deemed to
be outstanding.
(B) Series C Conversion Price. In the event the Corporation
-------------------------
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4(d)(iii)), without
consideration or for a consideration per share less than the Series C Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, such Series C Conversion Price shall be reduced, concurrently with
such issue, as follows:
(x) if the consideration per share is greater than or
equal to $3.00 per share (subject to Adjustment), to an amount equal to the per
share consideration received for each additional share upon such issuance; or
(y) if the issuance (or deemed issuance) is without
consideration or for a consideration per share less than $3.00 (subject to
Adjustment), to a price determined by (i) first reducing the Series C Conversion
Price to $3.00 (subject to Adjustment), provided, however, that no reduction
-------- -------
pursuant to this clause (i) shall be made if the Series C Conversion Price is
already below $3.00 (subject to Adjustment); and (ii) then multiplying such new
reduced Series C Conversion Price by a fraction, the numerator of which shall be
---------
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such new Series C Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
- -----------
immediately prior to such issue plus the number of such Additional
-16-
<PAGE>
Shares of Common Stock so issued; provided, that, for the purpose of this
--------
Subsection 4(d)(iv), (I) all shares of Common Stock issuable upon conversion of
shares of Series C Preferred Stock, Series B Preferred Stock and Series A
Preferred Stock outstanding immediately prior to such issue shall be deemed to
be outstanding, and (II) immediately after any Additional Shares of Common Stock
are deemed issued pursuant to Subsection 4(d)(iii)), such Additional Shares of
Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this Subsection
------------------------------
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall: (a)
-----------------
insofar as it consists of cash, be computed at the aggregate of cash received by
the Corporation, excluding amounts paid or payable for accrued interest or
accrued dividends; (b) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and (c) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (a) and (b) above, as determined in good faith by the Board of
Directors.
(B) Options and Convertible Securities. The consideration per
----------------------------------
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 4(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
In the case of such consideration or number of shares issuable as referred to in
clauses (x) and (y), respectively, the amounts shall be as set forth in the
instruments relating thereto without regard to any provision contained therein
for a subsequent adjustment of such consideration or number of shares,
respectively.
-17-
<PAGE>
(vi) Adjustment for Combinations or Consolidation of Common Stock.
------------------------------------------------------------
If, at any time after the applicable Original Issue Date, the number of shares
of Common Stock outstanding are decreased by a combination of the outstanding
shares of Common Stock, then, following the record date fixed for such
combination (or the date of such combination, if no record date is fixed), the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(vii) Adjustment for Stock Dividends, Splits, Etc. If the
--------------------------------------------
Corporation shall at any time after the applicable Original Issue Date fix a
record date for the subdivision, split-up or stock dividend of shares of Common
Stock, then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be increased in proportion to such increase in outstanding
shares; provided, however, that the Conversion Price shall not be decreased at
-------- -------
such time if the amount of such reduction would be an amount less than $.01, but
any such amount shall be carried forward and reduction with respect thereto made
at the time of and together with any subsequent reduction which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
$.01 or more.
(viii) Adjustment for Merger or Reorganization, etc. In case of any
--------------------------------------------
recapitalization, consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation (other than a subdivision or combination
provided for elsewhere in this Section 4 and other than a consolidation, merger
or sale which is treated as a liquidation pursuant to Subsection 2(d)), each
share of Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Preferred Stock, to the end
that the provisions set forth in this Section 4 (including provisions with
respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of
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this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Preferred Stock.
(g) Notice of Record Date. In the event:
---------------------
(i) that the Corporation takes a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class of any other securities or property, or to receive any other right;
(ii) that the Corporation subdivides or combines its outstanding shares
of Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of a Liquidation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least twenty days
before the record date specified below, a notice stating
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as of which the
holders of the applicable class of securities of record to be entitled to such
dividend, distribution, subdivision or combination are to be determined, or
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<PAGE>
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of the
applicable class of securities of record shall be entitled to exchange their
shares of the applicable class of securities for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, dissolution
or winding up.
(h) Shadow Preferred.
----------------
(i) Special Definitions. For purposes of this Section 4(h), the
-------------------
following definitions shall apply:
(a) "Dilutive Issuance" with respect to the Series A
-----------------
Preferred Stock shall mean an issuance of Additional Shares of Common Stock for
a consideration per share less than the Conversion Price of such Series A
Preferred Stock in effect on the date of and immediately prior to such issue.
(b) "Participating Investor" shall mean any holder of
----------------------
Series A Preferred Stock that purchases at least its Pro Rata Share of a
Dilutive Issuance.
(c) "Non-Participating Investor" shall mean any
--------------------------
holder of Series A Preferred Stock that is not a Participating Investor.
(d) "Pro Rata Share" with respect to each holder of
--------------
Series A Preferred Stock shall mean that portion of the total dollar amount of
the Dilutive Issuance equal to (i) the amount of the Dilutive Issuance actually
offered to such holder of Series A Preferred Stock by the Board of Directors of
the Corporation pursuant to the right of first offer (the "Right of First
Offer") set forth in Section 8.6 of the Series A Preferred Stock Purchase
Agreement between the Corporation and the purchasers set forth therein, (ii)
multiplied by a fraction, the numerator of which is the number of shares of
Series A Preferred Stock then held by such holder, and the denominator of which
is the total number of shares of Series A Preferred Stock then outstanding;
provided; however, that no such conversion shall occur in connection with a
particular Dilutive Issuance if, pursuant to the written request of the
Corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Dilutive Issuance.
(ii) In the event the Corporation proposes to undertake a Dilutive
Issuance, it shall give each holder of the Preferred Stock entitled to purchase
a Pro Rata Share pursuant to the Right of First Offer a written notice (the
"Issuance Notice") of its intention, describing the type of securities, the
price and number of shares and the general terms upon which the corporation
proposes to issue the same, at lease twenty (20) days prior to the date of
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<PAGE>
such Dilutive Issuance. Each such holder of Series A Preferred Stock may, within
ten (10) days from the date of the Issuance Notice, provide written notice to
the Corporation that such holder agrees to become a Participating Investor for
the price and upon the terms specified in the Issuance Notice. In the event that
such holder fails to give such notice within said ten-day period, or fails to
actually purchase its Pro Rata Share of Dilutive Issuance (other than as a
result of the Corporation refusing to allow such holder to so purchase its Pro
Rata Share), such holder shall be deemed to be a Non-Participating Investor.
(iii) To the extent of the percentage of the Pro Rata Share not
purchased (the "Refused Percentage") by each Non-Participating Investor, the
number of outstanding shares of Series A Preferred Stock held by such Non-
Participating Investor determined by multiplying the number of such shares held
by the Refused Percentage shall be converted automatically on the date (the
"Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Issuance Notice to such holder of Series A Preferred Stock)
into an equal number of fully paid and non-assessable shares of Series A-1
Preferred Stock; provided, however, that prior to the Closing Date each Non-
Participating Investor shall have the right to convert such shares of Series A
Preferred Stock into shares of Common Stock at the Conversion Price in effect
for such series as of the date of such conversion.
(iv) Upon the conversion of Series A Preferred Stock held by a Non-
Participating Investor into shares of Series A-1 Preferred Stock as set forth
herein, such shares of Series A Preferred Stock shall no longer be outstanding
on the books of the Corporation, and may not be reissued and the Non-
Participating Investor shall be treated for all purposes as the record holder of
such shares of Series A-1 Preferred Stock on the date of the closing of the
applicable Dilutive Issuance. No shares of Series A-1 Preferred Stock shall be
issued except as set forth in the Section 4(d) upon conversion of share of
Series A Preferred Stock.
(v) No adjustment in the Conversion Price of the Series A-1 Preferred
Stock shall be made in respect of the issuance of Additional Shares of Common
Stock, regardless of the issuance price of such shares, except to the limited
extent provided in subsection 4(d) (iii) (to the extent such issuance or deemed
issuance under such subsection is without payment of any consideration by such
holder for the additional shares of Common Stock issued or issuable) and in
subsections 4(d) (vi) and (d) (vii) hereof.
5. Automatic Conversion.
--------------------
(a) Qualified Offering. Upon the closing of a Qualified Offering (as
------------------
defined below), all of the then outstanding shares of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Preferred Stock, and any dividends declared but
unpaid shall be immediately payable in cash. A "Qualified Offering" means an
Underwritten Offering (as defined below) by the Corporation of authorized but
unissued shares of Common Stock at a price per share which (after deducting
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<PAGE>
underwriting commissions and offering expenses) results in proceeds to the
Corporation of not less than $6.00 per share, subject to Adjustment, and
resulting in net proceeds to the Corporation (after deducting underwriting
commissions and offering expenses) of not less than $15,000,000. An
"Underwritten Offering" means a distribution of Common Stock in a firm
commitment underwritten public offering to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act.
(b) Notices. The Corporation shall promptly send by first-class mail,
-------
postage prepaid, to each holder of Preferred Stock at such holder's address
appearing on the Corporation's records a copy of (i) each registration statement
filed by the Corporation under the Securities Act and each amendment thereof and
exhibit and schedule thereto and (ii) each order of the Commission declaring any
such registration statement to be effective.
(c) No Further Action. In the case of an automatic conversion pursuant to
-----------------
this Section 5, the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation shall
-------- -------
not be obligated to issue to any holder certificates evidencing the shares of
Common Stock issuable such conversion unless certificates evidencing such shares
of Preferred Stock are delivered either to the Corporation or any transfer
agent of the Corporation.
6. Redemption of Series A Preferred Stock at Corporation's Option.
--------------------------------------------------------------
(a) At any time and from time to time after January 1, 2002, the
Corporation may, at the option of its Board of Directors, redeem the Series A
Preferred Stock, in whole or in part, by paying $0.75 per share (subject to
Adjustment), together with declared but unpaid dividends thereon, in cash for
each share of Series A Preferred Stock then redeemed (hereinafter referred to as
the "Series A Redemption Price").
(b) In the event of any redemption of only a part of the then outstanding
Series A Preferred Stock, the Corporation shall effect such redemption pro rata
among the holders thereof based on the number of shares of Series A Preferred
Stock held by such holders on the date of the Redemption Notice.
(c) Redemptions made pursuant to this Section 6 shall not relieve the
Corporation of its obligations to redeem Series A Preferred Stock in accordance
with the provisions of Section 7.
(d) At least 30 days prior to the date fixed for any redemption of Series A
Preferred Stock (hereinafter referred to as the "Series A Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to each holder of record of Series A
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<PAGE>
Preferred Stock to be redeemed, at his or its address last shown on the records
of the transfer agent of the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent), notifying such holder of
the election of the Corporation to redeem such shares, specifying the Series A
Redemption Date and the date on which such holder's Conversion Rights (pursuant
to Section 4 hereof) as to such shares terminate and calling upon such holder to
surrender to the Corporation, in the manner and at the place designated, his or
its certificate or certificates representing the shares to be redeemed (such
notice is hereinafter referred to as the "Series A Redemption Notice"). On or
prior to the Series A Redemption Date, each holder of Series A Preferred Stock
to be redeemed shall surrender his or its certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Series A Redemption Notice, and thereupon the Series A
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Series A
Redemption Date, unless there shall have been a default in payment of the Series
A Redemption Price, all rights of the holders of the Series A Preferred Stock
designated for redemption in the Series A Redemption Notice as holders of Series
A Preferred Stock of the Corporation (except the right to receive the Series
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(e) On or prior to the Series A Redemption Date, the Corporation shall
deposit the Series A Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Series A Redemption Notice and not yet redeemed
with a bank or trust company having aggregate capital and surplus in excess of
$25,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay the Series A
Redemption Price for such shares to their respective holders on or after the
Series A Redemption Date upon receipt of notification from the Corporation that
such holder has surrendered his or its share certificate to the Corporation.
Such instructions shall also provide that any moneys deposited by the
Corporation pursuant to this Subsection 6(e) for the redemption of shares
thereafter converted into shares of the Corporation's Common Stock pursuant to
Section 4 hereof no later than the close of business on the fifth full day
preceding the Series A Redemption Date shall be returned to the Corporation on
the Series A Redemption Date. The balance of any monies deposited by the
Corporation pursuant to this Subsection 6(e) remaining unclaimed at the
expiration of one year following the Series A Redemption Date shall thereafter
be returned to the Corporation upon its request expressed in a resolution of its
Board of Directors.
(f) Subject to the provisions hereof, the Board of Directors of the
Corporation shall have authority to prescribe the manner in which Series A
Preferred Stock shall be redeemed from time to time. Any shares of Series A
Preferred Stock so redeemed shall permanently be retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series A Preferred Stock accordingly.
Nothing herein contained shall prevent or restrict the purchase by the
Corporation, from time to time either at public or private sale, of the whole or
any part of the Series A Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of applicable law.
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<PAGE>
7. Redemption at Option of Majority of Holders of Series A Preferred
-----------------------------------------------------------------
Stock.
(a) Irrespective of the provisions of Section 6, at any time after the
dates set forth in the chart below (each such date being referred to hereinafter
as a "Programmed Redemption Date"), but within 30 days (the "Section 7
Redemption Date") after the receipt by the Corporation of a written request from
the holders of not less than a majority of the then outstanding Series A
Preferred Stock that all or some of such holders' shares be redeemed, and
concurrently with surrender by such holders of the certificates representing
such shares, the Corporation shall, subject to the conditions set forth in
subsection 7(b), redeem, out of funds legally available therefor, from each
holder of Series A Preferred Stock at the Series A Redemption Price, the
respective portions set forth in the chart below of the number of shares of
Series A Preferred Stock held by such holder on the applicable Programmed
Redemption Date:
Programmed Maximum Portion of Outstanding Shares of
Redemption Date Series A Preferred Stock To Be Redeemed
- --------------- ---------------------------------------
January 1, 2000 33 1/3%
January 1, 2001 50%
January 1, 2002 All outstanding shares of Series A Preferred Stock
(b) Notwithstanding any of the foregoing provisions, on each Programmed
Redemption Date, the holders of the Series A Preferred Stock shall be entitled
to receive their aggregate Series A Redemption Price for such date in full,
provided that if funds are not legally available to pay such Series A Redemption
Price in full, the Company shall use those funds which are legally available to
redeem the maximum possible number of such shares and shall effect such
redemption pro rata among the holders of the Series A Preferred Stock based on
the number of shares of Series A Preferred Stock held by such holders on the
date of the Section 7 Redemption Notice. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
Series A Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obligated to redeem on
any Programmed Redemption Date but which it has not redeemed.
(c) The Corporation shall provide notice of any redemption of Preferred
Stock pursuant to this Section 7 specifying the time and place of redemption and
the Series A Redemption Price, by certified or registered mail, postage prepaid,
to each holder of record of Series A Preferred Stock at the address for such
holder last shown on the records of the transfer agent therefor (or the records
of the Corporation, if it serves as its own transfer agent), not more than sixty
(60) nor less than thirty (30) days prior to the date on which such redemption
is to be made. Upon mailing any such notice of redemption and subject to the
provisions of Section 7(b) hereof, the Corporation will become obligated to
redeem at the time of redemption specified therein all Series A Preferred Stock
tendered for redemption pursuant to the terms of this Section 7 (other than such
shares of Series A Preferred Stock as are duly converted pursuant to Section 4
prior to the close of business on the fifth full day preceding the Programmed
Redemption Date). In case less than all Series A Preferred Stock represented by
any certificate is redeemed in any redemption pursuant to this Section 7, a new
certificate will be issued representing the unredeemed Series A Preferred Stock
without cost to the holder thereof.
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<PAGE>
(d) Unless there shall have been a default in the payment of the Series A
Redemption Price, no share of Series A Preferred Stock tendered for redemption
under this Section 7 is entitled to any dividends declared after its Programmed
Redemption Date, and on such Programmed Redemption Date all rights of the holder
of such share as a stockholder of the Corporation by reason of the ownership of
such share will cease, except the right to receive the Programmed Redemption
Price of such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after such
Programmed Redemption Date be deemed to be outstanding.
(e) Any Series A Preferred Stock redeemed pursuant to this Section 7 will
be canceled and will not under any circumstances be reissued, sold or
transferred, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized class of Series A Preferred
Stock so redeemed accordingly.
8. Mandatory Redemption at Option of Holders of Series B Preferred Stock
---------------------------------------------------------------------
and Series C Preferred Stock.
- ----------------------------
(a) Series B Preferred Stock. If, seven (7) years following the Original
------------------------
Issue Date of the Series B Preferred Stock, the Corporation has not completed a
Qualified Offering or a Liquidation (including, for these purposes, any event
described in Section 2(d)), then, within 45 days (the "Series B Redemption
Date") after the receipt by the Corporation of a written request (the
"Redemption Request") of holders of not less than a majority of the then
outstanding Series B Preferred Stock that all or some of such holders' shares of
Series B Preferred Stock be redeemed, and concurrently with surrender by such
holder of the certificate(s) representing such shares, the Corporation shall
redeem for cash from such holder of Series B Preferred Stock, out of funds
legally available therefor, the shares of Series B Preferred Stock held by such
holder on the Series B Redemption Date at a price per share (the "Series B
Redemption Price") equal to the greater of (i) the Fair Market Value (as defined
below) of a share of Common Stock of the Corporation and (ii) the Series B Stock
Value (subject to Adjustment), together with declared but unpaid dividends
thereon.
(b) Series C Preferred Stock. If, seven (7) years following the Original
------------------------
Issue Date of the Series B Preferred Stock, the Corporation has not completed a
Qualified Offering or a Liquidation (including, for these purposes, any event
described in Section 2(d)), then, within 45 days (the "Series C Redemption
Date") after the receipt by the Corporation of a written request (the
"Redemption Request") of holders of not less than a majority of the then
outstanding Series C Preferred Stock that all or some of such holders' shares of
Series C Preferred Stock be redeemed, and concurrently with surrender by such
holder of the certificate(s) representing such shares, the Corporation shall
redeem for cash from such holder of Series C Preferred Stock, out of funds
legally available therefor, the shares of Series C Preferred Stock held by such
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<PAGE>
holder on the Series C Redemption Date at a price per share ("Series C
Redemption Price") equal to the greater of (i) the Fair Market Value (as defined
below) of a share of Common Stock of the Corporation and (ii) the Series C Stock
Value (subject to Adjustment), together with declared but unpaid dividends
thereon.
(c) Notice. Upon receipt of the Redemption Request, the Corporation shall
------
provide notice (the "Redemption Notice") of any redemption of Preferred Stock
pursuant to this Section 8 specifying the time and place of redemption and the
Series B Redemption Price or Series C Redemption Price, as the case may be, by
certified or registered mail, postage prepaid, to each holder of record of
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than thirty (30) days prior to the Redemption
Date. Upon mailing any such Redemption Notice, the Corporation will become
obligated to redeem on the Redemption Date all Preferred Stock tendered for
redemption pursuant to the terms of this Section 8 (other than such shares of
Preferred Stock as are duly converted pursuant to Section 4 prior to the close
of business on the fifth full day preceding the Redemption Date). In case less
than all shares of Preferred Stock represented by any certificate are redeemed
in any redemption pursuant to this Section 8, a new certificate will be issued
representing the unredeemed shares of Preferred Stock without cost to the holder
thereof.
(d) Dividends. Unless there shall have been a default in the payment of
---------
the Series B Redemption Price or Series C Redemption Price, as the case may be,
no share of Preferred Stock tendered for redemption under this Section 8 is
entitled to any dividends declared after its Redemption Date (provided, however,
that any dividends declared but unpaid as of the Redemption Date shall be
immediately payable in cash), and on such Redemption Date all rights of the
holder of such share as a stockholder of the Corporation by reason of the
ownership of such share will cease, except the right to receive the Redemption
Price of such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after such
Redemption Date be deemed to be outstanding.
(e) Cancellation of Stock. Any Preferred Stock redeemed pursuant to this
---------------------
Section 8 will be canceled and will not under any circumstances be reissued,
sold or transferred, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized class of
Preferred Stock so redeemed accordingly.
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<PAGE>
(f) Fair Market Value. The "Fair Market Value" of a share of Common Stock
-----------------
shall be as determined by an independent investment banking firm or other firm
mutually satisfactory to the Corporation and (i) the holders of at least a
majority in interest of the then outstanding Series A Preferred Stock, (ii) the
holders of at least a majority in interest of the then outstanding Series B
Preferred Stock and (iii) the holders of at least a majority in interest of the
then outstanding Series C Preferred Stock, and shall be equal to the value of
the Corporation as a whole divided by the number of outstanding shares of Common
Stock of the Corporation (with each share of Series A Preferred Stock, Series B
Preferred and the Series C Preferred Stock of the Corporation treated as if it
had been converted into the number of shares of Common Stock (including
fractional shares) into which such share is then convertible, rounded to the
nearest one-tenth of a share), and with no liquidity discounts or other
discounts for minority ownership).
9. Redemption of Preferred Stock. So long as any shares of a series of
-----------------------------
Preferred Stock are outstanding, the Corporation shall not redeem any shares of
any other series of Preferred Stock in accordance herewith or otherwise unless
simultaneously therewith, the Corporation shall redeem a pro rata portion of the
--- ----
other series of Preferred Stock, based on the relative aggregate Liquidation
value of the outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, pursuant to the redemption terms set forth
in Section 6, 7 and 8.
FIFTH. Board of Directors. In furtherance of and not in limitation of
------------------
powers conferred by statute, it is further provided:
(1) Election of directors need not be by written ballot.
(2) The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SIXTH. Limitation on Liability. No director of the Corporation shall be
-----------------------
personally liable to the Corporation or to any stockholder of the Corporation
for monetary damages for breach of fiduciary duty as a director, provided that
this provision shall not limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involved intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the General Corporation Law of Delaware or any other statute of the
State of Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors of the corporation, then the liability
of a director of the corporation shall be limited to the fullest extent
permitted by the statutes of the State of Delaware, as so amended, and such
elimination or limitation of liability shall be in addition to, and not in lieu
of, the limitation on the liability of a director provided by the foregoing
provisions of this Eighth Article.
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<PAGE>
Any repeal of or amendment to this Sixth Article shall be prospective only
and shall not adversely affect any limitation on the liability of a director of
the corporation existing at the time of such repeal or amendment.
SEVENTH. To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person 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, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was an employee or agent of the Corporation, or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees) incurred
by a director or officer in advance of the final disposition of such action,
suit or proceeding upon the receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and the
Certificate of Incorporation and subject to the limitations set forth in Section
3 of this Amended and Restated Certificate of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
4. This Amended and Restated Certificate of Incorporation was duly adopted
by the Board of Directors in accordance with Section 245 of the General
Corporation Law of the Sate of Delaware.
5. This Amended and Restated Certificate of Incorporation was duly adopted
by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
-28-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Restated Certificate of Incorporation to be signed by
its President this 31st day of March, 1997.
AUDIBLE, INC.
By: /s/ Donald Katz
---------------------------
President
Donald Katz
-29-
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUDIBLE, INC.
Pursuant to Section 242
of the General Corporation Law
of the State of Delaware
------------------------
Audible, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: At a meeting held in accordance with the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation adopted
resolutions pursuant to Section 242 of the General Corporation Law of the State
of Delaware, setting forth amendments to the Certificate of Incorporation of the
Corporation and declaring said amendments to be advisable. The stockholders of
the Corporation duly approved said proposed amendments by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said amendments. The
resolutions setting forth the amendments are as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
---------
Incorporation of the Corporation be and hereby is deleted and the following
first paragraph of Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 12,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock"), (ii) 534,000 shares of Series
A Convertible Preferred Stock, $.01 par value per share (the "Series A Preferred
Stock"), (iii) 534,000 shares of Series A-1 Convertible Preferred Stock, par
value $.01 per share (the "Series A-1 Preferred Stock"), (iv) 2,100,000 shares
of Series B Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock"), and (v) 2,300,000 shares of Series C Preferred Stock, par value $.01
per share (the "Series C Preferred Stock") (the Series A Preferred Stock, Series
A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are
sometimes collectively referred herein as the "Preferred Stock"). As used
herein, the term "Series A Preferred Stock" means the Series A Preferred Stock
and the Series A-1 Preferred Stock share-for-share alike and without
distinction, as except as the context otherwise requires.
<PAGE>
RESOLVED: That Sections 4(d)(i)(D) and 4(d)(i)(E) of "B. PREFERRED STOCK"
---------
of Article FOURTH of the Certificate of Incorporation of the Corporation be and
hereby are deleted and the following Sections be inserted in lieu thereof:
"(D) "Excluded Stock" shall mean (I) Common Stock issued or issuable (a)
upon conversion of the Preferred Stock, (b) upon the exercise of Employee Stock
Options, (c) pursuant to the Stock Restriction Agreements, (d) upon exercise of
the Common Stock Warrants, (e) in transactions referred to in subsections (vi)
and (vii) of this Subsection 4(d), (II) Series B Preferred Stock issuable upon
exercise of the Series B Warrants, and (III) Series C Preferred Stock issuable
upon exercise of the Series C Warrants."
"(E) "Options" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities, excluding
Employee Stock Options, Series B Warrants, Series C Warrants or Common Stock
Warrants, as described below."
RESOLVED: That the following sections be added as Sections 4(d)(i)(J) of
---------
"B. PREFERRED STOCK" of Article FOURTH of the Certificate of Incorporation:
"(J) "Series C Warrants" shall mean the Warrant Agreement issued to
Comdisco, Inc."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 22nd day of July, 1997.
AUDIBLE, INC.
By: /s/ Donald Katz
---------------
Donald Katz, President
-2-
<PAGE>
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF AUDIBLE INC.
Audible Inc., (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
FIRST: By way of a Unanimous Written Consent of the Board of Directors dated
February 25, 1998 the Board of Directors of the Corporation adopted resolutions
pursuant to Section 242 of the General Corporation Law of the State of Delaware,
setting forth amendments to the Certificate of Incorporation of the Corporation
(the "Certificate") and declaring said amendments to be advisable. The
stockholders of the Corporation duly approved the proposed amendments in
accordance with Section 242 of the General Corporation Law of the State of
Delaware by written consent in lieu of a meeting pursuant to and in accordance
with Section 228 of the General Corporation Law of the State of Delaware. The
resolutions setting forth the amendments are as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
--------
Corporation be and hereby is deleted in its entirety and replaced as follows:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 13,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock"), (ii) 534,000 shares of Series
A Convertible Preferred Stock, $.01 par value per share (the "Series A Stock"),
(iii) 534,000 shares of Series A-1 Convertible Preferred Stock, par value $.01
per share (the "Series A-1 Preferred Stock"), (iv) 2,100,000 shares of Series B
Preferred Stock, $.01 par value per share (the "Series B Preferred Stock"), (v)
2,300,000 shares of Series C Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"), and (vi) 1,375,000 shares of Series D Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") (the Series A
Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock are sometimes collectively referred herein as
the "Preferred Stock"). As used herein, the term "Series Preferred A Stock"
means the Series A Stock and the Series A-1 Preferred Stock share-for-share
alike and without distinction, as except as the context otherwise requires.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof, in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
l. General. The voting, dividend and liquidation rights of the holders of
-------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
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DRAFT 02/21/98
--------------
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. Redemption. The Common Stock is not redeemable.
----------
B. PREFERRED STOCK.
---------------
The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock shall rank, as to dividends and upon
Liquidation (as defined in Section 2 (a) hereof) on a parity with each other,
and senior and prior to the Common Stock and to all other classes or series of
shares issued by the Corporation ("Junior Stock").
The Preferred Stock shall have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. Dividends. Whenever any dividend or other distribution is declared on
---------
any shares of Preferred Stock, the Board of Directors shall simultaneously
declare a dividend or distribution on those shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
if any, on which no dividend or other distribution was declared, based on the
relative aggregate Liquidation value of the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, so that the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
will participate equally with each other in such dividend or other distribution.
Specifically, each Series of Preferred Stock shall be entitled in such situation
to a dividend for that particular Series of Preferred Stock, calculated as set
forth below for that particular Series.
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<PAGE>
DRAFT 02/21/98
--------------
(a) Series A Preferred Stock Dividend.
---------------------------------
(i) General. The holders of the Series A Preferred Stock shall be
-------
entitled to receive, out of funds legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Corporation) on the Common Stock of the Corporation, when, as and
if declared by the Board of Directors, annual dividends at the rate per annum of
10% of the Series A Stock Value (as defined below), as adjusted for stock
splits, stock dividends, recapitalizations, reclassifications and similar events
(such events being referred to as an "Adjustment"), which affect the number of
outstanding shares of the Series A Preferred Stock. Such dividends shall not be
cumulative. The "Series A Stock Value" shall be equal to $0.75.
(ii) Other. Thereafter, the Board of Directors of the Corporation
-----
may declare and pay additional dividends for such period out of funds of the
Corporation legally available therefor; provided, however, that any such
-------- -------
additional dividends shall be declared and paid in cash upon the Common Stock
and Preferred Stock as a single class, with each holder of Common Stock and
Preferred Stock being entitled to receive the product of the per share amount of
such additional cash dividend, multiplied by the number of shares of Common
Stock (i) held by such stockholder or (ii) into which the shares of Preferred
Stock held by such stockholder are convertible, as the case may be.
Notwithstanding anything to the contrary contained elsewhere in this subsection
(ii), no dividend will be paid on the shares of Series A Preferred Stock unless,
simultaneously therewith, the same dividend is declared and paid on the shares
of Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock pursuant to subsections 1(b) (iii), 1(c) (iii) and 1(d) (iii),
respectively.
(b) Series B Preferred Stock Dividend.
---------------------------------
(i) General. Dividends are payable on the Series B Preferred Stock,
-------
when, as and if declared by the Board of Directors.
(ii) Quarterly Dividends. The holders of the Series B Preferred
-------------------
Stock shall be entitled to receive, out of funds legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, when, as, and if declared by the Board of Directors, dividends
payable quarterly on the first day of January, April, July and October, at the
annual rate of 10% of the Series B Stock Value (as defined below) per annum,
subject to any Adjustment. Such dividends shall not be cumulative. The "Series B
Stock Value" shall be equal to $1.50.
(iii) Other. So long as any shares of Series B Preferred Stock are
-----
outstanding, the Corporation shall not declare or pay any dividend or make
any distribution
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<PAGE>
DRAFT 02/21/98
--------------
(whether in cash or other property, other than stock dividends referred to in
subsection (vii) of Subsection 4(d)) to the holders of Junior Stock or any
holders of Series A Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock, unless such dividend or distribution also is payable to the
holders of Series B Preferred Stock.
(c) Series C Preferred Stock Dividend.
---------------------------------
(i) General. Dividends are payable on the Series C Preferred Stock,
-------
when, as and if declared by the Board of Directors.
(ii) Quarterly Dividends. The holders of the Series C Preferred
-------------------
Stock shall be entitled to receive, out of funds legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, when, as, and if declared by the Board of Directors, dividends
payable quarterly on the first day of January, April, July and October, at the
annual rate of 10% of the Series C Stock Value (as defined below) per annum,
subject to any Adjustment. Such dividends shall not be cumulative. The "Series C
Stock Value" shall be equal to $4.00.
(iii) Other. So long as any shares of Series C Preferred Stock are
-----
outstanding, the Corporation shall not declare or pay any dividend or make
any distribution (whether in cash or other property, other than stock dividends
referred to in subsection (vii) of Subsection 4(d)) to the holders of Junior
Stock or any holders of Series A Preferred Stock, Series B Preferred Stock or
Series D Preferred Stock, unless such dividend or distribution also is payable
to the holders of Series C Preferred Stock.
(d) Series D Preferred Stock Dividend.
---------------------------------
(i) General. Dividends are payable on the Series D Preferred Stock,
-------
when, as and if declared by the Board of Directors.
(ii) Quarterly Dividends. The holders of the Series C Preferred
-------------------
Stock shall be entitled to receive, out of funds legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, when, as, and if declared by the Board of Directors, dividends
payable quarterly on the first day of January, April, July and October, at the
annual rate of 10% of the Series C Stock Value (as defined below) per annum,
subject to any Adjustment. Such dividends shall not be cumulative. The "Series D
Stock Value" shall be equal to $4.00.
-4-
<PAGE>
DRAFT 02/21/98
--------------
(iii) Other. So long as any shares of Series D Preferred Stock are
-----
outstanding, the Corporation shall not declare or pay any dividend or make
any distribution (whether in cash or other property, other than stock dividends
referred to in subsection (vii) of Subsection 4(d)) to the holders of Junior
Stock or any holders of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, unless such dividend or distribution also is payable
to the holders of Series D Preferred Stock.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Series A Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (a "Liquidation"), the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series A
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Junior Stock by reason of
their ownership thereof and at the same time as any payment shall be made to any
other series of Preferred Stock, an amount equal to the sum of (i) the Series A
Stock Value (subject to Adjustment); (ii) 8% of the Series A Stock Value
(subject to Adjustment), compounded annually from the date of issuance of the
Series A Preferred Stock; and (iii) all declared but unpaid dividends thereon.
If upon any such Liquidation, the remaining assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders of
shares of Series A Preferred Stock the full amount to which they shall be
entitled and the full amount to which the holders of any class or series of
stock ranking on Liquidation on a parity with the Series A Preferred Stock shall
be entitled, the holders of shares of Series A Preferred Stock and any class or
series of stock ranking on Liquidation on a parity with the Series A Preferred
Stock shall share ratably in the distribution of the entire remaining assets and
funds of the Corporation legally available for distribution in proportion to the
respective amounts that would otherwise be payable in respect of the shares held
by them upon such distribution, if all amounts payable on or with respect to
such shares were paid in full.
(ii) Upon the completion of the distribution required by
subparagraph (i) of this Section 2(a) and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of Series A
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each, treating such Series A Preferred Stock on an as-if-
converted basis.
(b) Series B Preferred Stock. In the event of any Liquidation, the holders
------------------------
of shares of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be
-5-
<PAGE>
DRAFT 02/21/98
--------------
made to the holders of Junior Stock and at the same time as any payment shall be
made to any other series of Preferred Stock, an amount per share equal to the
greater of (A) the sum of (i) the Series B Stock Value (subject to Adjustment)
and (ii) all declared but unpaid dividends thereon and (B) the amount which
would be received if all shares of Series B Preferred Stock had been converted
to Common Stock prior to such Liquidation. If upon any such Liquidation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series B
Preferred Stock the full amount to which they shall be entitled and the full
amount to which the holders of any class or series of stock ranking on
Liquidation on a parity with the Series B Preferred Stock shall be entitled, the
holders of shares of Series B Preferred Stock and any class or series of stock
ranking on Liquidation on parity with the Series B Preferred Stock shall share
ratably in the distribution of the entire remaining assets and funds of the
Corporation legally available for distribution in proportion to the respective
amounts that would otherwise be payable in respect of the shares held by them
upon such distribution, if all amounts payable on or with respect to such shares
were paid in full.
(c) Series C Preferred Stock. In the event of any Liquidation, the holders
------------------------
of shares of Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock
and at the same time as any payment shall be made to any other series of
Preferred Stock, an amount per share equal to the greater of (A) the sum of (i)
the Series C Stock Value (subject to Adjustment) and (ii) all declared but
unpaid dividends thereon and (B) the amount which would be received if all
shares of Series C Preferred Stock had been converted to Common Stock prior to
such Liquidation. If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series C Preferred Stock the full amount to
which they shall be entitled and the full amount to which the holders of any
class or series of stock ranking on Liquidation on a parity with the Series C
Preferred Stock shall be entitled, the holders of shares of Series C Preferred
Stock and any class or series of stock ranking on Liquidation on parity with the
Series C Preferred Stock shall share ratably in the distribution of the entire
remaining assets and funds of the Corporation legally available for distribution
in proportion to the respective amounts that would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(d) Series D Preferred Stock. In the event of any Liquidation, the holders
------------------------
of shares of Series D Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock
and at the same time as any payment shall be made to any other series of
Preferred Stock, an amount per share equal to the greater of (A) the sum of (i)
the Series D Stock Value (subject to Adjustment) and (ii) all declared but
unpaid dividends thereon and (B) the amount which would be received if all
shares of Series D Preferred Stock had been converted to Common Stock prior to
such Liquidation. If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series D Preferred Stock the full amount to
which
-6-
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DRAFT 02/21/98
--------------
they shall be entitled and the full amount to which the holders of, any class or
series of stock ranking on Liquidation on a parity with the Series D Preferred
Stock shall be entitled, the holders of shares of Series D Preferred Stock and
any class or series of stock ranking on Liquidation on parity with the Series D
Preferred Stock shall share ratably in the distribution of the entire remaining
assets and funds of the Corporation legally available for distribution in
proportion to the respective amounts that would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(e) Mergers, Reorganizations, Etc. The merger, reorganization or
------------------------------
consolidation of the Corporation into or with another corporation (except if the
Corporation is the surviving entity) or other similar transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of in exchange for property, rights or securities
distributed to holders by the acquiring person, firm or other entity, or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a Liquidation for purposes of this Section 2. Upon any such merger,
reorganization or consolidation, in addition to any other rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
herein, any holders of Preferred Stock may elect to receive Liquidation
treatment, in which case such holder shall receive a distribution in an amount
deemed to be the cash or the value of the property, rights or securities
distributed to such holders by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be determined in good
faith by the Board of Directors of the Corporation.
3. Voting.
------
(a) General. Each holder of outstanding shares of Preferred Stock
-------
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b)(i), 3(b)(ii),
3(b)(iii), 3(c)(i), 3(c)(ii), 3(d)(i), 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(e)(i),
3(e)(ii), and 3(e)(iii) below or by the provisions establishing any other series
of Preferred Stock, holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) Series A Preferred Stock.
------------------------
(i) Board of Directors. The holders of record of the shares of
------------------
Series A Preferred Stock, exclusively and as a separate class, shall be entitled
to elect one (1) director of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the purpose of electing
the director by holders of the Series A Preferred Stock. A vacancy in the
directorship filled by
-7-
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--------------
the holders of Series A Preferred Stock shall be filled only by vote or written
consent in lieu of a meeting of the holders of the Series A Preferred Stock. The
rights of the holders of the Series A Preferred Stock under this Subsection
3(b)(i) shall terminate on the first date on which there are issued and
outstanding less than 133,500 of the shares of Series A Preferred Stock.
(ii) Protective Provisions. The Corporation shall not, without
---------------------
first obtaining the written consent or affirmative vote of the holders of a
majority of the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class:
(A) Extraordinary Transactions. Effect any sale,
--------------------------
conveyance or other disposition of, or encumbrance upon, all or substantially
all of its property, assets or business or merge with or into or consolidate
with any other corporation or entity or entities, or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is transferred or disposed of (other than in
connection with a Qualified Offering (as defined herein)), or effect any
voluntary dissolution or liquidation or partial liquidation or distribution or
transaction in the nature of any partial liquidation or distribution.
(B) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series A Preferred Stock.
(C) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series A Preferred Stock with respect to voting, dividends or upon Liquidation.
(D) amend Section B 3(b)(i) of Article FOURTH;
(E) Increase Directors. Increase the number of directors
------------------
of the Corporation above six (6).
(F) Declare Dividends. Declare or pay any dividend or
-----------------
make any distribution on the Common Stock.
(iii) For purposes of subsection 3(b)(ii)(A), without limiting
the generality of the foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over, or on a parity with, the
Series A Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock.
-8-
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--------------
(c) Series B Preferred Stock.
------------------------
(i) Board of Directors. The holders of record of the shares of
------------------
Series B Preferred Stock, exclusively and as a separate class, shall be entitled
to elect two (2) directors of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of at least a majority in interest of the shares of Series B Preferred Stock
then outstanding shall constitute a quorum of the Series B Preferred Stock for
the purpose of electing directors by holders of the Series B Preferred Stock.
The two (2) directors shall be elected by vote of at least 66.67% in interest of
the holders of shares of Series B Preferred Stock. A vacancy in any directorship
filled by the holders of Series B Preferred Stock shall be filled only by vote
or written consent in lieu of a meeting of the holders of the Series B Preferred
Stock. The rights of the holders of the Series B Preferred Stock under this
subsection 3(c)(ii) shall terminate on the first date in which there are issued
and outstanding less than 525,000 of the shares of Series B Preferred Stock that
may be issued by the Corporation.
(ii) Protective Provisions. So long as any shares of Series B
---------------------
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the written consent or affirmative vote of the holders of at least a
majority in interest of the then outstanding shares of Series B Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class:
(A) Extraordinary Transactions. Effect any sale, conveyance
--------------------------
or other disposition of, or encumbrance upon, all or substantially
all of its property, assets or business or merge with or into or consolidate
with any other corporation or entity or entities, or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is transferred or disposed of (other than in
connection with a Qualified Offering (as defined herein)), or effect any
voluntary dissolution or liquidation or partial liquidation or distribution or
transaction in the nature of any partial liquidation or distribution.
(B) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series B Preferred Stock.
(C) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series A Preferred Stock with respect to voting, dividends or upon Liquidation.
(D) Increase the Shares. Increase the number of shares
-------------------
of any series of Preferred Stock or Common Stock of the Corporation authorized
to be issued.
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--------------
(E) Issue Capital Stock, Options or Convertible Securities.
------------------------------------------------------
Except for Excluded Stock (as defined herein), authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation or any Option
(as defined herein) or Convertible Security (as defined herein).
(F) Amend Charter or By-Laws. Amend, alter or repeal any
------------------------
provision of (A) the Certificate of Incorporation of the Corporation or (B)
the By-Laws of the Corporation so as to adversely affect the Series B Preferred
Stock.
(G) Increase Directors. Increase the number of directors of
------------------
the Corporation above six (6).
(H) Declare Dividends. Declare or pay any dividend or make any
-----------------
distribution on the Common Stock.
(d) Series C Preferred Stock.
------------------------
(i) Amendment. Any amendment or change in the rights, preferences or
---------
privileges of the Series C Preferred Stock shall require the affirmative vote of
the holders of at least a majority of the outstanding shares thereof voting as a
separate class; provided, however, that any amendment or change in the rights,
-------- -------
preferences or privileges of Section 3(d)(iv) shall require the affirmative vote
of the holders of more than two-thirds of the outstanding shares of Series C
Preferred Stock, voting separately as a class.
(ii) Board of Directors. The holders of record of the shares of
------------------
Series C Preferred Stock, exclusively and as a separate class, shall be entitled
to elect one (1) director of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of at least a majority in interest of the shares of Series C Preferred Stock
then outstanding shall constitute a quorum of the Series C Preferred Stock for
the purpose of electing directors by holders of the Series C Preferred Stock.
The one (1) director shall be elected by vote of at least a majority in interest
of the holders of shares of Series C Preferred Stock. A vacancy in any
directorship filled by the holders of Series C Preferred Stock shall be filled
only by vote or written consent in lieu of a meeting of the holders of the
Series C Preferred Stock after notice to all holders of Series C Preferred
Stock. The rights of the holders of the Series C Preferred Stock under this
subsection 3(d)(ii) shall terminate on the first date in which there are issued
and outstanding less than 460,000 shares of Series C Preferred Stock that may be
issued by the Corporation.
(iii) Protective Provisions. Subject to 3(d)(iv) below, so long
---------------------
as any shares of Series C Preferred Stock are outstanding, the Corporation shall
not, without first obtaining the written consent or affirmative vote of the
holders of at least a majority in interest of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class:
-10-
<PAGE>
DRAFT 02/21/98
--------------
(A) Extraordinary Transactions. Effect any sale, conveyance or
--------------------------
other disposition of, or encumbrance upon , all or substantially
all of its property, assets or business or merge with or into or consolidate
with any other corporation or entity or entities, or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is transferred or disposed of (other than in
connection with a Qualified Offering), or effect any voluntary dissolution or
liquidation or partial liquidation or distribution or transaction in the nature
of any partial liquidation or distribution.
(B) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series C Preferred Stock.
(C) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series C Preferred Stock with respect to voting, dividends or upon Liquidation.
(D) Increase the Shares. Increase the number of shares of
-------------------
any series of Preferred Stock or Common Stock of the Corporation authorized to
be issued.
(E) Issue Capital Stock, Options or Convertible Securities.
------------------------------------------------------
Except for Excluded Stock, authorize, issue or agree to authorize or issue any
shares of capital stock of the Corporation or any Option or Convertible
Security.
(F) Amend Charter or By-Laws. Amend, alter or repeal any
------------------------
provision of (A) the Certificate of Incorporation of the Corporation or (B) the
By-Laws of the Corporation so as to adversely affect the Series C Preferred
Stock.
(G) Increase Directors. Increase the number of directors
------------------
of the Corporation above six (6).
(H) Declare Dividends. Declare or pay any dividend or
-----------------
make any distribution on the Common Stock.
(iii) For a period of twenty-four (24) months from the date of
issuance of the Series C Preferred Stock, and provided that such shares remain
outstanding, the Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of more than two-thirds (2/3) in
interest of the then outstanding shares of Series C Preferred Stock, given in
writing or by vote at a meeting, voting separately as a class, effect any sale,
conveyance or other disposition of, or encumbrance upon, all or substantially
all of its property, assets or business or merge with or into or consolidate
with any other corporation or entity or entities, or effect any transaction or
series of related transactions in which more than
-11-
<PAGE>
DRAFT 02/21/98
--------------
fifty percent (50%) of the voting power of the Corporation is transferred or
disposed of (other than in connection with a Qualified Offering), or effect any
voluntary dissolution or liquidation or partial liquidation or distribution or
transaction in the nature of any partial liquidation or distribution in which
the price per share is less than or equal to $8.00, subject to Adjustment.
(e) Series D Preferred Stock.
------------------------
(i) Amendment. Any amendment or change in the rights, preferences or
---------
privileges of the Series D Preferred Stock shall require the affirmative vote of
the holders of at least a majority of the outstanding shares thereof voting as a
separate class; provided, however, that any amendment or change in the rights,
-------- -------
preferences or privileges of Section 3(e)(iii) shall require the affirmative
vote of the holders of more than two-thirds of the outstanding shares of Series
D Preferred Stock, voting separately as a class.
(ii) Protective Provisions. Subject to 3(e)(iii) below, so long
---------------------
as any shares of Series D Preferred Stock are outstanding, the Corporation shall
not, without first obtaining the written consent or affirmative vote of the
holders of at least a majority in interest of the then outstanding shares of
Series D Preferred Stock, given in writing or by vote at a meeting, voting
separately as a class:
(A) Change the Preferred Stock. Amend, alter, repeal or
--------------------------
impair, in any manner whatsoever, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series D Preferred Stock.
(B) Create New Stock. Create any new class or series of
----------------
equity or debt securities or any securities convertible into equity securities
of the Corporation having a preference over, or being on a parity with, the
Series D Preferred Stock with respect to voting, dividends or upon Liquidation.
(C) Increase the Shares. Increase the number of shares of
-------------------
any series of Preferred Stock or Common Stock of the Corporation authorized to
be issued.
(D) Issue Capital Stock, Options or Convertible Securities.
------------------------------------------------------
Except for Excluded Stock, authorize, issue or agree to authorize or issue any
shares of capital stock of the Corporation or any Option or Convertible
Security.
(E) Amend Charter or By-Laws. Amend, alter or repeal any
------------------------
provision of (A) the Certificate of Incorporation of the Corporation or (B) the
By-Laws of the Corporation so as to adversely affect the Series D Preferred
Stock.
(F) Increase Directors. Increase the number of directors
------------------
of the Corporation above six (6).
-12-
<PAGE>
DRAFT 02/21/98
--------------
(G) Declare Dividends. Declare or pay any dividend or
-----------------
make any distribution on the Common Stock.
(iii) So long as any shares of Series D Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of at least 50% of the then
outstanding shares of Series D Preferred Stock, given in writing or by note at a
meeting voting separately as a class effect any sale, conveyance or other
disposition of, or encumbrance upon, all or substantially all of its property,
assets or business or merge with or into or consolidate with any other
corporation or entity or entities, or effect any transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Corporation is transferred or disposed of (other than in connection with
a Qualified Offering), or effect any voluntary dissolution or liquidation or
partial liquidation or distribution or transaction in the nature of any partial
liquidation or distribution.
4. Optional Conversion. The holders of the Preferred Stock shall have
-------------------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and non assessable shares of Common Stock
as is determined by dividing the Stock Value for each Series of Preferred Stock
by the Conversion Price (as defined below) for such Series in effect at the time
of conversion. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price") shall initially be
$0.75 for the Series A Preferred Stock (the "Series A Conversion Price"), $1.50
for the Series B Preferred Stock (the "Series B Conversion Price"), $4.00 for
the Series C Preferred Stock (the "Series C Conversion Price") and $4.00 for the
Series D Preferred Stock (the "Series D Conversion Price"). Such initial
Conversion Price, and the rate at which shares of Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a Redemption Notice (as defined below) relating to shares of
Preferred Stock pursuant to Section 6 or upon the exercise of the rights set
forth in Sections 7 or 8 hereof, as applicable, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
second full day preceding the date fixed for redemption, unless the Redemption
Price (as defined below) is not paid when due, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the
event of a Liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on Liquidation to the holders of Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by
-13-
<PAGE>
DRAFT 02/21/98
--------------
the then effective Conversion Price. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(c) Mechanics of Conversion.
-----------------------
(i) For a holder of Preferred Stock to convert shares of
Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock, at the office of
the transfer agent for the Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion may, at the
option of any holder tendering Preferred Stock for conversion, be conditioned
upon the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(ii) The Corporation shall at all times when the Preferred Stock
shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Preferred
Stock. Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of Common Stock issuable
upon conversion of the Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and
-14-
<PAGE>
DRAFT 02/21/98
--------------
legally issue fully paid and non assessable shares of Common Stock at such
adjusted Conversion Price. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any accrued and unpaid dividends on the Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any accrued and
unpaid dividends thereon. Any shares of Preferred Stock so converted shall be
retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection
-------------------
4(d), the following definitions shall apply:
(A) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued or deemed to be issued (pursuant to Subsection 4(d)(iii)
below) by the Corporation after the Original Issue Date, other than Excluded
Stock.
(B) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(C) "Employee Stock Options" shall mean (i) existing stock or
options granted to employees, directors, or consultants of the Corporation
pursuant to any stock award or option plan, agreement or arrangement for
officers, directors, consultants, employees and others who render services to
the Corporation (a "Plan"), to acquire up to a maximum of 1,007,000 shares of
Common Stock (subject to any Adjustment), and (ii) stock or options to be
granted to employees, directors or consultants of the Corporation pursuant to
any Plan to purchase up to a maximum of 865,830 shares of Common Stock (subject
to any Adjustment), which number may be increased from time to time to reflect
repurchases by the Corporation of stock from employees, directors or
consultants.
-15-
<PAGE>
DRAFT 02/21/98
--------------
(D) "Excluded Stock" shall mean (I) Common Stock issued or
issuable (a) upon conversion of the Preferred Stock, (b) upon the exercise of
Employee Stock Options, (c) pursuant to the Stock Restriction Agreements, (d)
upon exercise of the Common Stock Warrants and (e) in transactions referred to
in subsections (vi) and (vii) of this Subsection 4(d); (II) Series B Preferred
Stock issuable upon exercise of the Series B Warrants; (III) Series C Preferred
Stock issuable upon exercise of the Series C Warrants; and (IV) Series D
Preferred Stock issuable upon exercise of the Series D Warrants.
(E) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding Employee Stock Options, Series B Warrants, Series C
Warrants, Series D Warrants or Common Stock Warrants, as described below.
(F) "Original Issue Date" shall mean the date on which a share
of Preferred Stock was first issued.
(G) "Stock Restriction Agreements" shall mean, collectively
the following stock restriction agreements by and between the Corporation and
the parties noted hereinbelow:
<TABLE>
<CAPTION>
Agreement Type Party Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transfer of Technology and Sale of Stock Donald Katz 12/01/95
Agreement
- ------------------------------------------------------------------------------------------------------------
Transfer of Technology and Sale of Stock Edwin Lau 12/01/95
Agreement
- ------------------------------------------------------------------------------------------------------------
Stock Purchase and Restriction Agreement Ironwood Capital 12/11/95
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement (as amended Donald Katz 12/11/95
7/17/96)
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement (as amended Christopher Stack 5/28/96
7/1/796)
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Robert Krulwich 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jim Schwei 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Nancy and Andy Clayman 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement John and Emily Alter 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Howard Clowes 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Bill Jacobson 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Mitch Ratcliffe 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Marianne Radwan 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Bing Gordon 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Dan Farley 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Diane Franciose 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement William Fallon 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Steven Spiro 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Guy Story 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Patrick Barry 7/17/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Mimi Bloom 7/17/96
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
DRAFT 02/21/98
--------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stock Restriction Agreement Jim Russell 7/23/96
- ------------------------------------------------------------------------------------------------------------
Stock Purchase and Restriction Agreement Ironwood Capital 7/23/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement James Harris 8/07/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Elizabeth Roxby 9/02/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Richard Lewis 9/10/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Greg Voynow 12/06/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement William Bradley 12/06/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Pauline Eden 12/06/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jonathan Jones 12/06/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Beth Anderson 12/06/96
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Winthrop Knowlton 1/20/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Carol Markowitz 2/04/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ajit Rajasekharan 2/07/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Erica Ceravolo 2/07/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Helene Artz 2/07/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ehud Ben -Joseph 2/07/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement William Gordon 2/20/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Connors Communications 4/05/97
Stock Restriction Agreement Jim Russell 4/21/97
Stock Restriction Agreement Andrew Pontious 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Andrew Cohen 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Anthony Nash 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement April Allsteadt 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Sugeet Shah 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Teresa Canonico 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jonathan Korzen 5/08/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Tanya Curry 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Brian Fielding 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ehud Ben-Joseph 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Fritzgerald Francois 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement James Mariany 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Matthew Fine 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Al Perez 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Tan Chong 6/17/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Craig Ploth 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Guy Story 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jenifer Weining 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jim DeFilice 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Micheal Stevens 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Patrick Barry 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Peter Mattei 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Stefan Winz 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement William Fallon 7/29/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Albert Noyes 9/02/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Connors Communications 9/02/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Bob Jacobs 10/10/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Mike Rothstein 10/10/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Craig Juntunen 10/10/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ajit Rajasekharan 11/03/97
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
DRAFT 02/21/98
--------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stock Restriction Agreement Anthony Nash 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Brandher Espinal 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Carol Clark 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Carol Markowitz 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Gautam Guliani 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Joe Palarmo 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jonathan Korzen 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Jordan Berson 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement John Portacio 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Kimya Brown 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Mathew Skaria 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ricardo Alverez 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Robert Smith 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Sugeet Shah 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Suzanne Salem 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Teresa Canonico 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Travis Millman 11/03/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Larry Van der Veen 12/12/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Freedman Associates 12/12/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Funny Garbage 12/12/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Googoplex Multimedia 12/12/97
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Stephen Orowitz 01/02/98
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement Ramsey/Beirne Associates 01/31/98
- ------------------------------------------------------------------------------------------------------------
Stock Restriction Agreement IDEO Product Dev
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(H) "Series B Warrants" shall mean (i) the Warrant Agreement
issued to Comdisco, Inc. and (ii) the Warrant to purchase stock issued to
Imperial Bancorp.
(I) "Series C Warrants" shall mean the Warrant Agreement
issued to Comdisco, Inc.
(J) "Series D Warrants" shall mean a warrant or warrants to
purchase up to 25,000 shares of Series D Preferred Stock, which warrants may be
issued at any time after the date the first share of Series D Preferred Stock is
issued by the Corporation.
(K) "Common Stock Warrants" shall mean Warrants to purchase up
to 450,000 shares of Common Stock issued to the original purchasers of the
Corporation's Series C Preferred Stock.
(ii) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the number of shares of Common Stock into which the Preferred Stock is
convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to such
-18-
<PAGE>
DRAFT 02/21/98
--------------
issuance, the Corporation receives written notice from the holders of at least
66-2/3% of the then outstanding shares of Series A Preferred Stock taken as a
separate class, the holders of 66-2/3% of the then outstanding shares of Series
B Preferred Stock taken as a separate class and the holders of 66-2/3% of the
then outstanding shares of Series C Preferred Stock and Series D Preferred Stock
voting together as a class, agreeing that no such adjustment shall be made as
the result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Options and Convertible Securities Deemed Issue of
-----------------------------------------------------------
Additional Shares of Common Stock. If the Corporation at any time or
- ----------------------------------
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 4(d)(v) (b) hereof) of such Additional Shares
of Common Stock would be less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities; and upon the expiration or termination of any
unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price; and
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; provided, that no readjustment pursuant to this clause
--------
(b) shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the
-19-
<PAGE>
DRAFT 02/21/98
--------------
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
(A) Series A and Series B Conversion Prices. In the
---------------------------------------
event the Corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii)), without consideration or for a consideration per share less than the
Series A or Series B Conversion Price, as the case may be, in effect on the date
of and immediately prior to such issue, then and in such event, such Series A or
Series B Conversion Price, as the case may be, shall be reduced, concurrently
with such issue, to a price determined by multiplying such Series A or Series B
Conversion Price, as the case may be, by a fraction, the numerator of which
---------
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A or Series B
Conversion Price, as the case may be; and the denominator of which shall be the
-----------
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; provided,
--------
however, that, for the purpose of this Subsection 4(d)(iv), (I) all shares of
- -------
Common Stock issuable upon conversion of shares of Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock and Series A Stock
outstanding immediately prior to such issue shall be deemed to be outstanding,
and (II) immediately after any Additional Shares of Common Stock are deemed
issued pursuant to Subsection 4(d)(iii), such Additional Shares of Common Stock
shall be deemed to be outstanding.
(B) Series C Conversion Price. In the event the
-------------------------
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii)),
without consideration or for a consideration per share less than the Series C
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Series C Conversion Price shall be reduced,
concurrently with such issue, as follows:
(x) if the consideration per share is greater than or
equal to $3.00 per share (subject to Adjustment), to an amount equal to the per
share consideration received for each additional share upon such issuance; or
(y) if the issuance (or deemed issuance) is without
consideration or for a consideration per share less than $3.00 (subject to
Adjustment), to a price determined by (i) first reducing the Series C Conversion
Price to $3.00 (subject to Adjustment), provided, however, that no reduction
-------- -------
pursuant to this clause (i) shall be made if the Series C Conversion Price is
already below $3.00 (subject to Adjustment); and (ii) then multiplying such
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DRAFT 02/21/98
--------------
new reduced Series C Conversion Price by a fraction, the numerator of which
---------
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such new Series C Conversion
Price; and the denominator of which shall be the number of shares of Common
-----------
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, that, for the purpose of
--------
this Subsection 4(d)(iv)(B), (I) all shares of Common Stock issuable upon
conversion of shares of Series D Preferred Stock, Series C Preferred Stock,
Series B Preferred Stock and Series A Preferred Stock outstanding immediately
prior to such issue shall be deemed to be outstanding, and (II) immediately
after any Additional Shares of Common Stock are deemed issued pursuant to
Subsection 4(d)(iii)), such Additional Shares of Common Stock shall be deemed to
be outstanding.
(C) Series D Conversion Price. In the event the
-------------------------
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subsections 4(d)(iii))
during the six-month period commencing on the date the first share of Series D
Preferred Stock is issued and ending on the six-month anniversary thereof,
without consideration or for a consideration price per share less than the
Series D Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Series D Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest tenth of a
cent) equal to the lowest consideration per share received for each additional
share upon such issuance. Notwithstanding anything to the contrary contained in
the preceding sentence if the Corporation shall issue such Additional Shares of
Common Stock for no consideration, then the Series D Conversion price shall be
reduced to equal one-tenth of one cent.
In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Subsection 4(d)(iii)) at any time after the date six-months
and one day following the date the first share of Series D Preferred Stock is
issued and ending on the 18-month anniversary of the date such first share of
Series D Preferred Stock was first issued, without consideration or for a
consideration per share less than the Series D Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, such Series
D Conversion Price shall be reduced, concurrently with such issue, as follows:
(x) if the consideration per share is greater than or
equal to $3.00 per share (subject to Adjustment), to an amount equal to the per
share consideration received for each additional share upon such issuance; or
(y) if the issuance (or deemed issuance) is without
consideration or for a consideration per share less than $3.00 (subject to
Adjustment), to a price
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DRAFT 02/21/98
--------------
determined by (i) first reducing the Series D Conversion Price to $3.00 (subject
to Adjustment), provided, however, that no reduction pursuant to this clause (i)
-------- -------
shall be made if the Series D Conversion Price is already below $3.00 (subject
to Adjustment); and (ii) then multiplying such new reduced Series D Conversion
Price by a fraction, the numerator of which shall be the number of shares of
---------
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such new Series D Conversion Price; and the denominator of
-----------
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided, that, for the purpose of this Subsection 4(d)(iv)(C), (I) all
--------
shares of Common Stock issuable upon conversion of shares of Series D Preferred
Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred
Stock outstanding immediately prior to such issue shall be deemed to be
outstanding, and (II) immediately after any Additional Shares of Common Stock
are deemed issued pursuant to Subsection 4(d)(iii)), such Additional Shares of
Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this
------------------------------
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(a) insofar as it consists of cash, be computed at the aggregate of cash
received by the Corporation, excluding amounts paid or payable for accrued
interest or accrued dividends; (b) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and (c) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (a) and (b) above, as determined in good faith by the Board of
Directors.
(B) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by
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DRAFT 02/21/98
--------------
(y) the maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
In the case of such consideration or number of shares issuable as referred to in
clauses (x) and (y), respectively, the amounts shall be as set forth in the
instruments relating thereto without regard to any provision contained therein
for a subsequent adjustment of such consideration or number of shares,
respectively.
(vi) Adjustment for Combinations or Consolidation of Common
------------------------------------------------------
Stock. If, at any time after the applicable Original Issue Date, the number
- ------
of shares of Common Stock outstanding are decreased by a combination of the
outstanding shares of Common Stock, then, following the record date fixed for
such combination (or the date of such combination, if no record date is fixed),
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(vii) Adjustment for Stock Dividends, Splits, Etc. If
--------------------------------------------
the Corporation shall at any time after the applicable Original Issue Date fix a
record date for the subdivision, split-up or stock dividend of shares of Common
Stock, then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be increased in proportion to such increase in outstanding
shares; provided, however, that the Conversion Price shall not be decreased at
such time if the amount of such reduction would be an amount less than $.01, but
any such amount shall be carried forward and reduction with respect thereto made
at the time of and together with any subsequent reduction which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
$.01 or more.
(viii) Adjustment for Merger or Reorganization, etc. In
--------------------------------------------
case of any recapitalization, consolidation or merger of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation (other than a subdivision or
combination provided for elsewhere in this Section 4 and other than a
consolidation, merger or sale which is treated as a liquidation pursuant to
Subsection 2(e) with respect to one or more series of Preferred Stock), each
share of Preferred Stock (excluding any shares that are treated as liquidated in
accordance with Subsection 2(e)), shall thereafter be convertible into the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Preferred Stock, to the end
that the provisions set
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DRAFT 02/21/98
--------------
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Preferred Stock.
(g) Notice of Record Date. In the event:
---------------------
(i) that the Corporation takes a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class of any other securities or property, or to receive
any other right;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of a Liquidation;
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DRAFT 02/21/98
--------------
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least twenty days
before the record date specified below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of the applicable class of securities of record to be entitled
to such dividend, distribution, subdivision or combination are to be determined,
or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of the
applicable class of securities of record shall be entitled to exchange their
shares of the applicable class of securities for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, dissolution
or winding up.
(h) Shadow Preferred.
----------------
(i) Special Definitions. For purposes of this Section
-------------------
4(h), the following definitions shall apply:
(a) "Dilutive Issuance" with respect to the Series
-----------------
A Stock shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such Series A Stock in
effect on the date of and immediately prior to such issue.
(b) "Participating Investor" shall mean any holder
----------------------
of Series A Stock that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(c) "Non-Participating Investor" shall mean any
--------------------------
holder of Series A Stock that is not a Participating Investor.
(d) "Pro Rata Share" with respect to each holder
--------------
of Series A Stock shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance actually
offered to such holder of Series A Stock by the Board of Directors of the
Corporation pursuant to the right of first offer (the "Right of First Offer")
set forth in Section 8.6 of the Series A Stock Purchase Agreement between the
Corporation and the purchasers set forth therein, (ii) multiplied by a fraction,
the numerator of which is the number of shares of Series A Stock then held by
such holder, and the denominator of which is the total number of shares of
Series A Stock then outstanding; provided; however, that no such conversion
shall occur in connection with a particular Dilutive Issuance if, pursuant to
the
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DRAFT 02/21/98
--------------
written request of the Corporation, each holder of Series A Stock agrees in
writing to waive his, her or its Right of First Offer with respect to such
Dilutive Issuance.
(ii) In the event the Corporation proposes to undertake a
Dilutive Issuance, it shall give each holder of the Series A Stock entitled to
purchase a Pro Rata Share pursuant to the Right of First Offer a written notice
(the "Issuance Notice") of its intention, describing the type of securities, the
price and number of shares and the general terms upon which the corporation
proposes to issue the same, at least twenty (20) days prior to the date of such
Dilutive Issuance. Each such holder of Series A Stock may, within ten (10) days
from the date of the Issuance Notice, provide written notice to the Corporation
that such holder agrees to become a Participating Investor for the price and
upon the terms specified in the Issuance Notice. In the event that such holder
fails to give such notice within said ten-day period, or fails to actually
purchase its Pro Rata Share of Dilutive Issuance (other than as a result of the
Corporation refusing to allow such holder to so purchase its Pro Rata Share),
such holder shall be deemed to be a Non-Participating Investor.
(iii) To the extent of the percentage of the Pro Rata Share
not purchased (the "Refused Percentage") by each Non-Participating Investor, the
number of outstanding shares of Series A Stock held by such Non-Participating
Investor determined by multiplying the number of such shares held by the Refused
Percentage shall be converted automatically on the date (the "Closing Date") of
the applicable Dilutive Issuance (provided that the Corporation gave the
Issuance Notice to such holder of Series A Stock) into an equal number of fully
paid and non-assessable shares of Series A-1 Preferred Stock; provided, however,
that prior to the Closing Date each Non-Participating Investor shall have the
right to convert such shares of Series A Stock into shares of Common Stock at
the Conversion Price in effect for such series as of the date of such
conversion.
(iv) Upon the conversion of Series A Stock held by a Non-
Participating Investor into shares of Series A-1 Preferred Stock as set forth
herein, such shares of Series A Stock shall no longer be outstanding on the
books of the Corporation, and may not be reissued and the Non-Participating
Investor shall be treated for all purposes as the record holder of such shares
of Series A-1 Preferred Stock on the date of the closing of the applicable
Dilutive Issuance. No shares of Series A-1 Preferred Stock shall be issued
except as set forth in this Section 4(h) upon conversion of shares of Series A
Stock.
(v) No adjustment in the Conversion Price of the Series A-1
Preferred Stock shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except to the
limited extent provided in subsection 4(d) (iii) (to the extent such issuance or
deemed issuance under such subsection is without payment of any consideration by
such holder for the additional shares of Common Stock issued or issuable) and in
subsections 4(d) (vi) and (d) (vii) hereof.
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--------------
5. Automatic Conversion.
--------------------
(a) Qualified Offering. Upon the closing of a Qualified Offering
------------------
(as defined below), all of the then outstanding shares of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Preferred Stock, and any dividends declared but
unpaid shall be immediately payable in cash. A "Qualified Offering" means an
Underwritten Offering (as defined below) by the Corporation of authorized but
unissued shares of Common Stock at a price per share which (after deducting
underwriting commissions and offering expenses) of not less than $6.00 per
share, subject to Adjustment, and resulting in net proceeds to the Corporation
(after deducting underwriting commissions and offering expenses) of not less
than $15,000,000. An "Underwritten Offering" means a distribution of Common
Stock in a firm commitment underwritten public offering to the general public
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act.
(b) Notices. The Corporation shall promptly send by first-class
-------
mail, postage prepaid, to each holder of Preferred Stock at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and exhibit and schedule thereto and (ii) each order of the Commission
declaring any such registration statement to be effective.
(c) No Further Action. In the case of an automatic conversion
-----------------
pursuant to this Section 5, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
shall not be obligated to issue to any holder certificates evidencing the shares
of Common Stock issuable upon such conversion unless certificates evidencing
such shares of Preferred Stock are delivered either to the Corporation or any
transfer agent of the Corporation.
6. Redemption of Series A Preferred Stock at Corporation's Option.
--------------------------------------------------------------
(a) At any time and from time to time after January 1, 2002, the
Corporation may, at the option of its Board of Directors, redeem the Series A
Preferred Stock, in whole or in part, by paying $0.75 per share (subject to
Adjustment), together with declared but unpaid dividends thereon, in cash for
each share of Series A Preferred Stock then redeemed (hereinafter referred to as
the "Series A Redemption Price").
(b) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof based on the number of shares of
Series A Preferred Stock held by such holders on the date of the Redemption
Notice.
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--------------
(c) Redemptions made pursuant to this Section 6 shall not relieve the
Corporation of its obligations to redeem Series A Preferred Stock in accordance
with the provisions of Section 7.
(d) At least 30 days prior to the date fixed for any redemption of Series
A Preferred Stock (hereinafter referred to as the "Series A Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to each holder of record of Series A Preferred Stock to be redeemed, at
his or its address last shown on the records of the transfer agent of the Series
A Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent), notifying such holder of the election of the Corporation to
redeem such shares, specifying the Series A Redemption Date and the date on
which such holder's Conversion Rights (pursuant to Section 4 hereof) as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, his or its certificate or
certificates representing the shares to be redeemed (such notice is hereinafter
referred to as the "Series A Redemption Notice"). On or prior to the Series A
Redemption Date, each holder of Series A Preferred Stock to be redeemed shall
surrender his or its certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Series A
Redemption Notice, and thereupon the Series A Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Series A Redemption Date,
unless there shall have been a default in payment of the Series A Redemption
Price, all rights of the holders of the Series A Preferred Stock designated for
redemption in the Series A Redemption Notice as holders of Series A Preferred
Stock of the Corporation (except the right to receive the Series Redemption
Price without interest upon surrender of their certificate or certificates)
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever.
(e) On or prior to the Series A Redemption Date, the Corporation shall
deposit the Series A Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Series A Redemption Notice and not yet redeemed
with a bank or trust company having aggregate capital and surplus in excess of
$25,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay the Series A
Redemption Price for such shares to their respective holders on or after the
Series A Redemption Date upon receipt of notification from the Corporation that
such holder has surrendered his or its share certificate to the Corporation.
Such instructions shall also provide that any moneys deposited by the
Corporation pursuant to this Subsection 6(e) for the redemption of shares
thereafter converted into shares of the Corporation's Common Stock pursuant to
Section 4 hereof no later than the close of business on the fifth full day
preceding the Series A Redemption Date shall be returned to the Corporation on
the Series A Redemption Date. The balance of any monies deposited by the
Corporation pursuant to this Subsection 6(e) remaining unclaimed at the
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--------------
expiration of one year following the Series A Redemption Date shall thereafter
be returned to the Corporation upon its request expressed in a resolution of its
Board of Directors.
(f) Subject to the provisions hereof, the Board of Directors of the
Corporation shall have authority to prescribe the manner in which Series A
Preferred Stock shall be redeemed from time to time. Any shares of Series A
Preferred Stock so redeemed shall permanently be retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series A Preferred Stock accordingly.
Nothing herein contained shall prevent or restrict the purchase by the
Corporation, from time to time either at public or private sale, of the whole or
any part of the Series A Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of applicable law.
7. Redemption at Option of Majority of Holders of Series A Preferred Stock.
-----------------------------------------------------------------------
(a) Irrespective of the provisions of Section 6, at any time after the
dates set forth in the chart below (each such date being referred to hereinafter
as a "Programmed Redemption Date"), but within 30 days (the "Section 7
Redemption Date") after the receipt by the Corporation of a written request from
the holders of not less than a majority of the then outstanding Series A
Preferred Stock that all or some of such holders' shares be redeemed, and
concurrently with surrender by such holders of the certificates representing
such shares, the Corporation shall, subject to the conditions set forth in
subsection 7(b), redeem, out of funds legally available therefor, from each
holder of Series A Preferred Stock at the Series A Redemption Price, the
respective portions set forth in the chart below of the number of shares of
Series A Preferred Stock held by such holder on the applicable Programmed
Redemption Date:
Programmed Maximum Portion of Outstanding Shares of
Redemption Date Series A Preferred Stock To Be Redeemed
- --------------- ---------------------------------------
January 1, 2000 33 1/3%
January 1, 2001 50%
January 1, 2002 All outstanding shares of Series A Preferred Stock
(b) Notwithstanding any of the foregoing provisions, on each Programmed
Redemption Date, the holders of the Series A Preferred Stock shall be entitled
to receive their aggregate Series A Redemption Price for such date in full,
provided that if funds are not legally available on such date to pay such Series
A Redemption Price in full, the Company shall use those funds which are legally
available to redeem the maximum possible number of such shares and shall effect
such redemption pro rata among the holders of the Series A Preferred Stock based
on the number of shares of Series A Preferred Stock held by such holders on the
date of the Section 7 Redemption Notice. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
Series A Preferred Stock, such funds will
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--------------
immediately be used to redeem the balance of the shares which the Corporation
has become obligated to redeem on any Programmed Redemption Date but which it
has not redeemed; provided, however, that any such redemption shall be pari pasu
among the holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock who request
redemption of such shares of Preferred Stock pursuant to the terms and
conditions of Section 8 commencing five years following the Original Issue Date.
(c) The Corporation shall provide notice of any redemption of Preferred
Stock pursuant to this Section 7 specifying the time and place of redemption and
the Series A Redemption Price, by certified or registered mail, postage prepaid,
to each holder of record of Series A Preferred Stock at the address for such
holder last shown on the records of the transfer agent therefor (or the records
of the Corporation, if it serves as its own transfer agent), not more than sixty
(60) nor less than thirty (30) days prior to the date on which such redemption
is to be made. Upon mailing any such notice of redemption and subject to the
provisions of Section 7(b) hereof, the Corporation will become obligated to
redeem at the time of redemption specified therein all Series A Preferred Stock
tendered for redemption pursuant to the terms of this Section 7 (other than such
shares of Series A Preferred Stock as are duly converted pursuant to Section 4
prior to the close of business on the fifth full day preceding the Programmed
Redemption Date). In case less than all Series A Preferred Stock represented by
any certificate is redeemed in any redemption pursuant to this Section 7, a new
certificate will be issued representing the unredeemed Series A Preferred Stock
without cost to the holder thereof.
(d) Unless there shall have been a default in the payment of the Series A
Redemption Price, no share of Series A Preferred Stock tendered for redemption
under this Section 7 is entitled to any dividends declared after its Programmed
Redemption Date, and on such Programmed Redemption Date all rights of the holder
of such share as a stockholder of the Corporation by reason of the ownership of
such share will cease, except the right to receive the Programmed Redemption
Price of such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after such
Programmed Redemption Date be deemed to be outstanding.
(e) Any Series A Preferred Stock redeemed pursuant to this Section 7
will be canceled and will not under any circumstances be reissued, sold or
transferred, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized class of Series A Preferred
Stock so redeemed accordingly.
8. Mandatory Redemption at Option of Holders of Series B Preferred Stock,
----------------------------------------------------------------------
Series C Preferred Stock, and Series D Preferred Stock.
- ------------------------------------------------------
(a) Series B Preferred Stock. If, five (5) years following the
------------------------
Original Issue Date of the Series D Preferred Stock, the Corporation has not
completed a Qualified Offering or a Liquidation (including, for these purposes,
any event described in Section 2(e)), then, within 45 days (the "Series B
Redemption Date") after the receipt by the Corporation of a written request
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--------------
(the "Redemption Request") of holders of not less than a majority of the then
outstanding Series B Preferred Stock that all or some of such holders' shares of
Series B Preferred Stock be redeemed, and concurrently with surrender by such
holder of the certificate(s) representing such shares, the Corporation shall
redeem for cash from such holder of Series B Preferred Stock, out of funds
legally available therefor, the shares of Series B Preferred Stock held by such
holder on the Series B Redemption Date at a price per share (the "Series B
Redemption Price") equal to the greater of (i) the Fair Market Value (as defined
below) of a share of Common Stock of the Corporation and (ii) the Series B Stock
Value (subject to Adjustment), together with declared but unpaid dividends
thereon.
(b) Series C Preferred Stock. If, five (5) years following the Original
------------------------
Issue Date of the Series D Preferred Stock, the Corporation has not completed a
Qualified Offering or a Liquidation (including, for these purposes, any event
described in Section 2(e)), then, within 45 days (the "Series C Redemption
Date") after the receipt by the Corporation of a written request (the
"Redemption Request") of holders of not less than a majority of the then
outstanding Series C Preferred Stock that all or some of such holders' shares of
Series C Preferred Stock be redeemed, and concurrently with surrender by such
holder of the certificate(s) representing such shares, the Corporation shall
redeem for cash from such holder of Series C Preferred Stock, out of funds
legally available therefor, the shares of Series C Preferred Stock held by such
holder on the Series C Redemption Date at a price per share ("Series C
Redemption Price") equal to the greater of (i) the Fair Market Value (as defined
below) of a share of Common Stock of the Corporation and (ii) the Series C Stock
Value (subject to Adjustment), together with declared but unpaid dividends
thereon.
(c) Series D Preferred Stock. If, five (5) years following the Original
------------------------
Issue Date of the Series D Preferred Stock, the Corporation has not completed a
Qualified Offering or a Liquidation (including, for these purposes, any event
described in Section 2(e)), then, within 45 days (the "Series D Redemption
Date") after the receipt by the Corporation of a written request (the
"Redemption Request") of holders of not less than a majority of the then
outstanding Series D Preferred Stock that all or some of such holders' shares of
Series D Preferred Stock be redeemed, and concurrently with surrender by such
holder of the certificate(s) representing such shares, the Corporation shall
redeem for cash from such holder of Series D Preferred Stock, out of funds
legally available therefor, the shares of Series D Preferred Stock held by such
holder on the Series D Redemption Date at a price per share ("Series D
Redemption Price") equal to the greater of (i) the Fair Market Value (as defined
below) of a share of Common Stock of the Corporation and (ii) the Series D Stock
Value (subject to Adjustment), together with declared but unpaid dividends
thereon.
(d) Notice. Upon receipt of the Redemption Request, the Corporation
------
shall provide notice (the "Redemption Notice") of any redemption of Preferred
Stock pursuant to this Section 8 specifying the time and place of redemption and
the Series B Redemption Price, Series C Redemption Price or the Series D
Redemption Price, as the case may be, by certified or registered mail, postage
prepaid, to each holder of record of Preferred Stock at the address for
-31-
<PAGE>
DRAFT 02/21/98
--------------
such holder last shown on the records of the transfer agent therefor (or the
records of the Corporation, if it serves as its own transfer agent), not less
than thirty (30) days prior to the Redemption Date. Upon mailing any such
Redemption Notice, the Corporation will become obligated to redeem on the
Redemption Date all Preferred Stock tendered for redemption pursuant to the
terms of this Section 8 (other than such shares of Preferred Stock as are duly
converted pursuant to Section 4 prior to the close of business on the fifth full
day preceding the Redemption Date). In case less than all shares of Preferred
Stock represented by any certificate are redeemed in any redemption pursuant to
this Section 8, a new certificate will be issued representing the unredeemed
shares of Preferred Stock without cost to the holder thereof.
(e) Dividends. Unless there shall have been a default in the
---------
payment of the Series B Redemption Price, Series C Redemption Price or Series D
Redemption Price, as the case may be, no share of Preferred Stock tendered for
redemption under this Section 8 is entitled to any dividends declared after its
Redemption Date (provided, however, that any dividends declared but unpaid as of
the Redemption Date shall be immediately payable in cash), and on such
Redemption Date all rights of the holder of such share as a stockholder of the
Corporation by reason of the ownership of such share will cease, except the
right to receive the Redemption Price of such share, without interest, upon
presentation and surrender of the certificate representing such share, and such
share will not from and after such Redemption Date be deemed to be outstanding.
(f) Cancellation of Stock. Any Preferred Stock redeemed pursuant
---------------------
to this Section 8 will be canceled and will not under any circumstances be
reissued, sold or transferred, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the authorized class of
Preferred Stock so redeemed accordingly.
(g) Fair Market Value. The "Fair Market Value" of a share of
-----------------
Common Stock shall be as determined by an independent investment banking firm or
other firm mutually satisfactory to the Corporation and (i) the holders of at
least a majority in interest of the then outstanding Series A Preferred Stock,
(ii) the holders of at least a majority in interest of the then outstanding
Series B Preferred Stock, (iii) the holders of at least a majority in interest
of the then outstanding Series C Preferred Stock and (iv) the holders of at
least a majority in interest of the then outstanding Series D Preferred Stock,
and shall be equal to the value of the Corporation as a whole divided by the
number of outstanding shares of Common Stock of the Corporation (with each share
of Series A Preferred Stock, Series B Preferred, Series C Preferred Stock and
Series D Preferred Stock of the Corporation treated as if it had been converted
into the number of shares of Common Stock (including fractional shares) into
which such share is then convertible, rounded to the nearest one-tenth of a
share), and with no liquidity discounts or other discounts for minority
ownership).
9. Redemption of Preferred Stock. So long as any shares of a series of
-----------------------------
Preferred Stock are outstanding, the Corporation shall not redeem any shares of
any other series of Preferred Stock in accordance herewith or otherwise unless
simultaneously therewith, the
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<PAGE>
DRAFT 02/21/98
--------------
Corporation shall redeem a pro rata portion of the other series of Preferred
--- ----
Stock, based on the relative aggregate Liquidation value of the outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, pursuant to the redemption terms set forth
in Section 6, 7 and 8.
SECOND: This amendment to Certificate of Incorporation shall be effective as of
the date set forth below.
-33-
<PAGE>
DRAFT 02/21/98
--------------
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by Donald Katz, its President this 25th day of February, 1998.
AUDIBLE INC.
By:/s/ Donald Katz
---------------
Donald Katz, President
THE UNDERSIGNED, the President of Audible Inc., who executed on behalf of the
Corporation the foregoing Certificate of Amendment to Certificate of
Incorporation of Audible Inc., hereby acknowledges in the name and on behalf of
the said Corporation the foregoing Certificate of Amendment to Certificate of
Incorporation to be the corporate act of said Corporation and hereby certifies
that to the best of his knowledge, information and belief the matters set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Donald Katz
---------------
Donald Katz
President
-34-
<PAGE>
EXHIBIT 3.1.3
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF AUDIBLE, INC.
Audible, Inc., (the "Corporation"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: By way of a Unanimous Written Consent of the Board of Directors, dated
December 18, 1998, the Board of Directors of the Corporation adopted resolutions
pursuant to Section 242 of the General Corporation Law of the State of Delaware,
setting forth amendments to the Certificate of Incorporation of the Corporation
(the "Certificate") and declaring said amendments to be advisable. The
stockholders of the Corporation duly approved the proposed amendments in
accordance with Section 242 of the General Corporation Law of the State of
Delaware by written consent in lieu of a meeting, dated December 18, 1998,
pursuant to and in accordance with Section 228 of the General Corporation Law of
the State of Delaware. The resolutions setting forth the amendments are as
follows:
RESOLVED: That the first paragraph of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 16,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock"), (ii) 534,000 shares of Series
A Convertible Preferred Stock, $.01 par value per share (the "Series A Stock"),
(iii) 534,000 shares of Series A-1 Convertible Preferred Stock, par value $.01
per share (the "Series A-1 Preferred Stock"), (iv) 2,100,000 shares of Series B
Preferred Stock, $.01 par value per share (the "Series B Preferred Stock"), (v)
2,300,000 shares of Series C Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"), and (vi) 4,375,000 shares of Series D Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") (the Series A
Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock are sometimes collectively referred herein as
the "Preferred Stock"). As used herein, the term "Series A Preferred Stock"
means the Series A Stock and the Series A-1 Preferred Stock share-for-share
alike and without distinction, as except as the context otherwise requires.
RESOLVED: That Paragraph B(3)(b)(ii)(E) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(E) Increase Directors. Increase the number of directors of the
------------------
Corporation above eight (8).
RESOLVED: That Paragraph B(3)(c)(ii)(G) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(G) Increase Directors. Increase the number of directors of the
------------------
Corporation above eight (8).
<PAGE>
RESOLVED: That Paragraph B(3)(d)(iii)(G) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(G) Increase Directors. Increase the number of directors of the
------------------
Corporation above eight (8).
RESOLVED: That Paragraph B(3)(e)(ii)(F) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(F) Increase Directors. Increase the number of directors of the
------------------
Corporation above eight (8).
RESOLVED: That Paragraph B(4)(d)(i)(C) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(C) "Employee Stock Options" shall mean (i) existing stock or options
granted to employees, directors, or consultants of the Corporation pursuant to
any stock award or option plan, agreement or arrangement for officers,
directors, consultants, employees and others who render services to the
Corporation (a "Plan"), to acquire up to a maximum of 28,250 shares of Common
Stock (subject to any Adjustment), and (ii) stock or options to be granted to
employees, directors or consultants of the Corporation pursuant to any Plan to
purchase up to a maximum of 474,630 shares of Common Stock (subject to any
Adjustment), which number may be increased from time to time to reflect
repurchases by the Corporation of stock from employees, directors or
consultants.
RESOLVED: That Paragraph B(4)(d)(i)(F) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(F) "Original Issue Date" shall mean, with respect to a series of
Preferred Stock, the date on which the first share of that series of Preferred
Stock was issued.
RESOLVED: That Paragraph B(4)(d)(i)(G) of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is amended by
adding the following stock restriction agreements:
- --------------------------------------------------------------------------------
Stock Restriction Agreement CKC Communications, Inc. 01/31/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement (unsigned) Clay Carlson 02/24/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Andrew Huffman 02/28/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Beth Anderson 05/06/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Helene Artz 05/06/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Erica Ceravolo 05/06/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Brian Fielding 05/06/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Matthew Fine 05/06/98
- --------------------------------------------------------------------------------
Stock Restriction Agreement Fritzgerald Francois 05/06/98
- --------------------------------------------------------------------------------
-2-
<PAGE>
- -------------------------------------------------------------------------------
Stock Restriction Agreement Jonathan Korzen 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement James Mariany 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Travis Millman 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Ajit Rajasekharan 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Sugeet Shah 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Chong Tan 05/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Frederic Rose 06/10/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Rozsa Kovesdi 06/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Foy Sperring 06/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Sarah Scharf 07/06/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Anthony Huffman 07/20/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Lee Delplane 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Alexander Galkin 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Dale Hardman 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Adam Levin 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Anthony Nash 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Michele Ramsay 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Joann Stone 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Seyeoul Yom 09/15/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Igor Grebnev 10/30/98
- -------------------------------------------------------------------------------
Stock Restriction Agreement Matthew Skaria 10/30/98
- -------------------------------------------------------------------------------
RESOLVED: That Paragraph B(4)(d)(iv)(C)of Article FOURTH of the
--------
Certificate of Incorporation of the Corporation be and hereby is deleted in its
entirety and replaced as follows:
(C) Series D Conversion Price. In the event the Corporation shall
-------------------------
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4(d)(iii)) without
consideration or for a consideration per share less than the Series D Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, such Series D Conversion Price shall be reduced, concurrently with
such issue, as follows:
(x) if the consideration per share is greater than or equal to
$3.00 per share (subject to Adjustment), but less than $4.00 per share, to an
amount equal to the per share consideration received for each additional share
upon such issuance; or
(y) if the issuance (or deemed issuance) is without consideration
or for a consideration per share less than $3.00 (subject to Adjustment), to a
price determined by (i) first reducing the Series D Conversion Price to $3.00
(subject to Adjustment), provided, however, that no reduction pursuant to this
-------- -------
clause (i) shall be made if the Series D Conversion Price is already below $3.00
(subject to Adjustment); and (ii) then multiplying such new reduced Series D
Conversion Price by a fraction, the numerator of which shall be the number of
---------
shares of
-3-
<PAGE>
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such new Series D Conversion Price; and the denominator
-----------
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided, that, for the purpose of this Subsection 4(d)(iv)(C), (I) all
--------
shares of Common Stock issuable upon conversion of shares of Series D Preferred
Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred
Stock outstanding immediately prior to such issue shall be deemed to be
outstanding, and (II) immediately after any Additional Shares of Common Stock
are deemed issued pursuant to Subsection 4(d)(iii)), such Additional Shares of
Common Stock shall be deemed to be outstanding.
SECOND: This amendment to Certificate of Incorporation shall be effective as of
the date set forth below.
-4-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Andrew Huffman, its President this 18 day of December, 1998.
AUDIBLE, INC.
By: /s/ Andrew Huffman
------------------------------------
Andrew Huffman, President
-5-
<PAGE>
EXHIBIT 3.3
AUDIBLE, INC.
(Formerly Known as THE AUDIBLE WORDS CORPORATION)
B Y L A W S
------------
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Wilmington,
-----------
County of Newcastle, State of Delaware.
Section 1.2 The corporation may also have offices at such other places
-----------
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 All meetings of the stockholders shall be held at such
-----------
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 A meeting of stockholders shall be held in each year for
-----------
the election of directors at such time and place as the board of directors shall
determine. Any other proper business, notice of which was given in the notice
of the meeting or in a duly executed waiver of notice thereof, may be transacted
at the annual meeting. Elections of directors shall be by written ballot,
unless otherwise provided in the certificate of incorporation.
Section 2.3 Unless otherwise provided by law, written notice of the
-----------
annual meeting shall be given to each stockholder entitled to vote thereat not
less than ten nor more than sixty days before the date of the meeting.
Section 2.4 The officer who has charge of the stock ledger of the
-----------
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, 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 during ordinary
business hours, for a period of at least ten days prior to the election, either
at a place within the city, town or village where the election is to be held and
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
Section 2.5 Special meetings of the stockholders, for any purpose or
-----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of stockholders
-1-
<PAGE>
owning 10% of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 2.6 Unless otherwise provided by law, written notice of a
-----------
special meeting of stockholders, stating the time, place and object thereof,
shall be given to each stockholder entitled to vote thereat, not less than ten
nor more than sixty days before the date fixed for the meeting.
Section 2.7 Business transacted at any special meeting of stockholders
-----------
shall be limited to the purposes stated in the notice.
Section 2.8 The holders of a majority of the stock issued and
-----------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.9 When a quorum is present at any meeting, the vote of the
-----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10 Each stockholder shall at every meeting of the
------------
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted on at any
election for directors which has been transferred on the books of the
corporation within twenty days next preceding such election of directors.
Section 2.11 Any action required to be taken at any annual or special
------------
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
-2-
<PAGE>
ARTICLE III
DIRECTORS
Section 3.1 The number of directors which shall constitute the whole
-----------
board shall be 5. Except as hereinafter provided in Section 3.2 of this
Article, the directors, other than those constituting the first board of
directors, shall be elected by the stockholders, and each director shall hold
office until his successor is elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
Section 3.2 Vacancies and newly created directorships resulting from
-----------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director.
Section 3.3 The business of the corporation shall be managed by its
-----------
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the corporation may hold
-----------
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.5 The first meeting of each newly elected board of directors
-----------
shall be held immediately after and at the same place as the meeting of the
stockholders at which it was elected and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
Section 3.6 Regular meetings of the board of directors may be held
-----------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 3.7 Special meetings of the board may be called by the
-----------
president on two days notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors.
Section 3.8 At all meetings of the board a majority of directors shall
-----------
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
-3-
<PAGE>
Section 3.9 Unless otherwise restricted by the certificate of
-----------
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 3.10 The board of directors may, by resolution passed by a
------------
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
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, 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; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution or amending the by-laws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Section 3.11 Each committee shall keep regular minutes of its meetings
------------
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.12 The board of directors shall have the authority to fix
------------
the compensation of directors.
PARTICIPATION IN MEETING BY TELEPHONE
Section 3.13 Members of the board of directors or any committee
------------
designated by such board may participate in a meeting of the board or of a
committee of the board 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 in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
-4-
<PAGE>
ARTICLE IV
NOTICES
Section 4.1 Notices to directors and stockholders shall be in writing
-----------
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 4.2 Whenever any notice is required to be given under the
-----------
provisions of the statutes or of the certificate of incorporation or by these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular, or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1 The officers of the corporation shall be chosen by the
-----------
board of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
otherwise provides.
Section 5.2 The board of directors at its first meeting after each
-----------
annual meeting of stockholders shall choose a president, one or more vice-
presidents, a secretary and a treasurer.
Section 5.3 The board of directors may appoint such other officers and
-----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 5.4 The salaries of all officers and agents of the corporation
-----------
shall be fixed by the board of directors.
Section 5.5 The officers of the corporation shall hold office until
-----------
their successors are chosen and qualified. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
-5-
<PAGE>
THE PRESIDENT
Section 5.6 The president shall be the chief executive officer of the
-----------
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 5.7 He shall execute bonds, mortgages and other contracts
-----------
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 5.8 The vice-president, or if there shall be more than one,
-----------
the vice-presidents in the order determined by the board of directors, shall, in
the absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.9 The secretary shall attend all meetings of the board of
-----------
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 5.10 The assistant secretary, or if there be more than one,
------------
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.11 The treasurer shall have the custody of the corporate
------------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
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<PAGE>
Section 5.12 He shall disburse the funds of the corporation as may be
------------
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors at
its regular meetings or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.13 If required by the board of directors, he shall give the
------------
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 5.14 The assistant treasurer, or if there shall be more than
------------
one, the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 Every holder of stock in the corporation shall be entitled
-----------
to have a certificate signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors, or president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Section 6.2 Where a certificate is signed (l) by a transfer agent or
-----------
an assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such chairman or vice-chairman
of the board of directors, president, vice-president, treasurer, assistant
treasurer, secretary or assistant secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the corporation.
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<PAGE>
LOST CERTIFICATES
Section 6.3 The board of directors may direct a new certificate or
-----------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed upon the issuance of such new
certificate.
TRANSFERS OF STOCK
Section 6.4 Upon surrender to the corporation or the transfer agent of
-----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transactions upon its books,
unless the corporation has a duty to inquire as to adverse claims with respect
to such transfer which has not been discharged. The corporation shall have no
duty to inquire into adverse claims with respect to such transfer unless (a) the
corporation has received a written notification of an adverse claim at a time
and in a manner which affords the corporation a reasonable opportunity to act on
it prior to the issuance of a new, reissued or re-registered share certificate
and the notification identifies the claimant, the registered owner and the issue
of which the share or shares is a part and provides an address for
communications directed to the claimant; or (b) the corporation has required and
obtained, with respect to a fiduciary, a copy of a will, trust, indenture,
articles of co-partnership, by-laws or other controlling instruments, for a
purpose other than to obtain appropriate evidence of the appointment or
incumbency of the fiduciary, and such documents indicate, upon reasonable
inspection, the existence of an adverse claim.
Section 6.5 The corporation may discharge any duty of inquiry by any
-----------
reasonable means, including notifying an adverse claimant by registered or
certified mail at the address furnished by him or, if there be no such address,
at his residence or regular place of business that the security has been
presented for registration of transfer by a named person, and that the transfer
will be registered unless within thirty days from the date of mailing the
notification, either (a) an appropriate restraining order, injunction or other
process issues from a court of competent jurisdiction; or (b) an indemnity bond,
sufficient in the corporation's judgment to protect the corporation and any
transfer agent, registrar or other agent of the corporation involved from any
loss which it or they may suffer by complying with the adverse claim, is filed
with the corporation.
FIXING RECORD DATE
Section 6.6 (a) In order that the corporation may determine the
-----------
stockholders entitled to notice or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful
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<PAGE>
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
(b) If no record date is fixed:
(1) 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 next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(2) 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.
(3) 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 thereto.
(c) 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.
REGISTERED STOCKHOLDERS
Section 6.7 Prior to due presentment for transfer of any share or
-----------
shares, the corporation shall treat the registered owner thereof as the person
exclusively entitled to vote, to receive notifications and to all other benefits
of ownership with respect to such share or shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the corporation,
-----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 7.2 Before payment of any dividend, there may be set aside out
-----------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE>
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each annual
-----------
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the
-----------
corporation shall be signed by such officer or officers or such other persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 7.5 The fiscal year of the corporation shall be the calendar
-----------
year.
SEAL
Section 7.6 The corporate seal shall have inscribed thereon the name
-----------
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE VIII
AMENDMENTS
Section 8.1 These by-laws may be altered or repealed at any regular
-----------
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
ARTICLE IX
INDEMNIFICATION
Section 9.1 The corporation shall indemnify any person who was or is a
-----------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he 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 his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
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<PAGE>
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he 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 reasonable cause to believe that his conduct
was unlawful.
Section 9.2 The corporation shall indemnify any person who was or is a
-----------
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit 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 expenses which the Court of Chancery
or such other court shall deem proper.
Section 9.3 To the extent that a director, officer, employee or agent
-----------
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in sections 9.1 or 9.2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 9.4 Any indemnification under sections 9.1 or 9.2 of this
-----------
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such section. Such
determination shall be made:
1. By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or
2. If such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or
3. By the stockholders.
Section 9.5 Expenses incurred in defending a civil or criminal action,
-----------
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
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<PAGE>
Section 9.6 The indemnification and advancement of expenses provided
-----------
by, or granted pursuant to, this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 9.7 The corporation shall have power to purchase and maintain
-----------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 9.8 The indemnification and advancement of expenses provided
-----------
by or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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<PAGE>
EXHIBIT 3.3.1
AMENDMENT NO. 1
TO
AUDIBLE INC.
BY-LAWS
WHEREAS, pursuant to ARTICLE VIII of the By-Laws of Audible Inc., a
Delaware corporation (the "Company"), the Company's By-Laws may be amended from
time to time by the Board of Directors at any regular or special meeting (or by
written action in lieu thereof); and
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company to amend its By-Laws to allow the Board of
Directors to increase the number of directors constituting the Board of
Directors;
WHEREAS, by written consent in lieu of a special meeting of the Board of
Directors, the following amendment to the By-Laws was adopted.
NOW THEREFORE, the By-Laws of the Company are hereby amended as follows:
Section 3.1 shall be deleted in its entirety and the following Section 3.1
----------- -----------
shall be inserted in lieu thereof:
"Section 3.1 The number of directors which shall constitute the whole
-----------
board shall be 7 and, subject to the terms and conditions of the
Certificate of Incorporation, may be expanded from time to time as the
Board of Directors shall determine. Except as hereinafter provided in
Section 3.2 of this Article, the directors, other than those constituting
the first board of directors, shall be elected by the stockholders, and
each director shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. Directors need not
be stockholders."
This Amendment No. 1 to By-Laws was adopted and approved by way of Unanimous
Written Consent of the Board of Directors in Lieu of Special Meeting dated March
17, 1998.
BOARD OF DIRECTORS:
- -------------------
/s/ Donald R. Katz /s/ Tim Mott
- ------------------ ------------
Donald R. Katz Tim Mott
/s/ Thomas P. Hirschfeld /s/ Brad Burnham
- ------------------------ ----------------
Tom Hirschfeld Brad Burnham
<PAGE>
/s/ Bingham Gordon /s/ Winthrop Knowlton
- ------------------ ---------------------
Bingham Gordon Winthrop Knowlton
/s/ Andrew J. Huffman
- ---------------------
Andrew Huffman
<PAGE>
EXHIBIT 10.5
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated November 19, 1996 by and
between COMDISCO, INC. ("Lessor") and THE AUDIBLE WORDS CORPORATION ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file
in Lessee's name precautionary Uniform Commercial Code financing statements
showing the interest of the Owner, Lessor, and any Assignee or Secured Party in
the Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear
from any liens or encumbrances of any kind (except any caused by Lessor) and
will indemnify and hold the Owner, Lessor, any Assignee and Secured Party
harmless from and against any loss caused by Lessee's failure to do so, except
where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and
the Secured Party continues to receive all Rent payable under the Schedule;
and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of
the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and
<PAGE>
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal
property tax returns for the Equipment and pay all such property taxes due.
Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided re-
certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction
where the Equipment is, or is to be, located) where its ownership or lease
of property or the conduct of its business requires such qualification,
except for where such lack of qualification would not have a material
adverse effect on the Company's business; and has full corporate power and
authority to hold property under the Master Lease and each Schedule and to
enter into and perform its obligations under the Master Lease and each
Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Articles of
Incorporation or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument to which it is a party or by which it is bound,
and the Master Lease and each Schedule constitute legal, valid and binding
agreements of the Lessee, enforceable in accordance with their terms,
subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Lessee to perform its obligations under the Master Lease and each
Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement of,
or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally, and rules of law concerning
equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable
-2-
<PAGE>
attorneys' fees, arising out of the ownership (for strict liability in tort
only), selection, possession, leasing, operation, control, use, maintenance,
delivery, return or other disposition of the Equipment during the term of this
Master Lease or until Lessee's obligations under the Master Lease terminate.
However, Lessee is not responsible to a party indemnified hereunder for any
claims, costs, expenses, damages and liabilities occasioned by the negligent
acts of such indemnified party. Lessee agrees to carry bodily injury and
property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration, will be primary
without right of contribution from any insurance effected by Lessor. Upon the
execution of any Schedule, the Lessee will furnish appropriate evidence of such
insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee
in the Schedule or in any document or certificate furnished to the Lessor
hereunder if that failure or inaccuracy continues for ten (10) business days
after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Lessee as insolvent, the liquidation of
Lessee, or the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or
Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment
fees charged to Lessor by the Secured Party or, if there is no Secured
Party, then discounted at 6%) together with all Rent and other amounts
currently due as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to in remove and
repossess the Equipment without being liable to Lessee for damages due to
the repossession, except those resulting from Lessor's, its assignees',
agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting.
-3-
<PAGE>
Lessee will provide Lessor with a certified copy of the minutes of each Board of
Directors meeting within thirty (30) days following the date of such meeting
held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "the one Comdisco Venture Group") or
Lessee, at the address set out in the Schedule or, one day after it is sent by
courier or on the same day as sent via facsimile transmission, provided that the
original is sent by personal delivery or mail by the receiving party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
-4-
<PAGE>
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
- -------------
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
- -----------------
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
- -------------
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
- -------------
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
- ---------
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
- ----------------
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
- -----------
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
- -----------------
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, or any sale or conveyance of all or substantially all of
the assets or stock of the Lessee to any other person or entity, in which Lessee
is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
- -------------
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
- -----
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
- ----
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
-5-
<PAGE>
RENT INTERVAL - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
- --------
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
- -------------
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
- --------------------------
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
THE AUDIBLE WORDS CORPORATION, COMDISCO, INC.,
as Lessee as Lessor
By: /s/ Patrick Barry By: /s/ James Labe
-------------------------------- ----------------------------------
James P. Labe, President
Title: CFO Title: Venture Lease Division
----------------------------- -------------------------------
-6-
<PAGE>
EXHIBIT 10.5.1
ADDENDUM TO MASTER LEASE AGREEMENT
DATED NOVEMBER 19,1996
BETWEEN COMDISCO, INC., AS LESSOR AND
THE AUDIBLE WORDS CORPORATION, AS LESSEE
The terms and conditions of the above-referenced Master Lease Agreement
shall be modified and amended as follows:
1. Section 3, "Rent and Payment"
----------------
In line 1, after the word "payable" insert the word, "in".
In line 2, after the word "payable" insert the words, "within fifteen (15)
days of".
In line 3, after the word "made" insert the words, "within fifteen (15)
days of".
2. Subsection 4.2, "Warranty and Disclaimer of Warranties"
-------------------------------------
In line 8, after the word, "PURPOSE" insert the words, "(other than
Lessor's warranty that it holds clear title in and to the Equipment or has the
right to lease the Equipment to Lessee)".
3. Subsection 5.1, "Title"
-----
In line 1, after the word "subordinate" insert the words "(except as
provided herein)".
4. Subsection 5.3, "Assignment by Lessor"
--------------------
At the end of this Subsection, insert the following:
"Notwithstanding anything to the contrary stated above, in no event shall
any assignment between Lessor and any third party in any way abridge or
otherwise alter Lessee's rights against Lessor or Lessor obligations
provided for hereunder, it being the express understanding of the parties
that any such assignment shall not in any way affect Lessee's rights
against Lessor."
5. Subsection 6.1, "Net Lease"
---------
At the end of this Subsection, insert the following:
"Notwithstanding anything to the contrary stated above, Lessee's
obligations to pay Rent hereunder shall exclude any income and franchise
taxes based on the net income of Lessor."
6. Subsection 6.2, "Taxes and Fees"
--------------
<PAGE>
In line 6, after the word "Lessor)" insert the words "provided that the
Lessee shall not be obligated to make such payment so long as the Lessee is
diligently contesting the amount or validity thereof in good faith by adequate
proceedings, so long as such contest does not result in the seizure or
forfeiture of the Equipment."
7. Subsection 7.1, "Care, Use and Maintenance"
-------------------------
In line 7, after the word "party" insert the word "reasonably".
8. Section 8, "Representations and Warranties of Lessee"
----------------------------------------
In line 4 of paragraph (b), after the word "Bylaws" insert the words "to
the best of its knowledge".
In line 2 of paragraph (d), delete the period after the word "law" and
insert the following:
", except to the extent the owner of the real estate, pursuant to an
instrument acceptable to Lessor, recognizes the ownership interest of the
Lessor or its Assignee and the security interest of the Secured Party and
agrees to permit removal of such Equipment to the extent entitled to do so
hereunder."
9. Section 9, "Delivery and Return of Equipment"
--------------------------------
In line 9, after the word "as" insert the word "reasonably".
In line 10, delete the words "address as set forth herein" and insert the
words "refurbishment facility located in Schaumburg, Illinois.
10. Section 12, "Risk of Loss"
------------
At the end of the second paragraph insert the following:
"Any proceeds paid to Lessor by Lessee's insurance carrier will be made
available to the Lessee to cover the cost of repairs."
11. Subsection 13.1, "Default"
-------
In line 4 of paragraph (b), after the word "notice" insert the words ",
provided that if such failure cannot be corrected within the ten (10) day period
that Lessee is diligently pursuing a cure, the Lessee shall be entitled to an
additional ten (10) business days to effectuate a cure"
In line 3 of paragraph (c), after the word "law" insert the words
"(provided that the filing of an involuntary petition shall not constitute an
Event of Default until the earlier of (I) the expiration of sixty (60) days from
filing or (ii) the entry of an Order for Relief)".
-2-
<PAGE>
12. Subsection 13.2, "Remedies"
--------
In line 5 of paragraph (d), after the word "negligence" insert the words
"and Lessor will promptly repair any damage caused by such negligence in the
removal".
13. Subsection 14.16, "Landlord/Mortgage Waiver"
------------------------
In line 1, after the word "to" insert the words "use its best efforts to".
THE AUDIBLE WORDS CORPORATION, COMDISCO, INC.,
AS LESSEE AS LESSOR
By: /s/ Patrick C. Barry By: /s/ James P. Labe
---------------------------- -------------------------------
James P. Labe, President
Title: CFO Title: Venture Lease Division
------------------------- ----------------------------
Date: Nov 20, 1996 Date:_____________________________
-------------------------
GP - 10/29/96
-3-
<PAGE>
EXHIBIT 10.6
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of Preferred Stock of
AUDIBLE, INC.
(Formerly, The Audible Words Corporation)
Dated as of November 19, 1996 (the "Effective Date")
Re-Issued as of August 17, 1998
WHEREAS, Audible, Inc. (formerly, The Audible Words Corporation), a
Delaware corporation (the "Company") has entered into a Master Lease Agreement
dated as of November 19, 1996, Equipment Schedule Nos. VL-1 and VL-2 dated as of
November 19, 1996, and related Schedules (collectively the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, in consideration for such Leases, the Company entered into a
Warrant Agreement dated as of November 19, 1996 (the "Original Warrant
Agreement"), whereby the Company granted the Warrantholder the right to purchase
shares based on a formula which results in the right to purchase 33,852 shares
of the Company's Series B Preferred Stock; and
WHEREAS, pursuant to and in accordance with the Original Warrant Agreement,
the Warrantholder has transferred to Gregory Stento, effective as of August 17,
1998, the Warantholder's rights under the Original Warrant Agreement with
respect to the purchase of 3,009 shares of the Company's Series B Preferred
Stock (the "Warrant Transfer"); and
WHEREAS, the Company and the Warrantholder acknowledge the Warrant Transfer
and, accordingly, the Company is reissuing, as of August 17, 1998, the Warrants
provided for in the Original Warrant Agreement, and the Company and the
Warrantholder are entering into this Warrant Agreement, to reflect the Warrant
Transfer and the Warrantholder's right to purchase 30,573 shares of Series B
Preferred Stock as
<PAGE>
set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants
and agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 30,573 fully paid and non-
assessable shares of the Company's Series B Preferred Stock ("Preferred Stock")
at a purchase price of $2.68 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X=Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
-2-
<PAGE>
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices quoted
on the NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market value
of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
-3-
<PAGE>
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein. Following the
Company's initial public offering, the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. This Warrant shall be subject to the
-----------------------
requirement that if any shares of Preferred Stock required to be reserved
hereunder require registration with or approval of any governmental authority
under any Federal or State law (other than any registration under the 1933 Act,
as then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such conversion),
or listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be. Warrantholder agrees to cooperate in completing any necessary
documentation required in any such registration.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
-4-
<PAGE>
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
------------------ ------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock
-5-
<PAGE>
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which
triggers any such antidilution rights, which notice shall include (a) the price
at which such stock or security is to be sold, (b) the number of shares to be
issued, and (c) such other information as necessary for Warrantholder to
determine if a dilutive event has occurred.
(f) Notice of Certain Events. If: (i) the Company shall declare any
------------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the Company's reasonable
estimate of the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event, (ii) the amount of the adjustment, if any, (iii) the method by which such
adjustment, if any, was calculated, (iv) the Exercise Price, and (v) the number
of shares subject to purchase hereunder after giving effect to such adjustment,
and shall be given by first class mail, postage prepaid, addressed to the
Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period
-6-
<PAGE>
notwithstanding anything to the contrary contained in any insufficient notice
received by Warrantholder. The notice period shall begin on the date
Warrantholder actually receives a written notice containing all the information
specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
----------------------
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all
-7-
<PAGE>
Federal and state securities laws. In addition, as of the Effective Date:
(i) The authorized capital of the Company consists of (A) 7,000,000
shares of Common Stock, of which 2,804,100 shares are issued and outstanding,
and (B) 3,550,000 shares of preferred stock, of which (i) 1,350,000 shares have
been designated Series A Preferred Stock (consisting of 675,000 shares of Series
A-I Preferred Stock) of which 534,000 shares of Series A Preferred Stock and no
shares of Series A-i Preferred Stock are outstanding and (ii) 2,200,000 shares
have been designated Series B Preferred Stock of which 2,050,000 shares are
issued and outstanding.
(ii) The Company has reserved (A) 615,000 shares of Common Stock for
issuance to employees, consultants and directors of which 437,000 options are
outstanding at an average price of $.15 per share. Exhibit IV hereto sets forth
the other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
(iii) In accordance with the Company's Charter, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's capital
stock, other than holders of the Company's Series A and Series B Preferred Stock
pursuant to an Amendment to a Stockholders Agreement dated November 19, 1996, by
and among the Company and the other parties thereto (the "Stockholders'
Agreement").
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. As of the Effective Date,
----------------------------------------
except as set forth in the Registration Rights Agreement dated July 25, 1996,
among the Company and the parties named therein the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Based on the Warrantholder's representations in
------------------
Section 10 hereof, the issuance of the Warrant and the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Common Stock issuable upon conversion of the
Preferred Stock issued upon the exercise of the Warrant in compliance with Rule
144 promulgated by the
-8-
<PAGE>
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire the Warrant or the Preferred
------------------
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as
-9-
<PAGE>
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. RIGHT OF FIRST OFFER.
--------------------
The Warrantholder shall have the right to purchase additional shares of
stock in accordance with the provisions of Amendment No. 1 to the Stockholders
Agreement in the form attached hereto as Exhibit ____.
12. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee to not more than three (3)
persons who are "accredited investors" provided, however, that any such
transferee shall have acquired the rights to purchase at least 20% of the
Preferred Stock issuable hereunder.
13. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
-10-
<PAGE>
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile,
(847) 518-5465 and (847) 518-5088) and (ii) to the Company at 65 Willowbrook
Boulevard, Wayne, New Jersey 07470 attention: Patrick C. Barry (and/or if by
facsimile, (973) 890-4070) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
-11-
<PAGE>
(j) Amendments. Any provision of this Warrant Agreement may be amended by a
----------
written instrument signed by the Company and by the holders of the rights to
purchase a majority of the shares of Preferred Stock issuable hereunder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of August 17,1998.
Company: AUDIBLE, INC.
By: /s/ Andy Huffman
----------------------------------
Title: President and CEO
-------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ John J. Vosicky
----------------------------------
Title: Executive Vice President & CFO
-------------------------------
-12-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series B Preferred Stock of Audible, Inc., pursuant to the terms of the
Warrant Agreement dated the 17th day of August, 1998 (the `Warrant
Agreement") between Audible, Inc. and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series B Preferred Stock of
Audible, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series B Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_________________________________
(Name)
_________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:______________________________
Title:___________________________
Date:____________________________
-13-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned _______________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Series B Preferred Stock of Audible, Inc., pursuant to the terms of the
Warrant Agreement, and further acknowledges that ______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:_____________________________________
Title:__________________________________
Date:___________________________________
-14-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is________________________________________________________________
________________________________________________________________________________
Dated____________________________________________________________
Holder's Signature_______________________________________________
Holder's Address_________________________________________________
_________________________________________________________________
Signature Guaranteed:___________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority
to assign the foregoing Warrant Agreement.
-15-
<PAGE>
EXHIBIT 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of Series C Preferred Stock of
AUDIBLE, INC.
Dated as of July 24, 1997 (the "Effective Date")
WHEREAS, Audible, Inc., a Delaware corporation (the "Company") has entered
into a Master Lease Agreement dated as of November 19, 1996, Equipment Schedule
Nos. VL-3 and VL-4 dated as of July 24, 1997, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, that number of fully paid and non-
assessable shares of the Company's Series C Preferred Stock ("Preferred Stock")
equal to Forty-Eight Thousand Seven Hundred Fifty Dollars ("$48,750.00) divided
by the exercise price ("Exercise Price"). The Exercise Price shall be equal to
the sum of $4.00 per share of the Preferred Stock (the "Last Round") plus the
product of (a) the difference between the price per share of the next round of
Preferred Stock equity financing in which the Company sells shares of its
capital stock to institutional or other professional investors (the "Next
Round") and the Last Round, multiplied by (b) the fraction resulting from
dividing (x) the number of days from the date of closing of the Last Round to
the date of execution of the Leases, by (y) the number of days from the date of
the closing of the Last Round to the date of the closing of the Next Round;
provided, however, if the Next Round
<PAGE>
is not successfully completed by December 31, 1997, then the Exercise Price
shall be equal to the price per share of the Last Round. The number and purchase
price of such shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (I) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of `Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X=Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise at or prior to the closing of the initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public
-2-
<PAGE>
offering has been declared effective by the SEC, then the fair market value
per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock
is convertible at the time of such exercise;
(ii) if this Warrant is exercised for Common Stock after, and not at the
closing of, the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market Value shall
be deemed to be the average of the closing bid and asked prices quoted
on the NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market value
of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee and or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in
good faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein. Following the
Company's initial public offering, the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. This Warrant shall be subject to the
-----------------------
requirement that if
-3-
<PAGE>
any shares of Preferred Stock required to be reserved hereunder require
registration with or approval of any governmental authority under any Federal or
State law (other than any registration under the 1933 Act, as then in effect, or
any similar Federal statute then enforced, or any state securities law, required
by reason of any transfer involved in such conversion), or listing on any
domestic securities exchange, before such shares may be issued upon conversion,
the Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be. Warrantholder
agrees to cooperate in completing any necessary documentation required in any
such registration.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent
-4-
<PAGE>
possible.
(b) Reclassification of Shares, If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
-------------------
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant which triggers
any such antidilution rights, which notice shall include (a) the price at which
such stock or security is to be sold, (b) the number of shares to be issued, and
(c) such other information as necessary for Warrantholder to determine if a
dilutive event has occurred.
(f) Notice of Certain Events. If: (i) the Company shall declare any
------------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution,
-5-
<PAGE>
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the Company's reasonable estimate of the effective
date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event, (ii) the amount of the adjustment, if any, (iii) the method by which such
adjustment, if any, was calculated, (iv) the Exercise Price, and (v) the number
of shares subject to purchase hereunder after giving effect to any such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contra-
-6-
<PAGE>
vene any law or governmental rule, regulation or order applicable to it, do not
and will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms.
(c) Consents and Approvals. No consent or approval of giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
-----------------
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 12,000,000 shares
of Common Stock, of which 3,444,350 shares are issued and outstanding, (ii)
534,000 shares designated Series A Preferred Stock, of which 534,000 are
issued and outstanding, (iii) 534,000 shares designated Series A-l
Preferred Stock of which no shares are outstanding, (iv) 2,100,000 shares
designated Series B Preferred Stock of which 2,050,000 shares are issued
and outstanding; and (v) 2,300,000 shares designated Series C Preferred
Stock of which 2,250,000 shares are issued and outstanding.
(ii) The Company has reserved (A) 974,750 shares of Common Stock for
issuance to employees, consultants and directors of which 13,750 options
are outstanding, (B) 450,000 shares for Common Stock Warrants. Exhibit B
hereto sets forth the other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or other
securities of the Company.
(iii) In accordance with the Company's Charter, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's
capital stock, other than holders of the Company's Series A, Series B and
Series C Preferred Stock pursuant to an Amended and Restated Stockholders'
Agreement dated March 31, 1997, by and among the Company and the other
parties thereto (the "Stockholders' Agreement").
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are
customary for corporations engaged in a similar business and similarly
situated and as otherwise may be required pursuant to the terms of any
other contract or agreement.
-7-
<PAGE>
(f) Other Commitments to Register Securities. Except as set forth in
----------------------------------------
the Amended and Restated Registration Rights Agreement dated March 31, 1997,
among the Company and the parties named therein, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Based on the Warrantholder's representations
------------------
in Section 10 hereof, the issuance of the Warrant and the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Common Stock issuable upon conversion of the
Preferred Stock issued upon the exercise of the Warrant in compliance with Rule
144 promulgated by the Securities and Exchange Commission, the Company shall
furnish to the Warrantholder, within ten days after receipt of such request, a
written statement confirming the Company's compliance with the filing
requirements of the Securities and Exchange Commission as set forth in such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire the Warrant or the Preferred
------------------
Stock issuable upon exercise of the Warrantholder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding, the foregoing, the restrictions
-8-
<PAGE>
imposed upon the transferability of any of its rights to acquire Preferred Stock
or Preferred Stock issuable on the exercise of such rights do not apply to
transfers from the beneficial owner of any of the aforementioned securities to
its nominee or from such nominee to its beneficial owner, and shall terminate as
to any particular share of Preferred Stock when (1) such security shall have
been effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action shall
be recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee to not more
than three (3) persons who are "accredited investors" provided, however, that
any such transferee shall have acquired the rights to purchase at least 20% of
the Preferred Stock issuable hereunder.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on
-9-
<PAGE>
the date hereof. This Warrant Agreement shall be binding upon any successors or
assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
New Jersey.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrant-
holder at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture
Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile,
(847) 518-5465 and (847) 518-5088) and (ii) to the Company at 65 Willowbrook
Boulevard, Wayne, New Jersey 07470 attention: Patrick C. Barry (and/or if by
facsimile, (201) 890-2442) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
-10-
<PAGE>
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the holders of the rights to
purchase a majority of the shares of Preferred Stock issuable hereunder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: AUDIBLE, INC.
By: /s/ Patrick C. Barry
-------------------------------
Title: CFO
------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ James P. Labe
-------------------------------
James P. Labe, President
Title: Comdisco Ventures Division
------------------------------
-11-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series C Preferred Stock of _________________, pursuant to the terms of
the Warrant Agreement dated the ______ day of July, 1997 (the "Warrant
Agreement") between Audible, Inc. and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series C Preferred Stock of
Audible, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series C Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_________________________________
(Name)
_________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: _____________________________
Title: __________________________
Date: ___________________________
-12-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Series C Preferred Stock of Audible, Inc., pursuant to the terms of the
Warrant Agreement, and further acknowledges that ______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company: Audible, Inc.
By:________________________________
Title:_____________________________
Date:______________________________
-13-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_________________________________________________________________
(Please Print)
whose address is_________________________________________________
_________________________________________________________________
Dated_______________________________________
Holder's Signature__________________________
Holder's Address____________________________
____________________________________________
Signature Guaranteed:____________________________________________
NOTE: The signature to this Transfer Notice must
correspond with the name as it appears on
the face of the Warrant Agreement, without
alteration or enlargement or any change
whatever. Officers of corporations and those
acting in a fiduciary or other representative
capacity should file proper evidence of
authority to assign the foregoing Warrant
agreement.
-14-
<PAGE>
EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of April 6, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02181, doing business under the name
"Silicon Valley East" ("Bank") and AUDIBLE, INC., a Delaware corporation with
its chief executive office located at 65 Willowbrook Boulevard, Wayne, New
Jersey 07470 ("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower
and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Person's managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
<PAGE>
"Borrowing Base" means an amount equal to seventy five percent (75%)
of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close .
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Revolving Line" means a credit extension of up to One
Million Dollars ($1,000,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement.
"Credit Extension" means each Advance, Letter of Credit, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on
the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement, including all Indebtedness
that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable
at the option of Borrower or any Subsidiary to a date more than one year
from the date of determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include
the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
-2-
<PAGE>
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department,
agency, or instrumentality thereof, except for those Accounts of the
United States or any department, agency or instrumentality thereof as
to which the payee has assigned its rights to payment thereof to Bank
and the assignment has been acknowledged, pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment,
or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute
or claim), or is subject to any Insolvency Proceeding, or becomes
insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
-3-
<PAGE>
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section 2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the date which is one (1) day prior to one (1)
year from the Closing Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt,
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the first (1st) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
-4-
<PAGE>
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Capitalized lease obligations; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank;
(c) loans and advances to officers, directors and employees in
the ordinary course of business, in the maximum aggregate amount of
$100,000.00; and
(d) promissory notes made payable to Borrower by officers,
directors and employees in exchange for stock in the Borrower.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the
--------
same have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on such
equipment at the time of its acquisition, provided that the Lien is
--------
confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering
in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor,
licensor or under any lease or license provided that such leases,
subleases, licenses and sublicenses do not prohibit the grant of the
security interest granted hereunder;
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (a) through (c) above, provided that any extension, renewal
--------
or replacement Lien shall be limited to the property encumbered by the
-5-
<PAGE>
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase; and
(f) Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities
imposed without action of such parties, provided that the payment
thereof is not yet required;
(g) Liens incurred or deposits made in the ordinary course of
Borrower's business in connection with worker's compensation,
unemployment insurance, social security and other like laws;
(h) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(i) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any material
respect with the ordinary conduct of Borrower's business;
(j) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with
the importation of goods;
(k) Liens that are not prior to Bank's security interest which
constitute rights of set-off of a customary nature;
(l) Liens in favor of Bank and any of its Affiliates and/or
successors and assigns;
(m) Any interest or title of a lessor in equipment subject to
any capitalized lease; and
(n) Any Liens arising from the filing of any financing
statements relating to true leases.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
-6-
<PAGE>
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
-----
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, and (c) all reserves not already deducted
from assets, and (ii) Total Liabilities.
---
"Total Liabilities" means as of any applicable date, as of which the
amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrower, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
--------------------------
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
-----------------
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate outstanding amount not
to exceed (i) the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
- ---------
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
2.1.2 Letters of Credit.
-----------------
(1) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed (i) the
Committed Revolving Line, minus (ii) the then outstanding principal balance
of the Advances; provided that the face amount of outstanding Letters of
--------
Credit (including drawn but unreimbursed Letters of Credit and any Letter
of Credit
-7-
<PAGE>
Reserve) shall not in any case exceed One Million Dollars ($1,000,000.00).
Each Letter of Credit shall have an expiry date no later than the Maturity
Date. All Letters of Credit shall be, in form and substance, acceptable to
Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(2) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms
of this Agreement and such Letters of Credit, under all circumstances
whatsoever. Borrower shall indemnify, defend, protect, and hold Bank
harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection
with any Letters of Credit.
(3) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such
demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate
of exchange in San Francisco, California, for sales of that other currency
for cable transfer to the country of which it is the currency.
(4) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve (the
"Letter of Credit Reserve") under the Committed Revolving Line for letters
of credit against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such letter of credit. The
amount of such reserve may be amended by Bank from time to time to account
for fluctuations in the exchange rate. The availability of funds under the
Committed Revolving Line shall be reduced by the amount of such reserve for
so long as such letter of credit remains outstanding.
2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Advances owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement is
greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess. If, at any time or for any reason, the amount of Obligations owed
by Borrower to Bank pursuant to Section 2.1.2 of this Agreement is greater than
the Committed Revolving Line, Borrower shall immediately pay to Bank, in cash,
the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(1) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to one (1.0%) percentage point above the Prime Rate.
(2) Default Rate. All Obligations shall bear interest, from and
------------
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(3) Payments. Interest hereunder shall be due and payable on
--------
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
-8-
<PAGE>
(4) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
------------------
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
----
(1) Facility Fee. A Facility Fee equal to Three Thousand Dollars
------------
($3,000.00), which fee shall be due on the Closing Date and shall be fully
earned and non-refundable;
(2) Financial Examination and Appraisal Fees. Bank's customary fees
----------------------------------------
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents. The Bank shall
keep the results of any such appraisal or examination confidential, in
accordance with the provisions of Section 12.9 hereof;
(3) Bank Expenses. Upon demand from Bank, including, without
-------------
limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due; and
(4) Letter of Credit Fee. An annual Letter of Credit Fee equal to two
--------------------
(2%) percent of the face amount of any Letter of Credit issued by the Bank
for the account of the Borrower (the "L/C Fee") pursuant to Section 2.1.2,
which fee shall be payable at the issuance of any Letter of Credit by the
Bank. Notwithstanding the foregoing, provided that the Borrower maintains
during the term of this Agreement demand deposit accounts with the Bank in
an average quarterly amount equal to or greater than Two Hundred Thousand
($200,000.00) Dollars (the "L/C Minimum Balance"), then the Letter of
Credit Fee required pursuant to this Section 2.5(d) shall be reduced to one
and one quarter (1.25%) percent of the face amount of any Letter of Credit
issued by the Bank (the "Reduced L/C Fee"). In the event the Bank has
issued a Letter of Credit on behalf of the Borrower under this Agreement
and the Borrower (i) has paid the Reduced L/C Fee, and (ii) has failed to
maintain at any time thereafter (while the Letter of Credit is issued and
outstanding) the L/C Minimum Balance, then the Borrower shall pay to the
Bank, on demand, an amount equal to the difference between the L/C Fee and
the Reduced L/C Fee.
2.6 Additional Costs. In case any law, regulation, treaty or official
----------------
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the
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<PAGE>
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(1) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
(2) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(3) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
----
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
------------------------------------------------
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(1) this Agreement;
(2) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(3) a negative pledge agreement covering intellectual property;
(4) a warrant to purchase stock, registration rights agreement, and
antidilution agreement
(5) an opinion of Borrower's counsel;
(6) financing statements (Forms UCC-1);
(7) insurance certificate;
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<PAGE>
(8) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof (with the exception of the Letter of Credit Fee
described in Section 2.5(d), which shall be paid by the Borrower upon
the issuance of a Letter of Credit by the Bank);
(9) Certificate of Foreign Qualification (if applicable); and
(10) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
---------------------------------------------
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(1) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(2) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each
Credit Extension as though made at and as of each such date, and no
Event of Default shall have occurred and be continuing, or would
result from such Credit Extension. The making of each Credit Extension
shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred
to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
--------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Notwithstanding
termination of this Agreement, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral, provided that Bank will use reasonable
efforts so as not to interfere with Borrower's business operations.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except where a failure to be so
qualified could not have a Material Adverse Effect.
-11-
<PAGE>
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
---------------------
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
----------------------
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
----------------------------------------
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
----------
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
--------------------------------------------------
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not
been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. Borrower is able to pay its debts (including trade debts)
--------
as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). To the best of Borrower's knowledge, Borrower has complied with
all the provisions of the Federal Fair Labor Standards Act. To the best of
Borrower's knowledge, Borrower has not violated any statutes, laws, ordinances
or rules applicable to it, violation of which could have a Material Adverse
Effect.
-12-
<PAGE>
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
-----
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest
------------
or other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
-------------------
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
---------------
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading in any material respect.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
-------------------------------------------
to Bank: (a) as soon as available, but in any event within twenty five (25) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower (without any personal
liability therefore, other than liability based on fraud or criminal misconduct)
reasonably acceptable to Bank; (b) as soon as available, but in any event within
one hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower
-13-
<PAGE>
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
of filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within twenty (20) days after the last day of each month (or portion
thereof) during which there are any Advances made or Obligations outstanding
under the Committed Revolving Line, Borrower shall deliver to Bank a Borrowing
Base Certificate signed by a Responsible Officer in substantially the form of
Exhibit C hereto, together with aged listings of accounts receivable.
- ---------
Within twenty five (25) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
-------
D hereto.
- -
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted (i)
no more often than every twelve (12) months unless an Event of Default has
occurred and is continuing, and (ii) only in the event the Borrower has
requested Advances under the Committed Revolving Line.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
------------------
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
-----
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law (which shall include
any extensions in accordance with applicable law, provided no penalties would be
incurred, the result of which would have a Material Adverse Effect, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if (i) the amount or validity of such payment is contested in good faith
by appropriate proceedings, (ii) Borrower or Subsidiary, as the case may be, has
established proper reserves (to the extent required by GAAP) and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
---------
(1) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
-14-
<PAGE>
(2) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Tangible Net Worth. Borrower shall maintain, as of the last day of
------------------
each calendar month commencing with the first calendar month ending after the
Closing Date, a Tangible Net Worth of not less than One Million Five Hundred
Thousand Dollars ($1,500,000.00).
6.9 Further Assurances. At any time and from time to time Borrower shall
------------------
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
------------
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
-----------------------------------------------------------------
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
-----------------------
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
------------
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
-15-
<PAGE>
7.6 Distributions. Pay any dividends or make any other distribution or
-------------
payment on account of or in redemption, retirement or purchase of any capital
stock other than: (i) repurchase of stock held by an employee, officer or
director upon the resignation or termination of such Person; and (ii) redemption
of preferred stock of Borrower pursuant to mandatory redemption obligations set
forth in the Certificate of Incorporation of Borrower as of the date hereof or
any substantially similar obligations with respect to future series of preferred
stock.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
----------------------------
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
-----------------
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in the Schedule
and in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a company controlled
----------
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
---------------
Obligations.
8.2 Covenant Default.
----------------
(1) If Borrower fails to perform any obligation under Sections 6.3,
6.7, or 6.8, or violates any of the covenants contained in Article 7 of this
Agreement; or
(2) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the
-16-
<PAGE>
Borrower receives notice thereof or an officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
-----------------------
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
----------
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment
entered by a court of competent jurisdiction or other claim in excess of $50,000
(exclusive of amounts covered by insurance) becomes a lien or encumbrance upon
any material portion of Borrower's assets (except for Permitted Lines), or if a
notice of lien, levy, or assessment for an amount in excess of $50,000
(exclusive of amounts covered by insurance) is filed of record with respect to
any of Borrower's assets by the United States Government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, and the same is not paid within ten (10) days after
Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in the acceleration
of the maturity of any Indebtedness in an amount in excess of One Hundred
Thousand Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
---------
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
------------------
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
-17-
<PAGE>
9.1 Rights and Remedies. Upon the occurrence and during the continuance
-------------------
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(1) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);
(2) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(3) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letters of Credit fees scheduled to be
paid or payable over the remaining term of the Letters of Credit;
(4) In addition to all rights and remedies set forth in this Section
9.1 (including, without limitation, subparagraph (c) hereinabove), the Bank
may, in its sole and absolute discretion, upon or after the occurrence of
an Event of Default and during the continuance thereof, make Advances
hereunder in the aggregate amounts of any and all Letters of Credit, the
cash proceeds of which shall secure any issued and outstanding Letters of
Credit, which Advance(s), if made, shall constitute additional Obligations
of the Borrower to the Bank under this Agreement and may be made by the
Bank without prior notice or request by the Borrower and notwithstanding
any lack of availability under the Borrowing Base or borrowing constraints
set forth in Sections 2.1.1 or 2.1.2 of this Agreement. The Bank may
exercise its rights hereunder with respect to such Advances upon the
occurrence of an Event of Default notwithstanding that any Letters of
Credit may be undrawn.
(5) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(6) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge in order to exercise any of Bank's
rights or remedies provided herein, at law, in equity, or otherwise;
(7) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(8) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the
-18-
<PAGE>
Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank's exercise of its rights under
this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(9) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(10) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(11) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
-----------------
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (f) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law, provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 4.2
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance
-------------------
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
-------------
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof;
-19-
<PAGE>
or (d) any act or default of any carrier, warehouseman, bailee, forwarding
agency, or other person whomsoever. All risk of loss, damage or destruction of
the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
-------------------
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
---------------
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Audible, Inc.
65 Willowbrook Boulevard
Wayne, New Jersey 07470
Attn: Mr. Patrick Barry, Chief Financial Officer
FAX:(973) 890-0178
with a copy to: Piper & Marbury, LLP
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Mitchell S. Marder, Esquire
FAX: (202) 223-2085
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02181
Attn: David E. Rodriguez, Assistant Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
-20-
<PAGE>
11. CHOICE OF LAW AND VENUE; JURY WAIVER
- -----------------------------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
---------------
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
--------------------------
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
-21-
<PAGE>
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
--------
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 Countersignature. This Agreement shall become effective only when it
----------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
12.9 Confidentiality. In handling any confidential information Bank shall
---------------
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
AUDIBLE, INC.
By: /s/ Patrick C. Barry
Title: Vice President CFO
Patrick C. Barry
By:___________________________________
Title:________________________________
-22-
<PAGE>
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By: /s/ Dave Rodriguez
Name: Dave Rodriguez
Title: Assistant Vice President
SILICON VALLEY BANK
By: /s/ Amy B. Young
Name: Amy B. Young
Title: Vice President
(Signed in Santa Clara County,
California)
-23-
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(1) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located;
(2) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing
any of the above, and Borrower's Books relating to any of the foregoing;
(3) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, leases,
license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, claims, literature, reports, catalogs,
income tax refunds, payments of insurance and rights to payment of any
kind;
(4) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned
by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing;
(5) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(6) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
-24-
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ______________________________
FAX#: (408) ________________________ TIME: ______________________________
FROM: AUDIBLE, INC.
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:__________________________________________________________________________
FROM ACCOUNT #_____________________________ TO ACCOUNT#_________________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $ $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________
Authorized Requester
___________________________________
Authorized Signature (Bank)
Phone #____________________________
- --------------------------------------------------------------------------------
-25-
<PAGE>
-26-
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Audible, Inc. Bank: Silicon Valley Bank
Commitment Amount: $1,000,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $___________
BALANCES
16. Maximum Loan Amount $1,000,000.00
17. Total Funds Available [Lesser of #16 or #15] $___________
18. Present balance owing on Line of Credit $___________
19. Face amount of issued and outstanding Letters of Credit $___________
20. RESERVE POSITION (#17 minus #18 and #19) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: [STAMP APPEARS HERE]
AUDIBLE, INC.
By: _______________________
Authorized Signer
-27-
<PAGE>
-28-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: AUDIBLE, INC.
The undersigned authorized officer of AUDIBLE, INC., hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
BB and A/R Agings Monthly within 20 days* Yes No
</TABLE>
*when borrowing under Committed Revolving Line
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $1,500,000.00 $_______ Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: [STAMP APPEARS HERE]
Sincerely,
_______________________ Date:_______________
Signature
________________________
Title
-29-
<PAGE>
-30-
<PAGE>
EXHIBIT 10.9
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OF PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Audible Inc., a Delaware corporation
Number of Shares: 5,000 shares
Class of Stock: Series D Convertible Preferred Stock, $0.01 par value (the
"Series D Preferred Stock")
Initial Exercise Price: $4.00 per share
Issue Date: April 6, 1998
Expiration Date: April 5, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
Series D Preferred Stock (the "Shares") of Audible Inc. (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
----------
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 Intentionally Omitted
---------------------
1.4 Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this
<PAGE>
Warrant has not been fully exercised or converted and has not expired, a new
Warrant representing the Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". For the purpose of this Warrant,
-------------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3 Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its Common Stock (or the Shares if the Shares are securities other
than Common Stock) payable in Common Stock, or other securities, subdivides the
outstanding Common Stock into a greater amount of Common Stock, or, if the
Shares are securities other than Common Stock, subdivides the Shares in a
transaction that increases the amount of Common Stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to Common Stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
Stock. The Company or its successor shall promptly issue to Holder a new Warrant
for such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The
<PAGE>
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
---------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Dilutive Issuances. In the event of the issuance
----------------------------------
(a "Dilutive Issuance") by the Company, after the Issue Date of the Warrant, of
securities at a price per share less than the Warrant Price, then the number of
shares of Common Stock issuable upon conversion of the Shares shall be adjusted
in accordance with those provisions (the "Provisions") of the Company's
Certificate of Incorporation which apply to Dilutive Issuances. The Company
agrees that the Provisions, as in effect on the Issue Date, shall be deemed to
remain in full force and effect as to the Holder during the term of the Warrant
notwithstanding any subsequent amendment, waiver or termination thereof by the
Company's shareholders, except if and to the extent that the Holder agrees in
writing to any such subsequent amendment, waiver or termination. Under no
circumstances shall the aggregate Warrant Price payable by the Holder upon
exercise of the Warrant increase as a result of any adjustment arising from a
Dilutive Issuance.
2.5 No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(b) The authorized capital stock of the Company consists of
19,843,000 shares, consisting of 13,000,000 shares of Common Stock, 534,000
shares of Series A Convertible Preferred Stock, 534,000 shares of Series A-1
Convertible Preferred Stock, 2,100,000 shares of Series B Convertible Preferred
-3-
<PAGE>
Stock, 2,300,000 shares of Series C Convertible Preferred Stock, and 1,375,000
shares of Series D Convertible Preferred Stock. Schedule 3.1(b) sets forth all
---------------
of the outstanding shares of Common Stock and outstanding options, warrants,
convertible securities, convertible debentures, and rights to acquire, subscribe
for, and/or purchase any Common Stock and/or other capital stock of the Company
or any securities or debentures convertible into or exchangeable for Common
Stock and/or other capital stock of the Company.
(c) The Company has reserved for issuance pursuant to this
Warrant not less than five thousand (5,000) shares of the Series D Preferred
Stock and five thousand (5,000) shares of Common Stock for issuance upon the
conversion of the Shares issued pursuant to this Warrant, and the Company
covenants that it shall at all times cause to be reserved and kept available out
of its authorized and unissued shares of Series D Preferred Stock and shares of
Common Stock of the Company such number of shares of Series D Preferred Stock
and shares of Common Stock as will be sufficient to permit the exercise in full
of this Warrant.
3.2 Notice of Certain Events. If the Company proposes at any time
------------------------
(a) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of Common
Stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company or if there are no such
requirements (or if the subject loan(s) no longer are outstanding), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
-----------------------------------------------------
Common Stock issuable upon conversion of the Shares shall be deemed "Series D
Registrable Securities" or otherwise entitled to registration rights in
accordance with the terms of that certain Amended and Restated Registration
Rights Agreement dated February 26, 1998, between the Company and the investors
named therein (the "Agreement"). By acceptance of the Warrant and execution of
that certain Addendum No. 1 to the Amended and Restated Registration Rights
Agreement dated as of the date hereof, Holder shall be deemed to be a party to
the Agreement, unless Holder otherwise elects not to become or to cease being a
party thereto.
ARTICLE 4. MISCELLANEOUS.
-------------
-4-
<PAGE>
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
--------------------------
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
----------
90 days and not less than 30 days before the Expiration Date. If the notice is
not so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
------------------
Holder may transfer all or part of this Warrant and/or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or, to any other transferee that is not a
competitor of the Company by giving the Company notice of the portion of the
Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable).
4.5 Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or sent by electronic facsimile transmission, express overnight
courier service, or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
-5-
<PAGE>
4.8 Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to its principles regarding conflicts of law.
ATTEST: "COMPANY"
AUDIBLE INC.
By: /s/ Anthony Nash By: /s/ Patrick C. Barry
---------------------------------- ----------------------
Name: Anthony Nash Name: Patrick C. Barry
Title: Controller Title: VP, CFO
-6-
<PAGE>
APPENDIX 1
----------
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase _____________ shares of the
common stock of Audible Inc. pursuant to Section 1.1 of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in Section 1.2 of the attached Warrant. This
conversion is exercised with respect to _____________________ of shares of the
common stock of Audible Inc.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
___________________________________________
(Name)
___________________________________________
___________________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_______________________________________
(Signature)
____________________
(Date)
<PAGE>
APPENDIX 2
----------
Notice that Warrant Is About to Expire
--------------------------------------
______________, ___
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear :
This is to advise you that the Warrant issued to you described below will
expire on _________________________, 19___.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
______________________________________
(Name of Issuer)
By:
--------------------------------------
Its:
--------------------------------------
<PAGE>
Schedule 3.1(b) - Capitalization
---------------
Outstanding Capital Stock:
Outstanding options, warrants, convertible securities, convertible debentures,
and rights to acquire, subscribe for, and/or purchase any Common Stock and/or
other capital stock of the Company or any securities or debentures convertible
into or exchangeable for Common Stock and/or other capital stock of the Company:
<PAGE>
EXHIBIT 10.10
IMPERIAL BANK
MEMBER FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
THIS SECURITY AND LOAN AGREEMENT (Accounts Receivable) is entered into as
of November 20, 1996 (this "Agreement") between THE AUDIBLE WORDS CORPORATION, a
Delaware corporation (herein called "Borrower") and IMPERIAL BANK (herein called
"Bank").
1. COMMITMENT. Bank hereby commits, subject to all the terms and
conditions of this Agreement and prior to the termination of its commitment as
hereinafter provided, to make loans to Borrower from time to time in such
amounts as may be determined by Bank up to, but not exceeding in the aggregate
unpaid principal balance of $500,000. Loans advanced pursuant to the foregoing
commitment shall be referred to as "Loans." If, at any time or for any reason,
the outstanding principal amount of the Loans is greater than $500,000, Borrower
shall immediately pay to Bank, in cash, the amount of such excess. Any
commitment of Bank, pursuant to the terms of this Agreement, to make advances
shall expire on the Final Payment Date, subject to Bank's right to renew said
commitment in its sole and absolute discretion. Any such renewal of the
commitment shall not be binding upon Bank unless it is in writing and signed by
an officer of the Bank. Provided that no Event of Default has occurred and is
continuing, all or any portion of the Loans advanced by Bank which are repaid by
Borrower shall be available for reborrowing in accordance with the terms hereof.
2. LOANS. The amount of each Loan made by Bank to Borrower hereunder
shall be debited to the loan ledger account of Borrower maintained by Bank
(herein called the "Loan Account") and Bank shall credit the Loan Account with
all loan repayments in respect thereof made by Borrower. Borrower promises to
pay Bank (a) the unpaid balance of Borrower's Loan Account on December 31, 1997
(the "Final Payment Date") and (b) on or before the tenth day of each month,
interest on the average daily unpaid balance of the Loan Account during the
immediately preceding month at the rate of three-quarters of one percent (.75%)
per annum in excess of the rate of interest which Bank has announced as its
prime lending rate (the "Prime Rate") which shall vary concurrently with any
change in such Prime Rate. Interest shall be computed at the above rate on the
basis of the actual number of days during which the principal balance of the
Loan Account is outstanding divided by 360, which shall for interest computation
purposes be considered one year. Bank is hereby authorized to charge Borrower's
deposit account(s) with Bank for all sums due Bank under this Agreement.
3. LOAN REQUESTS. Requests for loans hereunder shall be in writing duly
executed by Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in SECTION 1, which shall
disclose that Borrower is entitled to the amount of loan being requested.
4. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
"ACCOUNTS" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts, acceptances,
general intangibles and other forms of obligations and receivables.
<PAGE>
"COLLATERAL" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest hereunder (including, without
limitation, the Accounts), or pursuant to the terms of that certain General
Security Agreement (Tangible and Intangible Personal Property) dated as of the
date hereof, made by Borrower in favor of Bank (the "General Security
Agreement") or otherwise.
"FINAL PAYMENT DATE" has the meaning set forth in SECTION 2.
"LOAN DOCUMENTS" means this Agreement. the Warrant to Purchase Stock,
the General Security Agreement, the Agreement to Provide Insurance (Real or
Personal Property), the Trademark Security Agreement, the Copyright Security
Agreement, each as executed by Borrower in favor of Bank, together with all
other documents entered into or delivered pursuant to any of the foregoing.
"PERMITTED LIENS" means the following:
(1) liens and security interests existing as of this date and
disclosed in SCHEDULE 1 attached hereto;
(2) liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings;
(3) liens and security interests (i) upon or in any equipment
acquired or held by Borrower to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such equipment and in an amount not greater than
the purchase price thereof or (ii) existing on such equipment at the
time of its acquisition, provided that the lien and security interest
is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment;
(4) liens consisting of leases or subleases and licenses and
sublicenses granted to others in the ordinary course of Borrower's
business not interfering in any material respect with the business of
Borrower and any interest or title of a lessor or licensor under any
lease or license, as applicable;
(5) liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities
imposed without action of such parties, provided that the payment
thereof is not yet required;
(6) liens incurred or deposits made in the ordinary course of
Borrower's business in connection with worker's compensation,
unemployment insurance, social security and other like laws;
(7) liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
-2-
<PAGE>
(8) easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any material
respect with the ordinary conduct of Borrower's business;
(9) liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(10) liens that are not prior to Bank's security interest which
constitute rights of set-off of a customary nature;
(11) liens in favor of Bank and any of its affiliates and/or
successors and assigns;
(12) any interest or title of a lessor in equipment subject to
any capitalized lease; and
(13) any liens arising from the filing of any financing
statements relating to true leases.
"SUBORDINATED DEBT" means indebtedness of Borrower the payment of
which is fully subordinated in time and right of payment to the Loans and has
been approved in writing by Bank.
5. ASSIGNMENT OF ACCOUNTS. Borrower hereby assigns to Bank all Borrower's
present and future Accounts, including all proceeds due thereunder, all
guaranties and security therefor, and hereby grants to Bank a continuing
security interest in all moneys collected as contemplated by SECTION 6 hereof as
security for any and all obligations of Borrower to Bank, whether now owing or
hereafter incurred and whether direct, indirect, absolute or contingent. So long
as a Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower and there shall exist and be continuing an Event of Default, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors obligated
on the Accounts, notice of Bank's interest in the Collateral. Notwithstanding
the foregoing, so long as no Event of Default has occurred and is continuing,
Borrower shall be entitled to use the proceeds of such Accounts in the ordinary
course of its business.
6. COLLECTION OF ACCOUNTS. Until Bank exercises its rights to collect the
Accounts pursuant to SECTION 15, Borrower will collect with diligence all
Borrower's Accounts. Any collection of Accounts by Borrower, whether in the form
of cash, checks, notes, or other instruments for the payment of money (properly
endorsed or assigned where required to enable Bank to collect same), shall be in
trust for Bank. If an Event of Default has occurred, Borrower shall keep all
such collections separate and apart from all other funds and property so as to
be capable of identification as the property of Bank and deliver said
collections daily to Bank in the identical form received. The proceeds of such
collections when received by Bank may be applied by Bank directly to the payment
of Borrower's Loan Account or any other obligation secured hereby. Any credit
given by Bank upon receipt of said proceeds shall be conditional credit subject
to collection. Returned items at Bank's option may be charged to Borrower's
general account. All collections of the Accounts shall be set forth on an
itemized schedule, showing the name of
-3-
<PAGE>
the account debtor, the amount of each payment and such other information as
Bank may request.
7. RETURNS AND ADJUSTMENTS. Until Bank exercises its rights to collect
the Accounts pursuant to SECTION 15, Borrower may continue its present policies
with respect to returned merchandise and adjustments. However, Borrower shall
immediately notify Bank of all cases involving repossessions, and material loss
or damage of or to merchandise represented by the Accounts.
8. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank: (i) That Borrower is duly organized and existing in the State of Delaware
and the execution, delivery and performance of each of the Loan Documents are
within Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral becomes subject
to Bank's security interest will have, good and clear title to the Collateral,
subject only to Bank's rights therein and to Permitted Liens; (iii) Each Account
is, or at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein in
the amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will be no
defenses, counterclaims, or setoffs which may be asserted against the Accounts
from time to time, except as permitted in the definition thereof; (v) Any and
all financial information, including information relating to the Collateral,
submitted by Borrower to Bank, whether previously or in the future, is or will
be true and correct; (vi) There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority; (vii) The consolidated and consolidating
balance sheets of Borrower dated as of September 30, 1996, and the related
consolidated and consolidating profit and loss statements for the fiscal year
then ended, a copy of which has heretofore been delivered to Bank by Borrower,
and all other statements and data submitted in writing by Borrower to Bank in
connection with Borrower's request for credit are true and correct, and said
balance sheet and profit and loss statement accurately present the financial
condition of Borrower as of the date thereof and the results of the operations
of Borrower for the period covered thereby, and have been prepared in accordance
with generally accepted accounting principles as applied in the United States of
America on a basis consistently maintained. Since such date, there have been no
material adverse changes in the financial condition of Borrower. Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted; (viii) Borrower has no any liability for any
delinquent state, local or federal taxes, and, if any such entity has contracted
with any government agency, none has any liability for renegotiation of profits;
and (ix) Borrower, as of the date hereof, possesses all necessary trademarks,
trade names, copyrights, patents, patent rights, and licenses to conduct its
business as now operated, without any known conflict with valid trademarks,
trade names, copyrights, patents and license rights of others.
9. NEGATIVE COVENANTS. Borrower agrees that so long as it is indebted to
Bank, neither Borrower, nor any of its subsidiaries will, without prior written
consent of Bank:
-4-
<PAGE>
A. Make any substantial change in the character of its business.
B. Create, incur, assume or permit to exist any indebtedness for
borrowed monies other than loans from Bank except obligations now existing as
shown in the financial statement dated September 30, 1996, excluding those being
refinanced by Bank, Subordinated Debt, the indebtedness referred to in clause
(3)(i) of the definition of Permitted Liens, sale and leaseback transactions to
the extent that from and after November 1, 1996 the proceeds thereof shall not
exceed $500,000 and bona fide equipment or software leases; or sell or transfer,
either with or without recourse, any accounts or notes receivable or any monies
due or to become due.
C. Create, incur, assume or permit to exist any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
Permitted Liens and liens in Bank's favor.
D. Sell, dispose of or grant a security interest in any of the
Collateral other than to Bank (other than the disposing of such Collateral in
the ordinary course of Borrower's business or other assets which are obsolete or
otherwise considered surplus), or execute any financing statements covering the
Collateral in favor of any secured party or person other than Bank.
E. Make any loans or advances to any person or other entity other
than in the ordinary and normal course of its business as now conducted
(provided that such loans or advances made in the ordinary course of business
are not made to any person or entity which is controlled by or under common
control with Borrower) or make any investment in the securities of any person or
other entity other than the United States Government; or guarantee or otherwise
become liable upon the obligation of any person or other entity, except by
endorsement of negotiable instruments for deposit or collection in the ordinary
and normal course of its business.
F. Purchase or otherwise acquire the assets or business of any
person or other entity; or liquidate, dissolve, merge or consolidate, or
commence any proceedings therefore; or except in the ordinary and normal course
of its business, sell (including without limitation the selling of any property
or other asset accompanied by the leasing back of the same) any assets including
any fixed assets, any property, or other assets necessary for the continuance of
its business as now conducted.
G. Declare or pay any dividend or make any other distribution on any
of its capital stock now outstanding or hereafter issued or purchase, redeem or
retire any of such stock.
10. AFFIRMATIVE COVENANTS. Borrower affirmatively covenants that so long
as any loans, obligations or liabilities remain outstanding or unpaid to Bank,
it will:
A. Furnish Bank from time to time such financial statements and
information as Bank may reasonably request and inform Bank immediately upon the
occurrence of a material adverse change therein;
B. Furnish Bank periodically, in such form and detail and at such
times as Bank may require, statements showing aging and reconciliation of the
Accounts and collections thereon;
-5-
<PAGE>
C. Permit representatives of Bank to inspect the Borrower's books
and records relating to the Collateral and make extracts therefrom at any
reasonable time, provided that Bank shall use its best efforts to not interfere
with the conduct of Borrower's business, and to arrange for verification of the
Accounts, under reasonable procedures, acceptable to Bank, directly with the
account debtors or otherwise at Borrower's expense;
D. Promptly notify Bank of any attachment or other legal process
levied against any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors or other
persons obligated in connection therewith, which may in any way affect the value
of the Collateral or the rights and remedies of Bank in respect thereto;
E. Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any sums
payable by Borrower under Borrower's Loan Account or any other obligation
secured hereby, enforcing any term or provision of this Security Agreement or
otherwise or in the. checking, handling and collection of the Collateral and the
preparation and enforcement of any agreement relating thereto;
F. Notify Bank of each location and of each office of Borrower at
which records of Borrower relating to the Accounts are kept;
G. Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms and
companies as Bank may require (to the extent customarily maintained by
businesses similar to Borrower) and with loss payable solely to Bank, and, in
the event Bank takes possession of the Collateral, the insurance policy or
policies and any uneamed or returned premium thereon shall at the option of Bank
become the sole property of Bank, such policies and the proceeds of any other
insurance covering or in any way relating to the Collateral, whether now in
existence or hereafter obtained, being hereby assigned to Bank;
H. In the event the unpaid balance of Borrower's Loan Account shall
exceed the maximum amount of outstanding loans to which Borrower is entitled
under SECTION 1 hereof, as applicable, Borrower shall immediately pay to Bank
for credit to such Loan Account the amount of such excess;
I. Maintain and preserve all rights, franchises and other authority
adequate and necessary for the conduct of its business and maintain and preserve
its existence in the State of Delaware and any other state(s) in which Borrower
conducts its business;
J. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to Bank, and certificates naming Bank
as loss payee;
K. Pay and discharge, before the same becomes delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges upon
or against it or any of its properties, and any of its other liabilities at any
time existing, except to the extent and so long as: (a) the same are being
contested in good faith and by appropriate proceedings in such manner as not to
cause any materially adverse affect upon its financial condition or the loss of
any right of redemption from any
-6-
<PAGE>
sale thereunder; and (b) it shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto;
L. Maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times; provided that Bank shall
use its best efforts to not interfere with the conduct of Borrower's business.
M. Upon Bank's request, and not less frequently than once per
calendar quarter, deliver to Bank and Bank's designated counsel executed
originals of Patent Security Agreement in the form of EXHIBIT A attached hereto
and incorporated herein by this reference, Copyright Security Agreement in the
form of EXHIBIT B attached hereto and incorporated herein by this reference and
Trademark Security Agreement in the form of Exhibit C attached hereto and
incorporated herein by this reference, each with appropriate insertions and
schedules sufficient for perfecting Bank's security interest in all patents,
patent licenses, trademarks, trademark licenses, copyrights and copyright
licenses to which Borrower then has any right, title or interest; and
N. Maintain its properties, equipment and facilities in good order
and repair.
11. FINANCIAL COVENANTS AND INFORMATION. All financial covenants and
financial information referenced herein shall be interpreted and prepared in
accordance with generally accepted accounting principles as generally used in
the United States of America applied on a basis consistent with previous years.
Compliance with financial covenants shall be calculated and monitored on a
monthly basis, except as shall be expressly stated to the contrary. Borrower
affirmatively covenants that so long as any loans, obligations or liabilities
remain outstanding or unpaid to Bank, it will, on a consolidated basis:
A. Beginning with the period ending June 30, 1997, maintain a
minimum tangible net worth (meaning the excess of all assets, excluding any
value for goodwill, trademarks, patents, copyrights, organization expense and
other similar intangible items, over its liabilities, less subordinated debt) of
not less than $500,000.
B. As soon as it is available, but not later than 20 days after and
as of the end of each month, deliver to Bank a financial statement consisting of
a balance sheet and profit and loss statement in form satisfactory to Bank, and
a Compliance Certificate in the form of EXHIBIT D attached hereto and
incorporated herein by this reference, certified by an officer of Borrower.
C. As soon as it is available, but not later than 90 days after the
end of Borrower's fiscal year, deliver to Bank a report of audit of Borrower's
consolidated financial statements together with changes in financial position
certified without negative qualification by an independent certified public
accountant selected by Borrower but acceptable to Bank.
D. Upon the reasonable request of Bank, deliver to Bank current
budgets, sales projections, operating plans and other financial exhibits and
information in form and substance satisfactory to Bank.
E. Upon any officer becoming aware, deliver immediately to Bank
written notice of any pending or threatened litigation claiming, or reasonably
likely to result in, damages against Borrower
-7-
<PAGE>
in an amount in excess of $50,000.
12. LOAN FEE. In addition to any other amounts due, or to become due, in
lieu of a loan fee, Borrower agrees to deliver to Bank (when available) four (4)
Audible Words players and docking units.
13. BANKING RELATIONSHIP. Borrower will maintain its primary banking and
investment accounts with Bank.
14. DEFAULT AND REMEDIES. The occurrence of any one or more of the
following shall constitute an "Event of Default": (i) Default be made in the
payment of any obligation by Borrower under any Loan Document; (ii) Subject to
clause (i) above, breach be made in any warranty, statement, promise, term or
condition, contained herein or in any other Loan Document and the same shall not
have been cured to the satisfaction of Bank within 15 days after Borrower shall
have become aware thereof, whether by written notice from Bank, or otherwise,
(except that no cure period shall exist for breaches in respect of Borrower's
obligations under SECTION 9, SUBSECTIONS 10.A, C, D, G, H, I and J, SUBSECTIONS
11.A, B and C of this Agreement, and SECTIONS 1 and 2 of the General Security
Agreement; (iii) Any statement, warranty or representation made by Borrower at
any time proves false; (iv) Borrower defaults in the repayment of any principal
of or the payment of any interest on any indebtedness exceeding in the aggregate
principal amount $10,000 or breaches or violates any term or provision of any
promissory note, loan agreement, mortgage, indenture or other evidence of such
indebtedness pursuant to which amounts outstanding in the aggregate exceed
$10,000 if the effect of such breach is to permit the acceleration of such
indebtedness, whether or not waived by the note holder or obligee, and such
failure shall not have been cured to Bank's satisfaction within fifteen (15)
calendar days after Borrower shall become aware thereof, whether by written
notice from Bank or otherwise, or there has in fact been an acceleration of such
indebtedness; (v) Borrower becomes insolvent or make an assignment for the
benefit of creditors; (vi) Any proceeding be commenced by Borrower under any
bankruptcy, reorganization, arrangement, readjustment of debt or moratorium law
or statute or, any such a proceeding is commenced against Borrower and is not
dismissed or stayed within ten (10) days (provided that no Loans will be made
prior to the dismissal of such proceeding); (vii) Any money judgment, writ of
attachment, gamishment, execution or other legal process be entered against
Borrower or issued against any material property of Borrower which is not fully
covered by insurance (subject to reasonable deductibles) and remains unvacated,
unbonded, unstayed or unpaid or undischarged for more than fifteen (15) days
(whether or not consecutive) or in any event later than five (5) days prior to
the date of any proposed sale thereunder, or if any assessment for taxes against
Borrower other than real property, is made by the Federal or State government or
any department thereof; or (viii) Any material adverse change in Borrower's
financial condition, prospects or operations which materially impairs the
prospect of Borrower's payment or performance of its obligations under the Loan
Documents. Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its option and without demand first made and without
notice to Borrower, do any one or more of the following: (a) Terminate its
obligation to make loans to Borrower as provided in SECTION 1 hereof; (b)
Declare all sums secured hereby immediately due and payable; (c) Immediately
take possession of the Collateral wherever it may be found, using all necessary
force so to do, or require Borrower to assemble the Collateral and make it
available to Bank at a place designated by Banic which is reasonably convenient
to Borrower and Bank, and Borrower waives all claims for damages due to or
arising from or connected with any such taking; (d) Proceed in the foreclosure
of Bank's security interest and sale of the Collateral in any manner permitted
by law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral at
the place of sale, and upon terms and in such manner
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as Bank may determine, and Bank may purchase same at any such sale; (f) Retain
the Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at its option. cause any of the
Collateral to be repaired or reconditioned in such manner and to such extent as
Bank may deem advisable, and any sums expanded therefor by Bank shall be repaid
by Borrower and secured hereby. Bank shall have the right to enforce one or more
remedies hereunder successively or concurrently, and any such action shall not
estop or prevent Bank from pursuing any further remedy which it may have
hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured by this Agreement,
Borrower hereby promises and agrees to pay Bank any deficiency.
15. COLLECTION OF ACCOUNTS BY BANK. After and during the continuance of an
Event of Default Bank may, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true and
lawful attorney with power to receive, open and dispose of all mail addressed to
Borrower, to endorse the name of Borrower upon any checks or other evidences of
payment that may come into the possession of Bank upon the Accounts to endorse
the name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with respect
thereto; and to do any and all things necessary and proper to carry out the
purpose herein contemplated.
16. RECORDS RETENTION. Borrower authorizes Bank to destroy all invoices,
delivery receipts, reports and other types of documents and records submitted to
Bank in connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
17. NO ORIGINAL ISSUE DISCOUNT. Borrower and Bank hereby acknowledge and
agree that the Warrant to Purchase Stock (the "Warrant") transferred to Bank in
connection herewith is part of an investment unit within the meaning of Section
1273(c)(2) of the Internal Revenue Code which includes the Loans. Borrower and
Bank further agree as between Borrower and Bank, that the fair market value of
the Warrant is equal to [US$500] and that, pursuant to Treas. Reg. (S) 1.1273-
2(h), [US$500] of the issue price of the investment unit will be allocable to
the Warrant and the balance shall be allocable to the Loans. Borrower and Bank
agree to prepare their federal income tax returns in a manner consistent with
the foregoing agreement and, pursuant to Treas. Reg. (S) 1.1273. the original
issue discount on the Loans shall be considered to be zero.
18. ADDITIONAL PROVISIONS. Nothing herein shall in any way limit the
effect of the conditions set forth in any other security or other agreement
executed by Borrower, but each and every condition hereof shall be in addition
thereto.
19. MISCELLANEOUS PROVISIONS.
A. No failure or delay on the part of Bank, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof.
B. All rights and remedies existing under this Agreement or any
other Loan
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<PAGE>
Document are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
C. All headings and captions in this Agreement and any related
documents are for convenience only and shall not have any substantive effect.
D. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law.
BANK: BORROWER:
IMPERIAL BANK THE AUDIBLE WORDS CORPORATION,
a Delaware corporation
By: /s/ Sam Bhaumik By: /s/ Patrick C. Barry
------------------------- ---------------------------
Sam Bhaumik Patrick C. Barry
Senior Vice President Chief Financial Officer
LIST OF EXHIBITS
- ------------------
SCHEDULE 1 - List of Liens and Security Interests
EXHIBIT A - Patent Security Agreement
EXHIBIT B - Copyright Security Agreement
EXHIBIT C - Trademark Security Agreement
EXHIBIT D - Compliance Certificate
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<PAGE>
EXHIBIT 10.11
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTTHIS WARRANT
AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: THE AUDIBLE WORDS CORPORATION, a Delaware corporation
Number of Shares: 12,500
Class of Stock: Series B Preferred
Initial Exercise Price: $2.00 per share
Issue Date: November 20, 1996
Expiration Date: November 20, 2001 (subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANCORP ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of THE AUDIBLE WORDS CORPORATION, a Delaware
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth of this Warrant.
ARTICLE 1
EXERCISE
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached hereto as APPENDIX 1 to the principal office of the Company. Unless
Holder is exercising the conversion right set forth in Section 1.2, Holder shall
also deliver to the Company a check for the aggregate Warrant Price for the
Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 INCREASE IN EXERCISE PRICE. In the event that the Company receives
cash proceeds
<PAGE>
equal to or exceeding $1,000,000 from the issuance and sale of its Convertible
Preferred Stock in one or more transactions on or before March 31, 1997, at an
average per share price greater than $2.00 per share (on a common stock
equivalent basis) and the President or Chief Financial Officer of the Company
certifies the same to Holder in writing, then the Initial Exercise Price shall
automatically be reset to equal the average exercise price per share applicable
to such Convertible Preferred Stock.
1.4 NO FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise or conversion of this Warrant. The Company shall, in lieu of issuing
any fractional share, pay the Holder entitled to such fraction a sum in cash
equal to the fair market value of a Share (as determined pursuant to Section
1.5) multiplied by such fraction.
1.5 FAIR MARKET VALUE. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.6 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.7 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.8 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.8.1 "ACQUISITION." For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets (including intellectual property) of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.8.2 ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the
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<PAGE>
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.8.3 NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of his Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.8.4 PURCHASE RIGHT. Notwithstanding the foregoing, at the election
of Holder, the Company shall purchase the unexercised portion of this Warrant
for cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2
ADJUSTMENTS TO THE SHARES
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Certificate of Incorporation upon
the closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for
-3-
<PAGE>
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time, in the manner set
forth on EXHIBIT A attached hereto, in the event of Diluting Issuances (as
defined in Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Certificate
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment.
2.6 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(A) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other
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<PAGE>
securities and whether or not a regular cash dividend; (b) to offer for
subscription pro rata to the holders of any class or series of its stock any
additional shares of stock of any class or series or other rights; (c) to effect
any reclassification or recapitalization of common stock; (d) to merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; or (e) offer holders of registration rights the opportunity to participate
in an underwritten public offering of the company's securities for cash, then,
in connection with each such event, the Company shall give Holder (1) at least
20 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date on
which the holders of common stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3 INFORMATION RIGHTS. So long as Holder holds this Warrant and/or any of
the Shares, upon the request of Holder, the Company shall deliver to Holder (a)
promptly after mailing, copies of all communiques to the shareholders of the
Company, (b) within ninety (90) days after the end of each fiscal year of the
Company, the annual audited financial statements of the Company certified by
independent public accountants of recognized standing and (c) within forty-five
(45) days after the end of each of the first three quarters of each fiscal year,
the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). The Company agrees that the Shares or, if the Shares are convertible into
common stock of the Company, such common stock, shall be subject to the
registration rights set forth in the Registration Rights Agreement dated as of
July 25, 1996, as amended by that certain Amendment to Registration Rights
Agreement dated as of November 19, 1996, copies of which are attached hereto as
EXHIBIT B (collectively, the "Registration Rights Agreement").
ARTICLE 4
MISCELLANEOUS
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached hereto as APPENDIX 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with such legends as may be required by the Registration Rights
Agreement and a legend in substantially the following form:
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<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c) of the
Securities Act. Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) to not more than three persons who are
"Accredited Investors" as such term is defined in Rule 501 of the Securities
Act, provided, however, that any such transferee shall have acquired the rights
to purchase at least 30% of the Shares issuable hereunder. Holder shall give the
Company notice of the portion of the Warrant being transferred setting forth the
name, address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for reissuance to the transferee(s)
(and Holder, if applicable). Unless the Company is filing financial information
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended, the Company shall have the right to refuse to transfer
any portion of this Warrant to any person who directly competes with the
Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to
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<PAGE>
collect from the other party all costs incurred in such dispute, including
reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
its principles regarding conflicts of law.
COMPANY
THE AUDIBLE WORDS CORPORATION,
a Delaware corporation
By: /s/ Patrick C. Barry
----------------------------------
Patrick C. Barry
Chief Financial Officer
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<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _________ shares of the
Series B Preferred Stock of THE AUDIBLE WORDS CORPORATION pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ___________ of the Shares covered by the Warrant.
[STRIKE PARAGRAPH THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said Shares in
the name of the undersigned or in such other name as is specified below:
______________________________________
(Name)
______________________________________
______________________________________
(Address)
3. The undersigned represents it is acquiring the Shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________
(Date)
______________________________________
(Signature)
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<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_________, ___
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear __________________:
This is to advise you that the Warrant issued to you described below will expire
on ________________, 2001.
Issuer: The Audible Words Corporation
Issue Date: November 20, 1996
Class of Security Issuable: Series B Preferred
Exercise Price Per Share:
Number of Shares Issuable: 12,500
Procedure for Exercise: Delivery of Warrant and duly executed Notice
of Exercise
Please contact [name of contact person at (phone number)] with any questions you
may have concerning exercise of the Warrant. This is your only notice of the
pending expiration of the Warrant.
______________________________________
(Name of Issuer)
By:___________________________________
Name:_________________________________
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Its:______________________________________
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<PAGE>
EXHIBIT 10.12
NOTE
$100,000.00 March 28, 1997
FOR VALUE RECEIVED, Donald Katz promises to pay to Audible, Inc. (the
"Lender"), the principal sum of One Hundred Thousand Dollars ($100,000.00),
together with interest on the unpaid principal hereof from the date hereof at
the rate of 6.0% per annum, compounded annually.
Principal and interest shall be due and payable upon the earlier of
(i) March 28, 2002 or, (ii) immediately following the closing of an initial
public offering of the Common Stock of Audible, Inc., a corporation (the
"Company"), as a result of which the Company receives gross proceeds greater
than or equal to $15,000,000.00. Payment of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is secured by a pledge of the Company's Common Stock under
the terms of a Security Agreement of even date herewith and is subject to all
the provisions thereof.
The holder of this Note shall have no recourse or claim against the
undersigned by reason of nonpayment of this Note or otherwise hereunder, and the
holder's sole recourse in the event of nonpayment of amounts due hereunder shall
be against the collateral securing this Note.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees of the holder hereof shall be paid by the
undersigned.
/s/ Donald Katz
---------------
Donald Katz
<PAGE>
EXHIBIT 10.12.1
ALLONGE TO NOTE
THIS ALLONGE TO NOTE dated as of April 20, 1999 amends that certain note
dated March 28, 1997 (the "Note"), promised by Donald Katz ("Borrower") to pay
principal and interest to Audible, Inc. ("Lender").
Borrower and Lender wish to modify the Note to extend the maturity date of
the indebtedness.
NOW, THEREFORE, in consideration of the promises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree to delete the following sentence:
Principal and interest shall be due and payable upon the earlier of
(i) March 28, 2002 or, (ii) immediately following the closing of an initial
public offering of the Common Stock of Audible, Inc., a corporation (the
"Company"), as a result of which the Company receives gross proceeds
greater than or equal to $15,000,000.
FURTHERMORE, the parties hereby agree to replace it in its entirety with
the following:
Principal and interest shall be due and payable upon the earlier of
(i) March 28, 2002 or, (ii) one year following the closing of an initial
public offering of the Common Stock of Audible, Inc., a corporation (the
"Company"), as a result of which the Company receives gross proceeds
greater than or equal to $15,000,000.
Except as amended hereby, the Note shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Allonge to Note as
of the date first written above.
"BORROWER"
DONALD KATZ
By: /s/ Donald Katz
_________________________________
Donald Katz
"LENDER"
AUDIBLE, INC
By: /s/ Andrew J. Huffman
_________________________________
Andrew J. Huffman, President and
Chief Executive Officer
<PAGE>
EXHIBIT 10.13
SECURITY AGREEMENT
This Security Agreement is made as of March 28, 1997 between Audible, Inc.
("Pledgee"), and Donald Katz ("Pledgor").
RECITALS
--------
A. Pledgor is, as of the date hereof, borrowing the sum of $100,000.00 from
Pledgee as evidenced by his promissory note (the "Note") dated the date
hereof.
B. Pledgor and Pledgee have agreed that the Note be secured by a pledge of an
aggregate of 25,000 shares of the Company's Common Stock under the terms of
this Security Agreement.
NOW THEREFORE, intending to be legally bound hereby, the parties agree as
follows:
1. Creation and Description of Security Interest. In consideration of a
---------------------------------------------
loan in the aggregate principal amount of $100,000.00 from Pledgee, Pledgor
hereby pledges 25,000 shares of the Company's Common Stock (herein sometimes
referred to as the "Collateral" or the "Shares"), duly endorsed in blank or with
executed stock powers, and herewith delivers a certificate or certificates
evidencing the Shares to Pledgee, who shall hold said certificate or
certificates subject to the terms and conditions of this Security Agreement.
The Shares (together with an executed blank stock assignment for use in
transferring all or a portion of the Shares to Pledgee if, as and when required
pursuant to this Security Agreement) shall be held by Pledgee as security for
the repayment of the Note, and any extensions or renewals thereof, and Pledgee
shall not encumber or dispose of such Shares except in accordance with the
provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to make the
---------------------------------------
loan evidenced by the Note and enter into this Security Agreement, Pledgor
represents and covenants to the Pledgee, and his successors and assigns, as
follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of the
-----------------------
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not encumber the Shares without the prior
written consent of Pledgee.
c. Further Assurances. Pledgor will do all things necessary or
------------------
desirable, including without limitation, the filing of financing statements, to
evidence the pledge of the Shares made hereunder.
-1-
<PAGE>
d. Option Agreement Representations and Warranties. Pledgor is a
-----------------------------------------------
party to a Stock Option Agreement of even date herewith with the Pledgee. Each
of the representations and warranties made by Pledgor therein is incorporated
herein by this reference.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, recapitalization, readjustment or other
changes are declared or made in the capital structure of the Company, all new,
substituted and additional shares and/or other securities issued by reason of
any such change shall be delivered to and held by Pledgee under the terms of
this Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor and Pledgee
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor to a result thereof.
5. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event payment of principal or interest on the
Note shall be delinquent for a period of 10 days or more following the due date
thereof or in the event Pledgor shall have breached any of the representations,
warranties or covenants contained herein.
In the case of an event of Default, as set forth above, the Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to foreclose upon the Shares in addition to
any remedy it may pursue under the New Jersey Commercial Code.
6. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
7. Term. The pledge of Shares shall continue until the payment of all
----
indebtedness secured hereby, at which time, to the extent such indebtedness is
not satisfied in full, the Shares shall promptly be delivered to Pledgor.
8. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against him, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
9. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
------------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
-2-
<PAGE>
10. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, their respective designees,
successors, assigns, heirs, executors and administrators. Pledgor agrees that
Pledgee may transfer or assign any or all of his rights hereunder, under the
Note and under the Stock Option Agreement, without Pledgor's consent.
11. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of New Jersey without giving effect to
conflicts of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" /s/ Donald Katz
---------------
Donald Katz
AUDIBLE, INC.
"PLEDGEE" /s/ Patrick C. Barry
--------------------
By: Patrick C. Barry
----------------
Its: CFO
-3-
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
--------------
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Dated as of February 26, 1998
Audible Inc.,
The Purchasers of the Series D Preferred Stock
Named as Investors Herein,
and
the Other Stockholders Named Herein
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS................................................... 2
1.1 Definitions.......................................................... 2
ARTICLE 2 - REGISTRATION RIGHTS........................................... 5
2.1 Demand Registration.................................................. 5
2.2 Piggy-Back Registration.............................................. 10
2.3 Reduction of Offering................................................ 10
ARTICLE 3 - REGISTRATION PROCEDURES....................................... 11
3.1 Filings; Information................................................. 11
3.2 Registration Expenses................................................ 15
ARTICLE 4 - INDEMNIFICATION AND CONTRIBUTION.............................. 15
4.1 Indemnification by the Company....................................... 15
4.2 Indemnification by Selling Holders................................... 16
4.3 Conduct of Indemnification Proceedings............................... 17
4.4 Contribution......................................................... 18
ARTICLE 5 - OTHER REGISTRATION RIGHTS..................................... 19
5.1 Other Registration Rights............................................ 19
5.2 Future Registration Rights........................................... 19
5.3 Exclusion of Registrable Shares...................................... 19
ARTICLE 6 - MISCELLANEOUS................................................. 20
6.1 Participation in Underwritten Registrations.......................... 20
6.2 Lock-up Agreement.................................................... 20
6.3 Rule 144 and 144A.................................................... 21
6.4 Suspension of Obligation to File..................................... 21
6.5 Amendment and Modification........................................... 21
6.6 Assignability of Rights.............................................. 21
6.7 Binding Effect; Entire Agreement..................................... 22
6.8 Severability......................................................... 22
6.9 Notices.............................................................. 22
6.10 Governing Law....................................................... 23
6.11 Headings............................................................. 23
6.12 Counterparts......................................................... 23
6.13 Further Assurances................................................... 23
6.14 Remedies............................................................. 23
6.15 Supersedes Prior Agreement........................................... 23
6.16 Pronouns............................................................. 24
</TABLE>
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of February 26, 1998, by and among each of the persons that signs a
signature page annexed hereto (collectively, the "Investors") and Audible Inc.,
a Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - --- - - -
WHEREAS, certain of the Investors and the Company have entered into that
certain Series D Preferred Stock Purchase Agreement, dated as of the date hereof
(the "Stock Purchase Agreement"), whereby such Investors (the "Series D
Holders") have purchased an aggregate of 1,350,000 shares (the "Series D
Preferred Shares") of Series D Preferred Stock, par value $.01 per share (the
"Series D Preferred Stock") of the Company;
WHEREAS, the Company desires to grant the Series D Holders registration
rights with respect to the shares of Common Stock into which the Series D
Preferred Shares are convertible;
WHEREAS, the Company and certain of the Investors have previously entered
into that certain Amended and Registration Rights Agreement dated as of March
31, 1997 (the "Prior Agreement") pursuant to which a certain Investor (the
"Series A Holder") who holds shares of the Series A Convertible Preferred Stock,
par value $.01 per share, of the Company (the "Series A Preferred Stock");
certain Investors (the "Series B Holders") who hold shares or warrants to
purchase shares of the Series B Preferred Stock, par value $.01 per share, of
the Company (the "Series B Preferred Stock"); and certain Investors (the "Series
C Holders") who hold shares or warrants to purchase shares of the Series C
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"Series C Preferred Stock"); were granted registration rights by the Company;
WHEREAS, in connection with the execution of the Stock Purchase Agreement,
the Series A Holder, the Series B Holders, the Series C Holders, the Series D
Holders and the Company wish to amend and restate the Prior Agreement to
consolidate the registration rights of the Series A Holder, the Series B Holders
and the Series C Holders with those of the Series D Holders and make certain
other changes thereto;
WHEREAS, the Company anticipates that, subsequent to the date hereof, it
will issue a warrant or warrants that permit the holder thereof to purchase up
to an aggregate of 25,000 shares of Series D Preferred Stock (the "Series D
Warrants");
WHEREAS, upon execution of the Series D Warrants, the holder of shares of
Series D Preferred Stock is to be permitted to execute a signature addendum
hereto providing such holder with the registration rights set forth herein; and
<PAGE>
WHEREAS, the Company currently expects to issue the Series D Warrant to
Silicon Valley Bank (the "Bank") as part of, and in connection with, certain
bank financing to be provided by the Bank.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
conditions contained herein and of other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto amend
and restate the Prior Agreement in its entirety as follows:
ARTICLE 1
---------
DEFINITIONS
SECTION 1.1 Definitions. All terms not defined herein or below shall
-----------
have the meaning set forth in the Stock Purchase Agreement.
"Affiliate" shall have the meaning set forth in Rule 405 promulgated under
the Securities Act of 1933, as amended.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" shall have the meaning set forth in the preamble of this
Agreement.
"Common Stock Warrants" shall mean the warrants, held by the Series C
Holders, to purchase up to 450,000 shares of the Common Stock of the Company.
"Company" shall have the meaning set forth in the preamble of this
Agreement.
"Controlling Persons" shall have the meaning set forth in Section 4.1
hereof.
"Damages" shall have the meaning set forth in Section 4.1 hereof.
"Demand Registration" shall mean a Series A Demand Registration, Series B
Demand Registration, Series C Demand Registration or Series D Demand
Registration, without distinction, except as the context otherwise requires.
"Holder" shall mean any person who now holds or shall hereafter acquire and
hold Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 4.3 hereof.
-2-
<PAGE>
"Indemnifying Party" shall have the meaning set forth in Section 4.3
hereof.
"Inspectors" shall have the meaning set forth in Section 3.1(h) hereof.
"Investors" shall have the meaning set forth in the preamble of this
Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Notices" shall have the meaning set forth in Section 6.8 hereof.
"Piggy-Back Registration" shall have the meaning set forth in Section 2.2
hereof.
"Records" shall have the meaning set forth in Section 3.1(h) hereof.
"Registrable Securities" shall mean the Series A Registrable Securities,
the Series B Registrable Securities, the Series C and Warrant Registrable
Securities and the Series D Registrable Securities, without distinction, except
as the context otherwise requires.
"Registration Expenses" shall have the meaning set forth in Section 3.2
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Holder" shall mean an Investor who is selling Registrable
Securities pursuant to a registration statement under the Securities Act.
"Series A Demand Registration" shall have the meaning set forth in Section
2.1(a) hereof.
"Series A Preferred Stock" shall have the meaning set forth in the preamble
of this Agreement.
"Series A Registrable Securities" shall mean the shares of Common Stock
into which the Series A Preferred Stock are convertible and any additional
shares of Common Stock acquired by a Holder by way of a dividend, stock split or
other distribution in respect of the Series A Preferred Stock or the Common
Stock issued upon conversion of the Series A Preferred Stock.
"Series B Demand Registration" shall have the meaning set forth in Section
2.1(b) hereof.
-3-
<PAGE>
"Series B Preferred Stock" shall have the meaning set forth in the preamble
of this Agreement.
"Series B Registrable Securities" shall mean the shares of Common Stock
into which the Series B Preferred Stock are convertible and any additional
shares of Common Stock acquired by a Holder by way of a dividend, stock split or
other distribution in respect of the Series B Preferred Stock or the Common
Stock issued upon conversion of the Series B Preferred Stock.
"Series C and Warrant Demand Registration" shall have the meaning set forth
in Section 2.1(c) hereof.
"Series C Preferred Stock" shall have the meaning set forth in the preamble
of this Agreement.
"Series C and Warrant Registrable Securities" shall mean the shares of
Common Stock into which the Series C Preferred Stock are convertible and any
additional shares of Common Stock acquired by a Holder by way of (i) a dividend,
stock split or other distribution in respect of the Series C Preferred Stock,
(ii) a dividend, stock split or other distribution in respect of the Common
Stock issued upon conversion of the Series C Preferred Stock, (iii) on exercise
of its Common Stock Warrants, (iv) a dividend, stock split or other distribution
in respect of the Common Stock Warrants and (v) a dividend, stock split or other
distribution in respect of the Common Stock issued upon exercise of the Common
Stock Warrants.
"Series D Demand Registration" shall have the meaning set forth in Section
2.1(d) hereof.
"Series D Preferred Stock" shall have the meaning set forth in the preamble
of this Agreement.
"Series D Registrable Securities" shall mean the shares of Common Stock
into which the Series D Preferred Stock are convertible and any additional
shares of Common Stock acquired by a Holder by way of (i) a dividend, stock
split or other distribution in respect of the Series D Preferred Stock; (ii) a
dividend, stock split or other distribution in respect of or the Common Stock
issued upon conversion of the Series D Preferred Stock and, (iii) a dividend,
stock split or other distribution in respect of the Series D Warrants.
"Stockholders' Agreement" shall mean that certain Amended and Restated
Stockholders' Agreement, dated as of the date hereof, by and among the Company,
the Investors and certain stockholders of the Company.
-4-
<PAGE>
"Stock Purchase Agreement" shall have the meaning set forth in the preamble
of this Agreement.
"Underwriter" shall mean a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
"Withdrawal Election" shall have the meaning set forth in Section 2.3(b)
hereof.
ARTICLE 2
---------
REGISTRATION RIGHTS
SECTION 2.1 Demand Registration.
-------------------
(a) Request for Registration by Holders of Series A Registrable
-----------------------------------------------------------
Securities. At any time and from time to time after March 31, 2000, Holders of
- ----------
at least two-thirds (2/3) in interest of the Series A Registrable Securities
(for this purpose, treating the Series A Preferred Stock as if it had been
converted into Common Stock) may make written requests on the Company for the
registration of the Series A Registrable Shares having an anticipated aggregate
offering price (net of discounts and commissions) of at least $5,000,000 under
the Securities Act. Subject to the penultimate sentence of Section 2.1(e), the
Company shall have no obligation to file more than two (2) registration
statements under the Securities Act with respect to such requests; provided,
--------
however, that if the Series A Registrable Securities may be registered on Form
- -------
S-3 (or any successor form with similar "short form" disclosure requirements),
the Holders of Series A Registrable Securities shall have unlimited rights to
request registration of their shares on Form S-3 (or such successor form),
provided, however, that each such registration of Series A Registrable
- -------- -------
Securities have an anticipated aggregate offering price (net of discounts and
commissions) of at least $500,000. Each such request described in the preceding
two sentences shall be hereinafter referred to as a "Series A Demand
Registration." Any Series A Demand Registration will specify the number of
shares of Series A Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof. The Company shall give
written notice of such registration request within ten (10) days after the
receipt thereof to all other Holders of Series A Registrable Securities and
shall use its best efforts to effect the Series A Demand Registration within
thirty (30) days after the giving of such written notice. Within 20 days after
receipt of such notice by any such Holder, such Holder may request in writing
that Series A Registrable Securities be included in such registration and the
Company shall include in the registration statement for such Series A Demand
Registration the Series A Registrable Securities of all Holders requested to be
so included. Each such request by such other Holders shall specify the number of
shares of Series A Registrable Securities proposed to be sold and the intended
method of disposition thereof.
-5-
<PAGE>
Whenever the Company shall effect a Series A Demand Registration pursuant
to this Section 2.1(a) in connection with an underwritten offering of Series A
Registrable Securities, no securities other than the Series A Registrable
Securities requested to be included shall be included among the securities
covered by such registration unless (i) the managing Underwriter or Underwriters
of such offering shall have advised the Holder of Series A Registrable
Securities to be covered by such registration in writing that the inclusion of
other securities would not adversely affect such offering, in which case,
securities to be issued by the Company or securities held by other stockholders
of the Company may be included or (ii) all Holders of Series A Registrable
Securities to be covered by such registration shall have consented in writing to
the inclusion of securities to be issued by the Company or securities held by
other stockholders of the Company. Whenever the Company shall effect a Series A
Demand Registration pursuant to this Section 2.1(a) other than in connection
with an underwritten offering of Series A Registrable Securities, no securities
held by stockholders of the Company other than Holders of Series A Registrable
Securities may be covered by such registration unless all Holders of Series A
Registrable Securities to be covered by such registration shall have consented
thereto in writing.
(b) Request for Registration by Holders of Series B Registrable
-----------------------------------------------------------
Securities. At any time and from time to time after March 31, 2000, Holders of
- ----------
at least two-thirds (2/3) in interest of the Series B Registrable Securities
(for this purpose, treating the Series B Preferred stock as if it had been
converted into Common Stock) may make written requests on the Company for the
registration of the Series B Registrable Shares having an anticipated aggregate
offering price (net of discounts and commissions) of at least $5,000,000 under
the Securities Act. Subject to the penultimate sentence of Section 2.1(e), the
Company shall have no obligation to file more than two (2) registration
statements under the Securities Act with respect to such requests; provided,
--------
however, that if the Series B Registrable Securities may be registered on Form
- -------
S-3 (or any successor form with similar "short form" disclosure requirements),
the Holders of Series B Registrable Securities shall have unlimited rights to
request registration of their shares on Form S-3 (or such successor form),
provided, however, that each such registration of Series B Registrable
- -------- -------
Securities have an anticipated aggregate offering price (net of discounts and
commissions) of at least $500,000. Each such request described in the preceding
two sentences shall be hereinafter referred to as a "Series B Demand
Registration." Any Series B Demand Registration will specify the number of
shares of Series B Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof. The Company shall give
written notice of such registration request within ten (10) days after the
receipt thereof to all other Holders of Series B Registrable Securities and
shall use its best efforts to effect the Series B Demand Registration within
thirty (30) days after the giving of such written notice. Within 20 days after
receipt of such notice by any such Holder, such Holder may request in writing
that Series B Registrable Securities be included in such registration and the
Company shall include in the registration statement for such Series B Demand
Registration the Series B Registrable Securities of all Holders requested to be
so included. Each such request by such other Holders shall specify
-6-
<PAGE>
the number of shares of Series B Registrable Securities proposed to be sold and
the intended method of disposition thereof.
Whenever the Company shall effect a Series B Demand Registration pursuant
to this Section 2.1(b) in connection with an underwritten offering of Series B
Registrable Securities, no securities other than the Series B Registrable
Securities requested to be included shall be included among the securities
covered by such registration unless (i) the managing Underwriter or Underwriters
of such offering shall have advised the Holder of Series B Registrable
Securities to be covered by such registration in writing that the inclusion of
other securities would not adversely affect such offering, in which case,
securities to be issued by the Company or securities held by other stockholders
of the Company may be included or (ii) all Holders of Series B Registrable
Securities to be covered by such registration shall have consented in writing to
the inclusion of securities to be issued by the Company or securities held by
other stockholders of the Company. Whenever the Company shall effect a Series B
Demand Registration pursuant to this Section 2.1(b) other than in connection
with an underwritten offering of Series B Registrable Securities, no securities
held by stockholders of the Company other than Holders of Series B Registrable
Securities may be covered by such registration unless all Holders of Series B
Registrable Securities to be covered by such registration shall have consented
thereto in writing.
(c) Request for Registration by Holders of Series C and Warrant
-----------------------------------------------------------
Registrable Securities. At any time and from time to time after March 31, 2000,
- ----------------------
Holders of a majority in interest of the Series C and Warrant Registrable
Securities (for this purpose, treating the Series C Preferred Stock as if it had
been converted into Common Stock) may make written requests on the Company for
the registration of the Series C and Warrant Registrable Shares having an
anticipated aggregate offering price (net of discounts and commissions) of at
least $5,000,000 under the Securities Act. Subject to the penultimate sentence
of Section 2.1(e), the Company shall have no obligation to file more than two
(2) registration statements under the Securities Act with respect to such
requests; provided, however, that if the Series C and Warrant Registrable
-------- -------
Securities may be registered on Form S-3 (or any successor form with similar
"short form" disclosure requirements), the Holders of Series C and Warrant
Registrable Securities shall have unlimited rights to request registration of
their shares on Form S-3 (or such successor form), provided, however, that each
-------- -------
such registration of Series C and Warrant Registrable Securities have an
anticipated aggregate offering price (net of discounts and commissions) of at
least $500,000. Each such request described in the preceding two sentences shall
be hereinafter referred to as a "Series C and Warrant Demand Registration." Any
Series C and Warrant Demand Registration will specify the number of shares of
Series C and Warrant Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof. The Company shall give
written notice of such registration request within ten (10) days after the
receipt thereof to all other Holders of Registrable Securities and shall use its
best efforts to effect the Series C and Warrant Demand Registration within
thirty (30) days after the giving of such written notice. Within 20 days after
receipt of such notice by any such Holder, such Holder may request in writing
that some or all of its
-7-
<PAGE>
Series C and Warrant Registrable Securities be included in such registration and
the Company shall include in the registration statement for such Series C and
Warrant Demand Registration the Series C and Warrant Registrable Securities of
all Holders requested to be so included. Each such request by such other Holders
shall specify the number of shares of Series C and Warrant Registrable
Securities proposed to be sold and the intended method of disposition thereof.
Whenever the Company shall effect a Series C and Warrant Demand
Registration pursuant to this Section 2.1(c) in connection with an underwritten
offering of Series C and Warrant Registrable Securities, no securities other
than the Series C and Warrant Registrable Securities requested to be included
shall be included among the securities covered by such registration unless (i)
the managing Underwriter or Underwriters of such offering shall have advised the
Holder of Series C and Warrant Registrable Securities to be covered by such
registration in writing that the inclusion of other securities would not
adversely affect such offering, in which case, securities to be issued by the
Company or securities held by other stockholders of the Company may be included
or (ii) all Holders of Series C and Warrant Registrable Securities to be covered
by such registration shall have consented in writing to the inclusion of
securities to be issued by the Company or securities held by other stockholders
of the Company. Whenever the Company shall effect a Series C and Warrant Demand
Registration pursuant to this Section 2.1(c) other than in connection with an
underwritten offering of Series C and Warrant Registrable Securities, no
securities held by stockholders of the Company other than Holders of Series C
and Warrant Registrable Securities may be covered by such registration unless
all Holders of Series C and Warrant Registrable Securities to be covered by such
registration shall have consented thereto in writing.
(d) Request for Registration by Holders of Series D Registrable Securities.
-----------------------------------------------------------
Securities. At any time and from time to time after the first to occur of (i)
- ----------
the first underwritten public offering of the Company's Common Stock or (ii)
March 31, 2000, Holders of no less than 40% of the Series D Registrable
Securities (for this purpose, treating the Series D Preferred Stock as if it had
been converted into Common Stock) may make written requests on the Company for
the registration of the Series D Registrable Shares having an anticipated
aggregate offering price (net of discounts and commissions) of at least
$5,000,000 under the Securities Act. Subject to the penultimate sentence of
Section 2.1(e), the Company shall have no obligation to file more than two (2)
registration statements under the Securities Act with respect to such requests;
provided, however, that if the Series D Registrable Securities may be registered
- -------- -------
on Form S-3 (or any successor form with similar "short form" disclosure
requirements), the Holders of Series D Registrable Securities shall have
unlimited rights to request registration of their shares on Form S-3 (or such
successor form); provided, however, that each such registration of Series D
-------- -------
Registrable Securities have an anticipated aggregate offering price (net of
discounts and commissions) of at least $500,000. Notwithstanding anything to the
contrary contained in the preceding sentence, if 12 months following the first
underwritten public offering of the Company's Common Stock the Company is
ineligible to
-8-
<PAGE>
register its Common Stock on Form S-3, the number of registration statements
that the holders of Series D Registrable Securities will be entitled to require
of the Company under the second sentence of this Section 2.1(d) shall be
increased from two to three. Each such request described in the preceding three
sentences shall be hereinafter referred to as a "Series D Demand Registration."
Any Series D Demand Registration will specify the number of shares of Series D
Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof. The Company shall give written notice of such
registration request within ten (10) days after the receipt thereof to all other
Holders of Registrable Securities and shall use its best efforts to effect the
Series D Demand Registration within thirty (30) days after the giving of such
written notice. Within 20 days after receipt of such notice by any such Holder,
such Holder may request in writing that some or all of its Series D Registrable
Securities be included in such registration and the Company shall include in the
registration statement for such Series D Demand Registration the Series D
Registrable Securities of all Holders requested to be so included. Each such
request by such other Holders shall specify the number of shares of Series D
Registrable Securities proposed to be sold and the intended method of
disposition thereof.
Whenever the Company shall effect a Series D Demand Registration
pursuant to this Section 2.1(d) in connection with an underwritten offering of
Series D Registrable Securities, no securities other than the Series D
Registrable Securities requested to be included shall be included among the
securities covered by such registration unless (i) the managing Underwriter or
Underwriters of such offering shall have advised the Holder of Series D
Registrable Securities to be covered by such registration in writing that the
inclusion of other securities would not adversely affect such offering, in which
case, securities to be issued by the Company or securities held by other
stockholders of the Company may be included or (ii) all Holders of Series D
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of securities to be issued by the Company or
securities held by other stockholders of the Company. Whenever the Company
shall effect a Series D Demand Registration pursuant to this Section 2.1(d)
other than in connection with an underwritten offering of Series D Registrable
Securities, no securities held by stockholders of the Company other than Holders
of Series D Registrable Securities may be covered by such registration unless
all Holders of Series D Registrable Securities to be covered by such
registration shall have consented thereto in writing.
(e) Effective Registration. A registration will not be deemed to have
----------------------
been effected as a Demand Registration unless it has been declared effective by
the Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however, that
-------- -------
if, after it has become effective, the offering of shares of Common Stock
pursuant to such registration is or becomes the subject of any stop order,
injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of the shares of Common Stock pursuant to the registration at
any time within one hundred eighty (180) days after the effective date of the
registration statement, such registration will be deemed not to
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<PAGE>
have been effected. If (i) a registration requested pursuant to this Section 2.1
is deemed not to have been effected or (ii) the registration requested pursuant
to this Section 2.1 does not remain effective for a period of at least one
hundred eighty (180) days beyond the effective date thereof or, with respect to
an underwritten offering of Registrable Securities, until ninety (90) days after
the commencement of the distribution by the Holders of the Registrable
Securities included in such registration statement, then the Company shall
continue to be obligated to effect such registration pursuant to this Section
2.1. The Holders of Registrable Securities shall be permitted to withdraw all or
any part of the Registrable Securities from a Demand Registration at any time
prior to the effective date of such Demand Registration.
(f) Selection of Underwriter. If the Selling Holders so elect, the
------------------------
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of an underwritten offering. The Selling Holders owning at
least two-thirds (2/3) of Registrable Securities to be sold shall select one or
more nationally recognized firms of investment bankers reasonably acceptable to
the Company to act as the lead managing Underwriter or Underwriters in
connection with such offering and shall select any additional investment bankers
and managers to be used in connection with the offering.
SECTION 2.2 Piggy-Back Registration. If at any time the Company
-----------------------
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders (other than a registration statement on Form S-4
or S-8 (or any substitute form that may be adopted by the Commission) or a
Demand Registration pursuant to Section 2.1), then the Company shall give prompt
written notice of such proposed filing to the Holders of Registrable Securities
as soon as practicable (but in no event less than 20 days before the anticipated
filing date), and such notice shall offer such Holders the opportunity to
register such number of Registrable Securities as each such Holder may request
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder and the intended method of distribution thereof) (a "Piggy-
Back Registration"). The Company shall use its best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Except as set
forth in Section 2.3(b), any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw, provided, however, that in the event of such withdrawal,
-------- -------
such Holder shall be responsible for all fees and expenses (including fees and
expenses of counsel) incurred by such Holder prior to such withdrawal except as
set forth in Section 2.3(b). The Company may withdraw a Piggy-Back Registration
at any time prior to the time it becomes effective.
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<PAGE>
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders pursuant to
Section 2.1, and no failure to effect a registration under this Section 2.2 and
to complete the sale of Registrable Securities in connection therewith shall
relieve the Company of any other obligation under this Agreement (including,
without limitation, the Company's obligations under Sections 3.2 and 4.1).
SECTION 2.3 Reduction of Offering.
---------------------
(a) Piggy-Back Registration. Notwithstanding anything to the contrary
-----------------------
contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 have informed, in writing, the
Holders of the Registrable Securities requesting inclusion in such offering that
it is their opinion that the total number of shares which the Company, Holders
of Registrable Securities and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then the number of shares to be
offered shall be reduced or limited in the following order of priority: (x)
first, the securities proposed by the Company to be sold for its own account;
- -----
(y) second, the number of shares to be offered by all other holders of
------
securities of the Company other than the Holders of Registrable Securities or
other holders who have registration rights to the extent necessary to reduce the
total number of shares as recommended by such managing Underwriters; and (z)
third, if further reduction or limitation is required, the number of shares to
- -----
be offered for the account of the Holders shall be reduced or limited on a pro
---
rata basis in proportion to the relative number of Registrable Securities of the
- ----
Holders participating in such registration; provided, however, that the
-------- -------
reduction for the account of the Holders shall not result in the number of
shares of the Holders included in the offering to be less than 25% of the total
number of shares offered.
(b) Withdrawal Election. If, as a result of the proration provisions
-------------------
of this Section 2.3, any Holder shall not be entitled to include at least 50% of
the Registrable Securities in a Piggy-Back Registration that such Holder has
requested to be included, such Holder may elect to withdraw his, her or its
request to include Registrable Securities in such registration (a "Withdrawal
Election") without incurring any liability for his, her or its fees and
expenses; provided, however, that a Withdrawal Election shall be irrevocable
-------- -------
and, after making a Withdrawal Election, a Holder shall no longer have any right
to include Registrable Securities in the Piggy-Back Registration as to which
such Withdrawal Election was made.
ARTICLE 3.
----------
REGISTRATION PROCEDURES
SECTION 3.1 Filings; Information. Whenever the Company is required
--------------------
to effect or cause the registration of Registrable Securities pursuant to
Section 2.1, the Company will use its best efforts to effect the registration
and the sale of such Registrable Securities in
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<PAGE>
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) Registration Statements. The Company will prepare and file with
-----------------------
the Commission a registration statement (which, in the case of an underwritten
public offering, shall be on Form S-3 (unless the Company does not qualify for
use of Form S-3 in a registration involving only a secondary offering as
provided in the General Instructions to Form S-3 in such registration, in which
case such registration statement shall be a Form S-1) or other form of general
applicability satisfactory to the managing underwriter selected as therein
provided) with respect to such securities and use best efforts to cause such
registration statement to become and remain effective until the completion of
the distribution; provided, however, that the Company shall be required to keep
-------- -------
any registration statement effective at least ninety (90) days.
(b) Amendments and Supplements. The Company will prepare and file
--------------------------
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for the period specified in Section
3.1(a) and as to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement in accordance with the intended method of disposition set forth in
such registration statement for such period.
(c) Copies For Review. The Company will, as far in advance as
-----------------
practical, prior to filing a registration statement or prospectus or any
amendment or supplement thereto, furnish copies of such registration statement
as proposed to be filed, together with exhibits thereto, to (i) each Selling
Holder, (ii) not more than one counsel representing all Selling Holders, to be
selected by a majority-in-interest of such Selling Holders, and (iii) each
Underwriter, if any, of the Registrable Securities covered by such registration
statement, which documents will be subject to review and approval by the
foregoing within five (5) days after delivery, and thereafter as far in advance
as practical, furnish to such Selling Holders, counsel and Underwriters, if any,
for their review and comment such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents or information as such Selling Holders,
counsel or Underwriters may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holders.
(d) Stop Orders. After the filing of the registration statement, the
-----------
Company will promptly notify each Selling Holder of Registrable Securities
covered by such registration statement of any stop order issued or threatened by
the Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
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<PAGE>
(e) Blue Sky. The Company will use its best efforts to (i) register
--------
or qualify the Registrable Securities under such other securities or blue sky
laws of such jurisdictions in the United States as any Selling Holder reasonably
(in light of such Selling Holder's intended plan of distribution) requests, and
(ii) cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition of the Registrable
Securities owned by such Selling Holder; provided, however, that the Company
-------- -------
will not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (e),
(B) subject itself to taxation in any jurisdiction where it would not be subject
to taxation but for actions taken pursuant to this Section 3.1 or (C) consent to
general service of process in any such jurisdiction.
(f) Certain Events. The Company will immediately notify each Selling
--------------
Holder of such Registrable Securities, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the occurrence
of an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the Holders of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly make
available to each Selling Holder any such supplement or amendment.
(g) Agreements. The Company and the Selling Holders will enter into
----------
customary agreements including, if applicable, an underwriting agreement in
customary form and which is reasonably satisfactory to the Company (which shall
not require the Selling Holder to indemnify the underwriter with respect to
misstatements or omissions in the registration statement other than such
misstatements or omissions in written material supplied by such Selling Holder
expressly for inclusion in the registration statement) and, if requested by the
underwriter(s), an agreement appointing one or more (but not more than three)
Persons approved by a majority in interest of the Holders whose Registrable
Securities are to be included in the registration, to act as attorney-in-fact
for the Holder and as escrow agent for the Registrable Securities to be included
in the offering in customary form. The Company and the Selling Holders will
also take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities; and the Selling
Holders may, at their option, require that any or all of the representations,
warranties and covenants of the Company made to or for the benefit of such
Underwriters also be made to and for the benefit of such Selling Holders.
(h) Due Diligence. The Company will make available to each Selling
-------------
Holder (and their counsel) and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the Commission and the Company,
its counsel or auditors and will
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<PAGE>
also make available for inspection by any Selling Holder, any Underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained to represent any such
Selling Holder or Underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers
and employees to supply all information reasonably requested by any Inspectors
in connection with such registration statement. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the disclosure
or release of such Records is requested or required pursuant to oral
questions, interrogatories, requests for information or documents or a
subpoena or other order from a court of competent jurisdiction or other
process; provided, however, that prior to any disclosure or release
-------- -------
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and, provided further, however, that if failing the entry
---------------- -------
of a protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Selling Holder after reasonable inquiry, is not prohibited from providing
such information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates unless
and until such information is made generally available to the public. Each
Selling Holder of such Registrable Securities further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential.
(i) Sales Efforts. In connection with an underwritten offering, the
-------------
Company will participate, to the extent reasonably requested by the managing
Underwriter for the offering or the Selling Holders, in customary efforts to
sell the securities under the offering, including, without limitation,
participating in "road shows"; provided, however, that the Company shall not be
-------- -------
obligated to participate in more than one such offering in any 12-month period.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such
-14-
<PAGE>
information as may be requested by the Commission or the NASD. The Company may
exclude from such registration any Holder who fails to provide such information.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(f) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(f) hereof to
the date when the Company shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 3.1(f)
hereof.
SECTION 3.2 Registration Expenses. In connection with the Demand
---------------------
Registrations pursuant to Section 2.1 hereof and any Piggy-Back Registrations
under Section 2.2 hereof, the Company shall pay the following registration
expenses incurred in connection with the registration thereunder (the
"Registration Expenses"): (i) all registration and filing fees, (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) processing, duplicating and printing
expenses, (iv) the Company's internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing of the Registrable Securities, (vi) reasonable fees and disbursements of
counsel for the Company and customary fees and expenses for independent
certified public accountants retained by the Company (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
but not the cost of any audit other than a year end audit), (vii) the reasonable
fees and expenses of any special experts retained by the Company in connection
with such registration, (viii) reasonable fees and expenses of one firm of
counsel for the Holders to be selected by the Holders of at least 66 2/3% of the
Registrable Securities to be included in such registration voting as a single
class and (ix) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities. The Company shall have no obligation to pay
any other underwriting fees, discounts or commissions attributable to the sale
of Registrable Securities, or the cost of any special audit required, such costs
to be borne by the Holder or Holders making the request.
-15-
<PAGE>
ARTICLE 4.
----------
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 Indemnification by the Company. The Company shall, to the
------------------------------
full extent permitted by law, indemnify and hold harmless each Selling Holder,
its Affiliates, partners, officers, directors, employees and agents, and each
Person, if any, who controls or is under common control with such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the partners, officers, directors, employees and
agents of such controlling Person (collectively, the "Controlling Persons"),
from and against any loss, claim, damage, liability, reasonable attorneys' fees,
cost or expense and costs and expenses of investigating and defending any such
claim, joint or several, and any action in respect thereof (collectively, the
"Damages") to which such Selling Holder, its partners, officers, directors,
employees and agents, and any such Controlling Person may become subject under
the Securities Act or otherwise, insofar as such Damages (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of,
or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or any amendment or supplement thereto, or arises out
of, or are based upon, any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or any violation by the Company of any federal or state
securities laws or any rule or regulation thereof, except insofar as the same
are based upon information furnished in writing to the Company by a Selling
Holder expressly for use therein, and shall reimburse each Selling Holder, its
Affiliates, partners, officers, directors, employees and agents, and each such
Controlling Person for any legal and other expenses reasonably incurred by that
Selling Holder, its Affiliates, its partners, officers, directors, employees and
agents, or any such Controlling Person in investigating or defending or
preparing to defend against any such Damages or proceedings; provided, however,
-------- -------
that the Company shall not be liable to any Selling Holder to the extent that
any such Damages (or action or proceeding in respect thereof) arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) such Selling Holder failed to send or deliver a copy of the
final prospectus with or prior to the delivery of written confirmation of the
sale by such Selling Holder to the Person asserting the claim from which such
Damages arise, and (ii) the final prospectus would have corrected such untrue
statement or such omission; provided, further, however, that the Company shall
-------- ------- -------
not be liable to any Selling Holder in any such case to the extent that any such
Damages arise out of or are based upon an untrue statement or omission in any
prospectus if (x) such untrue statement or omission is corrected in an amendment
or supplement to such prospectus, and (y) having previously been furnished by or
on behalf of the Company with copies of such prospectus as so amended or
supplemented, such Selling Holder thereafter fails to deliver such prospectus as
so amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the Person asserting the claim from which such Damages
arise. The Company also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each Person
-16-
<PAGE>
who controls such Underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 4.1.
SECTION 4.2 Indemnification by Selling Holders. Each Selling Holder
----------------------------------
shall, to the full extent permitted by law, severally but not jointly, indemnify
and hold harmless the Company, its officers, directors, employees and agents and
each Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, together with the
partners, officers, directors, employees and agents of such controlling Person,
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only to the extent the Company's or such Person's Damages are
attributable to the information related to such Selling Holder, or its plan of
distribution, furnished in writing by such Selling Holder or on such Selling
Holder's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus and the aggregate amount which may be recovered
from any Selling Holder of Registrable Securities pursuant to the
indemnification provided for in this Section 4.2 in connection with any
registration and sale of Registrable Securities shall be limited to the net
proceeds received by such Selling Holder from the sale of such Registrable
Securities. In case any action or proceeding shall be brought against the
Company or its officers, directors, employees or agents or any such controlling
Person or its officers, directors, employees or agents, in respect of which
indemnity may be sought against such Selling Holder, such Selling Holder shall
have the rights and duties given to the Company, and the Company or its
officers, directors, employees or agents, or such controlling Person, or its
officers, directors, employees or agents, shall have the rights and duties given
to such Selling Holder under the preceding paragraph. Each Selling Holder also
agrees to indemnify and hold harmless any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification such
Selling Holder provides to the Company provided in this Section 4.2; provided
--------
that the aggregate recovery that the Company and any Underwriters can recover
- ----
from a Selling Holder pursuant to this Section 4.2 cannot exceed the net
proceeds received by such Selling Holder from the sale of such Registrable
Securities. The Company shall be entitled to receive indemnities from
Underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above, with respect to information so furnished in writing by such Persons
specifically for inclusion in any prospectus or registration statement;
provided, however, that if the Company does not receive such indemnities, the
Company will not be relieved of its duties and obligations hereunder.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action; provided, however, that the
-------- -------
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<PAGE>
failure to notify the Indemnifying Party shall not relieve it from any liability
which it may have to an Indemnified Party otherwise than under Section 4.1 or
4.2 and except to the extent of any actual prejudice resulting therefrom. If
any such claim or action shall be brought against an Indemnified Party, and it
shall notify the Indemnifying Party thereof, the Indemnifying Party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified Indemnifying Party, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party. After notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such claim or action, the Indemnifying Party shall not be liable
to the Indemnified Party for any legal or other expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the Indemnified Party
-------- -------
shall have the right to employ separate counsel to represent the Indemnified
Party and its controlling Persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Indemnified Party
against the Indemnifying Party, but the fees and expenses of such counsel shall
be for the account of such Indemnified Party unless (i) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) in the reasonable judgment of the Company and such Indemnified
Party, representation of both parties by the same counsel would be inappropriate
due to actual or potential conflicts of interest between them, it being
understood, however, that the Indemnifying Party shall not, in connection with
any one such claim or action or separate but substantially similar or related
claims or actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all Indemnified Parties, or for fees and expenses that are not
reasonable. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any claim or pending or
threatened proceeding in respect of which the Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.
Whether or not the defense of any claim or action is assumed by the Indemnifying
Party, such Indemnifying Party will not be subject to any liability for any
settlement made without its consent, which consent will not be unreasonably
withheld.
SECTION 4.4 Contribution. If the indemnification provided for in
------------
this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages (i) as between the
Company and the Selling Holders on the one hand and the Underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Holders on the one hand and the
Underwriters on the other from the offering of the Registrable Securities, or if
such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the
-18-
<PAGE>
other in connection with the statements or omissions which resulted in such
Damages, as well as any other relevant equitable considerations, and (ii) as
between the Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and of each Selling Holder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Holders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and the Selling Holders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Company and the Selling Holders on the one
hand and of the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Holders or by the
Underwriters. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
- --- ----
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the Damages referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public (less underwriting discounts and commissions) exceeds the amount of
any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. Each
Selling Holder's obligations to contribute pursuant to this Section 4.4
-19-
<PAGE>
is several in the proportion that the proceeds of the offering received by such
Selling Holder bears to the total proceeds of the offering received by all the
Selling Holders and not joint.
ARTICLE 5.
----------
OTHER REGISTRATION RIGHTS
SECTION 5.1 Other Registration Rights. The Company represents and
-------------------------
warrants to the Holders that there is not in effect on the date hereof any
agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction
that would conflict in any material respect with any provision of this
Agreement.
SECTION 5.2 Future Registration Rights. The Company shall not in the
--------------------------
future grant to any owner or purchaser of shares of capital stock of the Company
registration rights (whether demand or incidental) unless (a) such registration
rights are made subordinate to the rights granted hereunder so that each Holder
shall have priority to participate in any piggy-back registration with respect
to such other shares of capital stock of the Company and (b) if the offering by
the Holders is underwritten, such owner or purchaser agrees not to sell any
shares of capital stock of the Company during the period commencing ten (10)
days prior to any such underwritten offering and ending one hundred eighty (180)
days following any such underwritten offering (or for such shorter period of
time as is sufficient and appropriate, in the opinion of the managing
Underwriter).
SECTION 5.3 Exclusion of Registrable Shares. As to any particular
-------------------------------
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities has been declared effective by the Commission and such
securities have been disposed of pursuant to such effective registration
statement, (ii) they shall have been distributed to the public pursuant to the
provisions of Rule 144 or (iii) they shall have ceased to be outstanding.
ARTICLE 6
---------
MISCELLANEOUS
SECTION 6.1 Participation in Underwritten Registrations. No Holder
-------------------------------------------
of Registrable Securities shall be required to make any representations or
warranties to or agreements with the Company or the Underwriters other than
representations, warranties or agreements regarding such Holder and its
ownership of the securities being registered on its behalf and such Holder's
intended method of distribution and any other representation required by law.
No Person may participate in any underwritten registration hereunder unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and
-20-
<PAGE>
(b) completes and executes all customary questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and these registration rights.
SECTION 6.2 Lock-up Agreement. The Holder agrees in connection with
-----------------
any registration of the Company's securities, upon the request of the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, pledge, grant any option for the purchase of or
otherwise dispose of any Registrable Securities without the prior written
consent of the Company or such underwriters, as the case may be, during the
seven (7) days prior to and during the 180-day period beginning on the effective
date of such registration, as the Company or the underwriters may specify;
provided, however, that if the Company delays the effective date of any
- -------- -------
registration statement by more than 14 days, the Investors shall not be
precluded from selling Registrable Shares during the seven-day period
immediately preceding the effective date of such registration statement; and
provided further (i) each member of the Company's Board of Directors and
management and each of the Company's stockholders holding two percent (2%) or
more of the Company's outstanding capital stock enter into a similar agreement
and (ii) that if any such member of the Company's Board of Directors, the
Company's management or a 2% stockholder is released in whole or in part from
such lock-up prior to its expiration, the Company will notify each Investor of
such release and each Investor will be released pro-rata with the released
parties. This provision shall apply whether or not any Registrable Securities
of the Holder are included in the offering. This provision shall apply to the
Company's initial public offering and registrations of the Company's securities
with an effective date on or before the first anniversary of the effective date
of the Company's initial public offering, and shall be of no further force or
effect if the Holder no longer has the right to have Registrable Securities
included in any registration pursuant to this Agreement.
SECTION 6.3 Rule 144 and 144A. The Company covenants that it will
-----------------
file any reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended and that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION 6.4 Suspension of Obligation to File. Notwithstanding the
--------------------------------
provisions of Section 3.1(a), the Company's obligations to file a registration
statement, or cause such registration statement to become and remain effective,
shall be suspended for the minimally necessary period, not to exceed one hundred
twenty (120) days, if there exists at the time material non-public information
relating to the Company that, in the reasonable opinion
-21-
<PAGE>
of the Company's counsel, should not be disclosed. The Company's rights under
this Section 6.4 may not be invoked more than once during any single 365-day
period.
SECTION 6.5 Amendment and Modification. This Agreement may be
--------------------------
amended, modified and supplemented, and any of the provisions contained herein
may be waived, only by a written instrument signed by (i) Holders of at least a
majority in interest of the Series A Registrable Securities, (ii) Holders of at
least a majority in interest of the Series B Registrable Securities, (iii)
Holders of at least a majority in interest of the Series C and Warrant
Registrable Securities and (iv) Holders of at least a majority in interest of
the Series D Registrable Securities (for this purpose, treating the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as if they had been converted into Common Stock).
Notwithstanding anything to the contrary contained in the preceding sentence, a
signature addendum to this Agreement permitting the holder or holders of shares
of Series D Preferred Stock issued upon exercise of the Series D Warrants shall
not be deemed an amendment to this Agreement. No course of dealing between or
among any Persons having any interest in this Agreement will be deemed effective
to modify, amend or discharge any part of this Agreement or any rights or
obligations of any Person under or by reason of this Agreement.
SECTION 6.6 Assignability of Rights. An Investor may assign in whole
-----------------------
or in part their rights and obligations pursuant to this Agreement to one or
more persons, provided that such person acquires at least 20% of the Registrable
Shares originally issued to such Investor. Upon such assignment, the Investors
shall have no further obligations with respect to the portions of their
respective rights and obligations that have been assigned. Any such assignee
shall execute an agreement assuming and agreeing to be bound by this Agreement,
insofar as it relates to the rights and obligations assigned. Notwithstanding
anything to the contrary contained elsewhere in this Section 6.6, an Investor
shall be permitted to assign in whole or in part its rights or obligations
pursuant to this Agreement to any entity under common control with such Investor
or that is a direct or indirect wholly-owned subsidiary of such Investor or such
Investor's parent without obtaining the prior consent of the Company or other
Investors, and such assignments shall not be subject to the 20% requirement
specified in the first sentence hereof.
SECTION 6.7 Binding Effect; Entire Agreement. This Agreement and all
--------------------------------
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns and executors,
administrators and heirs. This Agreement amends, restates and sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them, including, without
limitation, (i) Section 7 of the Series A Preferred Stock Purchase Agreement,
dated as of December 11, 1995, by and between the Company and the Series A
Holder and (ii) the Prior Agreement.
-22-
<PAGE>
SECTION 6.8 Severability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 6.9 Notices. All notices, demands, requests, consents or
-------
approvals (collectively, the "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and shall be personally served or mailed, registered or certified, return
receipt requested, postage prepaid (or by a substantially similar method), or
delivered by a reputable overnight courier service with charges prepaid, or
transmitted by hand delivery, telegram, telex or facsimile, addressed as set
forth below, or such other address as such party shall have specified most
recently by written notice:
(a) If to the Company:
Audible Inc.
65 Willowbrook Boulevard
Wayne, New Jersey 07470
Attention: Donald Katz
Telephone: (201) 890-4070
Telecopy: (201) 890-2442
with copies (which shall not constitute notice) to:
Piper & Marbury L.L.P.
1200 Nineteenth St., N.W.
Washington, DC 20036
Attention: Nancy A. Spangler, Esq.
Telephone: (202) 861-6314
Telecopy: (202) 223-2085
(b) If to a Holder, at the most current address, and with a copy to
be sent to each additional address, given by such Holder to the
Company in writing to the addresses listed for such Holder on the
signature pages to this Agreement.
Notice shall be deemed given or delivered on the date of service or transmission
if personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given or delivered on the
third business day following the date mailed or on the next business day
following delivery of such notice to a reputable overnight courier service.
-23-
<PAGE>
SECTION 6.10 Governing Law. This agreement shall be governed by and
-------------
construed in accordance with the internal law of the State of New York, without
giving effect to principles of conflicts of law.
SECTION 6.11 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
SECTION 6.12 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original
instrument and all of which together shall constitute one and the same
instrument.
SECTION 6.13 Further Assurances. Each party shall cooperate and take
------------------
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
SECTION 6.14 Remedies. In the event of a breach or a threatened
--------
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties that the remedy at
law, inducing monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense or objection in any
action for specific performance or injunctive relief that a remedy at law would
be adequate is waived.
SECTION 6.15 Supersedes Prior Agreement This Agreement amends,
--------------------------
restates and supersedes in their entirety all of the terms and conditions set
forth in the Prior Agreement, and upon execution of this Agreement, the Prior
Agreement shall be of no further force or effect.
SECTION 6.16 Pronouns. Whenever the context may require, any
--------
pronouns used herein shall be deemed also to include the corresponding neuter,
masculine or feminine forms.
(Signatures on following pages.)
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
--------
AUDIBLE INC.
By:/s/ Donald Katz
------------------------------------
Name: Doanld Katz
Title: President
65 Willowbrook Boulevard
Wayne, NJ 07470
INVESTORS:
----------
CPQ HOLDINGS, INC.
By: /s/ Robert W. Stearns
------------------------------------
Name: Robert W. Stearns
Title: Senior Vice President
Address: 20555 SH 249
Houston, Texas 77070
HAMBRECHT & QUIST, CALIFORNIA
By: /s/ Lisa Lewis
------------------------------------
Name: Lisa Lewis
Title: Controller
Attorney-in-fact
Address: One Bush Street
San Francisco, CA 94104
VENTURE FUND I, L.P.
By: /s/ Brad Burnham
-------------------------
Name: Brad Burnham
Title: General Partner
295 North Maple Avenue
Basking Ridge, NJ 07920
-25-
<PAGE>
AT&T VENTURE FUND II, L.P.
By: /s/ Brad Burnham
------------------------------------
Name: Brad Burnham
Title: General Partner
295 North Maple Avenue
Basking Ridge, NJ 07920
THOMSON U.S. INC.
By: /s/ James R. Schurr
------------------------------------
Name: James R. Schurr
Title: Vice President
Two Mill Road, P.O. Box 4679
Wilmington, DE 19807
INTEL CORPORATION
By: /s/ Arvind Sodhani
------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
2200 Mission College Boulevard
Santa Clara, CA 95952-8119
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
Its General Partner
By: PATRICOF & CO. MANAGERS
INC., its General Partner
By: /s/ Alan Patricof
------------------------------------
Name: Alan Patricof
Title: Co. Chairman
445 Park Avenue, 11th Fl.
New York, New York 10022
-26-
<PAGE>
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC., its
Investment Advisor
By: /s/ Alan Patricof
------------------------------------
Name: Alan Patricof
Title: Co. Chairman
445 Park Avenue, 11th Fl.
New York, New York 10022
PATRICOF PRIVATE INVESTMENT
CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Alan Patricof
------------------------------------
Name: Alan Patricof
Title: Co. Chairman
445 Park Avenue, 11th Fl.
New York, New York 10022
KLEINER PERKINS CAUFIELD & BYERS VIII
By: PCB VIII ASSOCIATES,
its General Partner
By: /s/ Kevin R. Compton
------------------------------------
Name: Kevin R. Compton
Title: General Partner
2750 Sand Hill Road
Menlo Park, CA 94025
-27-
<PAGE>
KPCB INFORMATION SCIENCES ZAIBATSU
FUND II
By: KPCB VII ASSOCIATES, its General
Partner
By: /s/ Kevin R. Compton
-----------------------------------
Name: Kevin R. Compton
Title: General Partner
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB VIII FOUNDERS FUND
By: KPCB VIII Associates
Its: General Partner
By: /s/ Kevin R. Compton
-----------------------------------
Name: Kevin R. Compton
Title: General Partner
2750 Sand Hill Road
Menlo Park, CA 94025
IRONWOOD CAPITAL L.L.C.
By: /s/ Tim Mott
-----------------------------------
Name:
Title:
2241 Lundy Avenue
San Jose, CA 95131
__________________________
Bingham Gordon
Address: ________________
__________________________
-28-
<PAGE>
__________________________
Winthrop Knowlton
Address:
COMDISCO, INC.
By:_______________________
Name:
Title:
IMPERIAL BANK, INC.
By:_______________________
Name:
Title:
/s/ Dan Rimer
--------------------------
Dan Rimer
Address:_____________________________
_______________________________
/s/ Kip Sheeline
-------------------------------------
Kip Sheeline
Address:_____________________________
_______________________________
/s/ Zach Hulsey
-------------------------------------
Zach Hulsey
Address: 950 Vista Road
-----------------------------
Hillsborough, CA 94010
-------------------------------------
/s/ Jammie Carroon
-------------------------------------
Jammie Carroon
Address: 3674 1st Street
-----------------------------
SF CA 94110
-------------------------------
/s/ Rob A. Keller
-------------------------------------
Rob Keller
Address: 3543 Washington Street
-----------------------------
SF, CA 94418
-------------------------------
-29-
<PAGE>
EXHIBIT 10.14.1
EXECUTION COPY
--------------
AUDIBLE, INC.
AMENDMENT NO. 1 TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
THIS AMENDMENT NO. 1 (the "Amendment") dated as of December 18, 1998 to
the Amended and Restated Registration Rights Agreement dated February 26, 1998
(the "Agreement"), by and among Audible, Inc., a Delaware corporation (the
"Company"), and the holders of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock listed on
the signature pages thereto (such holders, the "Series A Holders", the "Series B
Holders", the "Series C Holders" and the "Series D Holders", respectively), is
hereby entered into by the Company, the Series A Holders, the Series B Holders,
the Series C Holders, the Series D Holders and the New Investors (as defined
herein). The undersigned Series A Holders, Series B Holders, Series C Holders
and Series D Holders constitute the holders of at least a majority of the
Registrable Securities of each such class, as such term is defined in the
Agreement.
WHEREAS, the Company is issuing and selling to certain of the existing
Series D Holders and certain new investors (the "New Investors") (such Series D
Holders and the New Investors are herein collectively referred to as the
"Investors") an aggregate of up to Three Million (3,000,000) shares (the "New
Shares") of Series D Preferred Stock under the terms and conditions set forth in
Amendment No. 1, dated as of the date hereof, to the Series D Convertible
Preferred Stock Purchase Agreement dated as of February 26, 1998; and
WHEREAS, the Company, the Series A Holders, the Series B Holders, the
Series C Holders and the existing Series D Holders desire that the Investors be
granted registration rights with respect to the New Shares having the same terms
and conditions as the registration rights granted to the existing Series D
Holders with respect to the shares of Series D Preferred Stock.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The New Shares purchased by the Investors and the shares of Common
Stock into which the New Shares may be converted are and shall be "shares of
Series D Preferred Stock" and "Series D Registrable Securities," respectively,
as such terms are defined in the Agreement.
2. Each New Investor shall be a "Holder", as such term is defined in
the Agreement.
<PAGE>
3. Amendment No. 1, dated as of the date hereof, to the Amended and
Restated Stockholders' Agreement, dated as of February 26, 1998, shall be
included in the term "Stockholders' Agreement", as such term is defined in the
Agreement.
4. Amendment No. 1, dated as of the date hereof, to the Series D
Convertible Preferred Stock Purchase Agreement dated as of February 26, 1998,
shall be included in the term "Stock Purchase Agreement", as such term is
defined in the Agreement.
5. Wherever the Agreement is itself referred to in the Agreement, or
wherever there are references in the Agreement to "hereunder', "hereof',
"herein", or words of like import, they shall mean the Agreement, as amended
hereby.
6. Each of the Investors hereby agrees to be bound by all the terms
and conditions of, and is hereby granted all of the rights of an Investor under,
the Agreement as though such Investor had been an original party to the
Agreement, and by executing this Amendment, each Investor (in the case of the
Series D Holders, to the extent that New Shares are acquired hereunder) becomes
a party thereto and is bound thereby.
7. All notices, pursuant to Section 6.9 of the Agreement, addressed
to the New Investors shall be addressed as follows;
If to Microsoft Corporation:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Senior Director, Business Development and Investments
Telephone No.: (425) 882-8080
Telecopier No.: (425) 936-7329
with a copy to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: General Counsel, Finance & Administration
Telephone No.: (425) 882-8080
Telecopier No.: (425) 869-1327
-2-
<PAGE>
If to any of the CSK Venture Capital entities:
CSK Venture Capital Co., Ltd.
Kenchikukaikan 7F, 5-26-20 Shiba
Minato-ku Tokyo 108-0014
Japan
Attention: Kenji Suzuki
Telephone No.: 81-(0)3-3457-5588
Telecopier No.: 81-(0)3-3457-7070
with a copy to:
Morrison & Foerster's
AIG Building, 7th Floor
1-1-3 Marunouchi, Chiyoda-ku
Tokyo 100 Japan
Attention: Charles Comey
Telephone No.: 81-3-3214-6522
Telecopier No.: 81-3-3214-6512
If to New York Life Insurance Company:
New York Life Insurance Company
Investment Department, Venture Capital Group
51 Madison Avenue
New York, NY 10010
Attention: Philip Smith
Telephone No.: (212) 576-5101
Telecopier No.: (212) 576-8080
with a copy to:
New York Life Insurance Company
Office of the General Counsel
51 Madison Avenue
New York, NY 10010
Attention: E. Payson Clark
Telephone No.: (212) 576-7265
Telecopier No.: (212) 576-8340
-3-
<PAGE>
If to any of the C. Blair entities:
C. Blair Asset Management
5 Greenwich Office Park
4/th/ Floor
Greenwich, CT 06831
Attention: Christopher Blair
Telephone No.: (203) 552-9797
Telecopier No.: (203) 552-9418
8. The Company anticipates that the New Shares will be issued at one
or more closings and the parties hereto acknowledge and agree that additional
investors who purchase New Shares on any such subsequent closing will be
required, by executing counterparts of this Amendment, to become Investors for
all purposes of this Amendment and the Agreement.
9. This Amendment shall in all respects be governed by, and construed
and enforced in accordance with, the internal laws of the State of New York,
without regard to the conflict of law principles thereof.
10. Any party's failure to enforce any provision or provisions of this
Amendment shall not in any way be construed as a waiver of any such provision or
provisions, nor shall such failure to enforce prevent that party thereafter from
enforcing each and every other provision of this Amendment. The rights granted
to the parties herein are cumulative and shall not constitute a waiver of any
party's right to assert all other legal remedies available to it under the
circumstances.
11. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
12. Each Investor agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Amendment or the Agreement.
13. The Agreement, as amended by this Amendment, is and shall continue
to be in full force and effect and is hereby in all respects ratified and
confirmed.
14. Nothing contained in this Amendment or the Agreement shall
diminish the continuing obligations of any financial institution to comply with
applicable requirements of law that such financial institution maintain
responsibility for the disposition of, and control over, its admitted assets,
investments and property, including (without limiting the generality of the
foregoing) the provisions of Section 1411(b) and all other applicable provisions
of the New York Insurance Law, as amended, and as hereinafter from time to time
in effect.
(Signatures on following pages.)
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
AUDIBLE, INC.
By: /s/ Andrew J. Huffman
-----------------------------
Andrew Huffman, President and
Chief Executive Officer
NEW INVESTORS
MICROSOFT CORPORATION
/s/ Gregory B. Mattei
By: _________________________________
Name: Gregory B. Mattei
--------------------------
Title: Vice President Finance,
Chief Financial Officer
-------------------------
Address: One Microsoft Way
Redmond, WA 98052-6399
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-1(A) INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------
Name: Kinya Nakagome
-------------------------
Title: Managing Director
-------------------------
Address: Kenchikukaikan 7F, 5-26-20 Shiba
Minato-ku Tokyo 108-0014
Japan
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-1(B) INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------
Name: Kinya Nakagome
-------------------------
Title: Managing Director
-------------------------
Address: Kenchikukaikan 7F, 5-26-20 Shiba
Minato-ku Tokyo 108-0014
Japan
-5-
<PAGE>
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-2 INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------
Name: Kinya Nakagome
-------------------------
Title: Managing Director
-------------------------
Address: Kenchikukaikan 7F, 5-26-20 Shiba
Minato-ku Tokyo 108-0014
Japan
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Philip A. Smith
---------------------------------
Name: Philip A. Smith
-------------------------
Title: Director
-------------------------
Address: 51 Madison Avenue
New York, NY 10010
C. BLAIR FUND, LTD.
By: /s/ Christopher Blair
---------------------------------
Name: Christopher Blair
-------------------------------
Title: General Partner
-------------------------------
C. BLAIR PARTNERS, LP
By: /s/ Christopher Blair
---------------------------------
Name: Christopher Blair
-------------------------------
Title: General Partner
-------------------------------
C. BLAIR PARTNERS II, LP
By: /s/ Christopher Blair
---------------------------------
Name: Christopher Blair
-------------------------------
Title: General Partner
-------------------------------
-6-
<PAGE>
ORIGINAL INVESTORS
CPQ HOLDINGS, INC.
By: /s/ Linda Auwers
------------------------------------
Name: Linda Auwers
---------------------------
Title: Secretary
---------------------------
Address: 20555 SH 249
Houston, Texas 77070
HAMBRECHT & QUIST, CALIFORNIA
By: ____________________________________
Name: Lisa Lewis
Title: Controller
Attorney-in-fact
Address: One Bush Street
San Francisco, CA 94104
VENTURE FUND I, L.P.
By: VENTURE MGMT I, L.P., it's General Partner
By: /s/ Brad Burnham
-----------------------------
Name: Brad Burnham
Title: General Partner
Address: 295 North Maple Avenue
Basking Ridge, NJ 07920
AT&T VENTURE FUND II, L.P.
By: VENTURE MGMT LLC, it's General Partner
By: /s/ Brad Burnham
-----------------------------
Name: Brad Burnham
Title: Manager
Address: 295 North Maple Avenue
Basking Ridge, NJ 07920
-7-
<PAGE>
THOMSON U.S. INC.
By: /s/ James R. Schurr
------------------------
Name: James R. Schurr
Title: Vice President
Address: Two Mill Road, P.O. Box 4679
Wilmington, DE 19807
THOMSON FINANCE INVESTMENTS, INC.
By: /s/ James R. Schurr
------------------------
Name: James R. Schurr
Title: Vice President
Address: Two Mill Road, P.O. Box 4679
Wilmington, DE 19807
INTEL CORPORATION
By: /s/ Satish Rishi
-----------------------
Name: Satish Rishi
Title: Assistant Treasurer,
International Intel Corporation
Address: 2200 Mission College Boulevard
Santa Clara, CA 95952-8119
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
Its General Partner
By: PATRICOF & CO. MANAGERS
INC., its General Partner
By: /s/ Alan Patricof
-----------------------
Name: Alan Patricof
Title: Chairman
Address: 445 Park Avenue, 11th Fl.
New York, New York 10022
-8-
<PAGE>
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC., its
Investment Advisor
By: /s/ Alan Patricof
------------------------
Name: Alan Patricof
Title: Chairman
Address: 445 Park Avenue, 11th Fl.
New York, New York 10022
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Alan Patricof
------------------------
Name:
Title:
Address: 445 Park Avenue, 11th Fl.
New York, New York 10022
KLEINER PERKINS CAUFIELD & BYERS VIII
By: PCB VIII ASSOCIATES,
its General Partner
By: /s/ Kevin R. Compton
------------------------
Name: Kevin R. Compton
Title: General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
-9-
<PAGE>
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII ASSOCIATES, its General
Partner
By: /s/ Kevin R. Compton
----------------------
Name: Kevin R. Compton
Title: General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
KPCB VIII FOUNDERS FUND
By: KPCB VIII Associates
Its: General Partner
By: /s/ Kevin R. Compton
----------------------
Name: Kevin R. Compton
Title: General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
IRONWOOD CAPITAL L.L.C.
By: /s/ Timothy Mott
----------------------
Name:
Title:
Address: 2241 Lundy Avenue
San Jose, CA 95131
_______________________________
Bingham Gordon
Address: _____________________
_______________________________
_______________________________
Winthrop Knowlton
Address: _____________________
_______________________________
-10-
<PAGE>
COMDISCO, INC.
By:____________________________
Name:
Title:
Address:
IMPERIAL BANK, INC.
By:____________________________
Name:
Title:
Address:
_______________________________
Dan Rimer
Address: _____________________
_______________________________
_______________________________
Kip Sheeline
Address: _____________________
_______________________________
_______________________________
Zach Hulsey
Address: _____________________
_______________________________
_______________________________
Jammie Corroon
Address: _____________________
_______________________________
_______________________________
Rob Keller
Address: _____________________
_______________________________
-11-
<PAGE>
EXHIBIT 10.15
AUDIBLE, INC.
1999 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
AUDIBLE, INC., a Delaware corporation (the "Company"), hereby establishes
the AUDIBLE, INC. 1999 Stock Incentive Plan (the "Plan"). The purpose of the
Plan is to promote the long-term growth and profitability of the Company by (i)
providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Company, and (ii) enabling
the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination of the
foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, performance award, or other stock-based award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Company, par
value of one cent ($0.01) per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, the value
determined by the Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) of the Exchange Act, "Fair Market Value" shall
mean, as applicable, (i) either the closing price or the average of the high and
low sale price on the relevant date, as determined in the Administrator's
discretion, quoted on the New York Stock Exchange, the American Stock Exchange,
or the Nasdaq National Market; (ii) the last sale price on the relevant date
quoted on the Nasdaq SmallCap Market; (iii) the average of the high bid and low
asked prices on the relevant date quoted on the Nasdaq OTC Bulletin Board
Service or by the National Quotation Bureau, Inc. or a comparable service as
determined in the Administrator's discretion; or (iv) if the Common Stock is not
quoted by any of the above, the average of the closing bid and asked prices on
the relevant date furnished by a professional market maker for the Common Stock,
or by such other source, selected by the Administrator. If no public trading of
the Common
<PAGE>
Stock occurs on the relevant date, then Fair Market Value shall be determined as
of the next preceding date on which trading of the Common Stock does occur.
(h) "Grant Agreement" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Code
section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Code section 424(f), or any
successor thereto.
3. ADMINISTRATION
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
-2-
<PAGE>
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee, [consultant,] or director of the Company, and their
respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
Subject to adjustments as provided in Section 7(d) of the Plan, the shares
of Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of ____________ shares of Common Stock. The
Company shall reserve such number of shares for Awards under the Plan, subject
to adjustments as provided in Section 7(d) of the Plan. If any Award, or portion
of an Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or canceled
as to any shares, or if any shares of Common Stock are surrendered to the
Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), the shares subject to such Award and the
surrendered shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to the
Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
Subject to adjustments as provided in Section 7(d) of the Plan, the maximum
number of shares of Common Stock subject to Awards of any combination that may
be granted during any one fiscal year of the Company to any one individual under
this Plan shall be limited to _________. Such per-individual limit shall not be
adjusted to effect a restoration of shares of Common Stock with respect to which
the related Award is terminated, surrendered or canceled.
5. PARTICIPATION
Participation in the Plan shall be open to all [employees, officers, and
directors] [employees, officers, directors, and consultants] of the Company, or
of any Affiliate of the Company, as may be selected by the Administrator from
time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the Company
or of any Parent or Subsidiary of the Company. Options intended to qualify as
incentive stock options under Code section 422 must have an exercise price at
least equal to Fair Market Value on the date of grant, but nonqualified stock
-3-
<PAGE>
options may be granted with an exercise price less than Fair Market Value. No
stock option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Company's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an Affiliate as a whole, over such performance
period as the Administrator may designate.
(f) Other Stock-Based Awards. The Administrator may from time to time
grant other stock-based awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine.
Other stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
-4-
<PAGE>
7. MISCELLANEOUS
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The Company
or its Affiliate may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the grantee or holder
of an Award. In the event that payment to the Company or its Affiliate of such
tax obligations is made in shares of Common Stock, such shares shall be valued
at Fair Market Value on the applicable date for such purposes.
(b) Loans. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Company by reason of any stock dividend, spin-off, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the Company
or of any other entity, or in any other matters which relate to Awards as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, [consultants] or directors of entities who become or are
about to become employees, officers, [consultants] or directors of the Company
or an
-5-
<PAGE>
Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Company or shall interfere in any way with the right of
the Company to terminate such service at any time with or without cause or
notice.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Delaware, without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
Date Approved by the Board:________________________
Date Approved by the Stockholders:_________________
-6-
<PAGE>
EXHIBIT 10.16
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF L933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH
RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. _____ Number of Shares ____
AUDIBLE, INC.
Void after March 31, 2002
1. Issuance. This Warrant is issued to _________________ by Audible, Inc.,
--------
a Delaware corporation (hereinafter with its successors called the "Company").
2. Purchase Price; Number of Shares. Subject to the terms and conditions
--------------------------------
hereinafter set forth, the registered holder of this Warrant (the "Holder"),
commencing on the date hereof, is entitled upon surrender of this Warrant with
the subscription form annexed hereto duly executed, at the office of the Company
or such other office as the Company shall notify the Holder of in writing, to
purchase from the Company at a price per share (the "Purchase Price") of $6.00,
______ fully paid and nonassessable shares of Common Stock, $0.01 par value, of
the Company (the "Common Stock"). Until such time as this Warrant is exercised
in full or expires, the Purchase Price and the securities issuable upon exercise
of this Warrant are subject to adjustment as hereinafter provided.
3. Payment of Purchase Price. The Purchase Price may be paid (i) in cash or
-------------------------
by check, (ii) by the surrender by the Holder to the Company of any promissory
notes or other obligations issued by the Company, with all such notes and
obligations so surrendered being credited against the Purchase Price in an
amount equal to the principal amount thereof plus accrued interest to the date
of surrender, (iii) through delivery by the Holder to the Company of other
securities issued by the Company, with such securities being credited against
the Purchase Price in an amount equal to the fair market value thereof, as
determined in good faith by the Board of Directors of the Company (the "Board"),
or (iv) by any combination of the foregoing. The Board shall promptly respond in
writing to an inquiry by the Holder as to the fair market value of any
securities the Holder may wish to deliver to the Company pursuant to clause
(iii) above.
<PAGE>
4. Net Issue Election. The Holder may elect to receive, without the payment
------------------
by the Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice annexed hereto duly executed,
at the office of the Company. Thereupon, the Company shall issue to the Holder
such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to the Holder pursuant to this
Section 4.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this Section 4.
A = the fair market value of one share of Common Stock, as determined in
good faith by the Board, as at the time the net issue election is
made pursuant to this Section 4.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this Section 4.
The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.
5. Partial Exercise. This Warrant may be exercised in part, and the Holder
----------------
shall be entitled to receive a new warrant, which shall be dated as of the date
of this Warrant, covering the number of shares in respect of which this Warrant
shall not have been exercised.
6. Issuance Date. The person or persons in whose name or names any
-------------
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
7. Expiration Date; Automatic Exercise. This Warrant shall expire at the
-----------------------------------
close of business on March 31, 2002, and shall be void thereafter.
Notwithstanding the foregoing, this Warrant shall automatically be deemed to be
exercised in full pursuant to the provisions of Section 4 hereof, without any
further action on behalf of the Holder, immediately prior to the time this
Warrant would otherwise expire pursuant to the preceding sentence.
8. Reserved Shares; Valid Issuance. The Company covenants that it will at
-------------------------------
all times from and after the date hereof reserve and keep available such number
of its authorized shares of Common Stock, free from all preemptive or similar
rights therein, as will be sufficient to permit the exercise of this Warrant in
full. The Company further covenants that such shares as may be
<PAGE>
issued pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
9. Dividends. If after the Original Issue Date (as defined in Section 15
---------
hereof) the Company shall subdivide the Common Stock, by split-up or otherwise,
or combine the Common Stock, or issue additional shares of Common Stock in
payment of a stock dividend on the Common Stock, the number of shares issuable
on the exercise of this Warrant shall forthwith be proportionately increased in
the case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination, and the Purchase Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination.
10. Mergers and Reclassifications. If after the Original Issue Date there
-----------------------------
shall be any reclassification, capital reorganization or change of the Common
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 9 hereof), or any consolidation of the Company with, or
merger of the Company into, another corporation or other business organization
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Common Stock), or any sale or conveyance to another corporation or
other business organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the exercise
of this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased by the Holder immediately
prior to such reclassification, reorganization, change, consolidation, merger,
sale or conveyance, and in any such case appropriate provisions shall be made
with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.
11. Fractional Shares. In no event shall any fractional share of Common
-----------------
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 12,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted, as
-------------------------
herein provided, the Company shall promptly deliver to the Holder a certificate
of a firm of independent public accountants setting forth the Purchase Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
<PAGE>
13. Notices of Record Date, Etc. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company,
or sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
14. Other Warrants. This Warrant is one of a series of warrants
--------------
(collectively, the "Warrants") that were originally issued by the Company on
March 31, 1997 (the "Original Issue Date") pursuant to a Stock and Warrant
Purchase Agreement, dated as of March 31, 1997, among the Company and the other
parties thereto.
15. Amendment. The terms of this Warrant may be amended, modified or waived
---------
only with the written consent of the Company and the holders of Warrants
representing at least two-thirds of the number of shares of Common Stock then
issuable upon the exercise of the Warrants. No such amendment, modification or
waiver shall be effective as to this Warrant unless the terms of such amendment,
modification or waiver shall apply with the same force and effect to all of the
other Warrants then outstanding.
16. Warrant Register; Transfers, Etc.
---------------------------------
A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change
its address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or
delivered to the Holder at its address as shown on the warrant register.
<PAGE>
B. Subject to compliance with applicable federal and state securities
laws, this Warrant may be transferred by the Holder with respect to any or
all of the shares purchasable hereunder. Upon surrender of this Warrant to
the Company, together with the assignment hereof properly endorsed, for
transfer of this Warrant as an entirety by the Holder, the Company shall
issue a new warrant of the same denomination to the assignee. Upon surrender
of this Warrant to the Company, together with the assignment hereof properly
endorsed, by the Holder for transfer with respect to a portion of the shares
of Common Stock purchasable hereunder, the Company shall issue a new warrant
to the assignee, in such denomination as shall be requested by the Holder
hereof, and shall issue to such Holder a new warrant covering the number of
shares in respect of which this Warrant shall not have been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or destroyed,
the Company shall issue a new warrant of like tenor and denomination and
deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the
Company, provided, however, that so long as ______ is the registered holder
of this Warrant, no indemnity shall be required other than its written
agreement to indemnify the Company against any loss arising from the issuance
of such new warrant.
17. No Impairment. The Company will not, by amendment of its Restated
-------------
Certificate of Incorporation or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
18. Governing Law. The provisions and terms of this Warrant shall be
-------------
governed by and construed in accordance with the internal laws of the State of
New York.
19. Successors and Assigns. This Warrant shall be binding upon the Company's
----------------------
successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
20. Business Days. If the last or appointed day for the taking of any action
-------------
required or the expiration of any right granted herein shall be a Saturday or
Sunday or a legal holiday, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday or Sunday or such a
legal holiday.
<PAGE>
Dated: March 31, 1997 AUDIBLE, INC.
(Corporate Seal) By:___________________________
Donald Katz
Attest: Title: President
______________________________________
Patrick Barry, Vice President
<PAGE>
Subscription
To:____________________ Date:_________________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
______________________________
Signature
______________________________
Name for Registration
______________________________
Mailing Address
<PAGE>
Net Issue Election Notice
To:____________________ Date:_________________________
The undersigned hereby elects under Section 4 to surrender the right to
purchase _______ shares of Common Stock pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
______________________________
Signature
______________________________
Name for Registration
______________________________
Mailing Address
<PAGE>
Assignment
For value received ____________________________ hereby sells,
assigns and transfers unto ______________________________________
_________________________________________________________________
Please print or typewrite name and address of Assignee
_________________________________________________________________
the within Warrant, and does hereby irrevocably constitute and appoint
_______________________ its attorney to transfer the within Warrant on the books
of the within named Company with full power of substitution on the premises.
Dated:_______________________
______________________________
In the Presence of:
_____________________________
<PAGE>
EXHIBIT 10.17
STOCK RESTRICTION AGREEMENT
---------------------------
AGREEMENT made this ______ day of __________________________, between
Audible Inc., a Delaware corporation (the "Company"), and (the
"Employee").
WHEREAS, the Employee wishes to purchase an aggregate of _________________
shares of Common Stock, $.01 par value, of the Company (the "Common Stock"); and
WHEREAS, the Company wishes to sell such shares to the Employee.
For valuable consideration, receipt of which is acknowledged, the parties
hereto agree as follows:
1. Purchase of Shares. The Employee hereby subscribes for and, upon
------------------
acceptance hereof, shall purchase, subject to the terms and conditions set forth
in this Agreement, ______ shares (the "Shares") of Common Stock, at a purchase
price of $______ per share (the "Purchase Price"). In consideration of the
receipt by the Employee of the Shares, the Employee shall deliver to the Company
the aggregate Purchase Price in cash, by promissory note or by a combination of
both. Upon receipt of the aggregate Purchase Price by the Company for the
Shares, the Company shall issue to the Employee one certificate in the name of
the Employee for that number of shares purchased by the Employee. The Employee
agrees that the Shares shall be subject to the Purchase Option (as defined
below) set forth in Section 2 of this Agreement and the restrictions on transfer
set forth in Section 4 of this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Employee ceases to be employed by the
Company for any reason or no reason, with or without cause, prior to the date
when all Shares shall have vested hereunder, the Company shall have the right
and option (the "Purchase Option") to purchase from the Employee, for a sum of
$ per share (the "Option Price"), up to that number of Shares that remains
unvested at the time the Employee ceases to be so employed. The Option Price
may, at the election of the Company, be paid to the Employee or be used to
reduce the indebtedness under a promissory note issued to the Company by the
Employee as payment for the Shares. The Shares shall vest as to _____________
Shares at _________________ and on the last day of each month thereafter until
all Shares have fully vested, _______________ shares shall vest monthly.
(b) In the event that the Employee's employment with the Company is
terminated by reason of death or disability, the number of the Shares then
subject to the Purchase Option shall be reduced by fifty percent (50%). For
this purpose, "disability" shall mean the inability of the Employee, due to a
medical reason, to carry out his duties as an employee of the Company for a
period of six consecutive months.
(c) In the event of a "change in control," as defined below,
notwithstanding the foregoing, this option shall vest and be exercisable with
respect to an additional number of shares
<PAGE>
equal to 50% of the shares that remain subject to vesting as of the effective
date of the "change in control." The Company shall immediately exercise its
Purchase Option with respect to any unvested shares unless (x) the Board of
Directors in its sole discretion shall determine otherwise or (y) the acquiring
entity shall specifically assume this Agreement. For the purpose of this
Agreement, a "change in control" shall be deemed to occur upon the first of the
following events:
(I) any person becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities and
such person has the ability to elect a majority of the members of the Company's
Board of Directors, if such ownership is not in place on the date of this
Agreement;
(II) any person becomes the beneficial owner, directly or
indirectly, of securities of the Company sufficient to elect a majority of the
members of the Board of Directors of the Company, provided that Optionee's
responsibilities as an employee of the Company are materially adversely
diminished by such change in control; or
(III) the sale of all or substantially all the assets of the
Company, or a merger, consolidation, or similar transaction of the Company in
which the Company is not the surviving entity or the Company's stockholders
immediately prior to such transaction hold less than 50% of the voting
securities of the surviving entity.
A "change in control" shall not include either of the following
events:
(I) a transaction, the sole purpose of which is to change the
state of the Company's incorporation; or
(II) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity (the "surviving
entity"); provided that the surviving entity is owned directly or indirectly by
the Company's stockholders immediately following such transaction in
substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
(d) For purposes of this Agreement, employment with the Company shall
include employment with a parent or subsidiary of the Company.
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or
mailing to the Employee (or his estate), in accordance with Section 17, written
notice of exercise within 60 days after the termination of the employment of the
Employee with the Company. Such notice shall specify the number of Shares to be
purchased. If and to the extent the Purchase Option is not so exercised within
such 60-day period, the Purchase Option shall automatically expire and terminate
effective upon the expiration of such 60-day period.
-2-
<PAGE>
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company.
(c) After the time at which any Shares are required to be delivered to
the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company, in
cancellation of all or a portion of any outstanding indebtedness of the Employee
to the Company or in cash (by check) or both. Such action shall take place
promptly upon receipt of the Shares.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 2 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
4. Restrictions on Transfer.
------------------------
(a) Except as otherwise provided in subsection (b) below, the Employee
shall not, sell, assign, transfer, pledge, hypothecate or otherwise dispose of,
by operation of law or otherwise (collectively "transfer"), any of the Shares,
or any interest therein, unless and until such Shares are no longer subject to
the Purchase Option. In addition, Shares which are released from the Purchase
Option shall not be transferred in contravention of the Right of First Refusal
under Section 6 or the market stand-off provisions of Section 8.
(b) Notwithstanding the foregoing, the Employee may transfer Shares to
or for the benefit of any spouse, child or grandchild, or to a trust for their
benefit, provided that such Shares shall remain subject to this Agreement
--------
(including without limitation the restrictions on transfer set forth in this
Section 4, the Purchase Option, the Right of First Refusal and the Market Stand-
Off) and such permitted transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Agreement.
5. Effect of Prohibited Transfer. The Company shall not be required (a)
-----------------------------
to transfer on its books any of the Shares which shall have been sold
or transferred in violation of any of the provisions set forth in this
Agreement, or (b) to treat as owner of such Shares or to pay dividends
to any transferee to whom any such Shares shall have been so sold or
transferred.
-3-
<PAGE>
6. Right of First Refusal on Dispositions.
--------------------------------------
(a) At any time prior to (i) a Qualifying Public Offering, or (ii) a
Change in Control Transaction, each as defined below, if the Employee desires to
transfer all or any part of its Shares pursuant to a bona fide offer from a
third party (the "Proposed Transferee"), the Employee shall submit a written
offer (the "Offer") to sell such Shares (the "Offered Shares") to the Company on
the same terms and conditions, including price, or terms as reasonably similar
as possible, and in no event less favorable to the Company than those on which
the Employee proposes to transfer such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the Offered Shares proposed to be transferred, the total number of Shares owned
by the Employee, the terms and conditions, including price, of the proposed
transfer, and any other material facts relating to the proposed transfer. The
Offer shall further state that the Company may acquire, in accordance with the
provisions of this Agreement, all or any portion of the Offered Shares for the
price and upon the other terms and conditions, including deferred payment (if
applicable), set forth therein. Should the purchase price specified in the
Offer be payable in property other than cash or evidences of indebtedness, the
Company shall have the right to pay the purchase price in the form of cash equal
in amount to the fair market value of such property. If Employee and the
Company (or its assignees) cannot agree on such cash value with the ten (10)
days after the Company's receipt of the Offer, the valuation shall be made by an
appraiser of recognized standing selected by Employee and the Company.
(b) If the Company desires to purchase all or any part of the Offered
Shares, the Company shall communicate in writing its election to purchase to the
Employee, which communication shall state the number of Offered Shares the
Company desires to purchase and shall be given to the Employee in accordance
with Section 17 below within 15 days of the date the Offer was made. Such
communication shall, when taken in conjunction with the Offer, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale and
purchase of such Offered Shares. The sale of the Offered Shares to be sold to
the Company pursuant to this Section 6 shall be made at the offices of the
Company on the 15th day following the date the Offer was made (or if such 15th
day is not a business day, then on the next succeeding business day). Such sale
shall be effected by the Employee's delivery to the Company of a certificate or
certificates evidencing the Offered Shares to be purchased by it, duly endorsed
for transfer to the Company, against payment to the Employee of the purchase
price therefor by the Company.
(c) If the Company does not purchase all of the Offered Shares, the
Offered Shares not so purchased may be sold by the Employee at any time within
90 days after the date the Offer was made, subject to the provisions of Section
2. Any such sale shall be to the Proposed Transferee, at not less than the
price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those specified in the Offer. Any Offered Shares not
sold within such 90-day period shall continue to be subject to the requirements
of a prior offer pursuant to this Section 6. If Offered Shares are sold
pursuant to this Section 6 to any purchaser who is not a party to this
Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
-4-
<PAGE>
(d) A "Qualifying Public Offering" shall mean the closing of the sale
of shares of Common Stock, at a price of at least $4.00 per share (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
similar recapitalizations affecting such shares), in a public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, resulting in at least $10,000,000 of gross proceeds to the Company.
(e) A "Change in Control Transaction" shall mean a transaction
described in Section 2(c).
7. Escrow. For purposes of facilitating the enforcement of the provisions
------
of this Agreement, the Employee agrees to deliver the certificate(s)
representing the Shares with a stock power executed by the Employee and by the
Employee's spouse (if required for transfer), in blank, to the Secretary of the
Company or its designee, to hold said certificate(s) and stock power(s) in
escrow and to take all such actions and to effectuate all such transfers and/or
releases as are in accordance with the terms of this Agreement. The Employee
hereby acknowledges that the Secretary of the Company (or its designee) is so
appointed as the escrow holder with the foregoing authorities as a material
inducement to make this Agreement and that said appointment is coupled with an
interest and is accordingly irrevocable. The Employee agrees that said escrow
holder shall not be liable to any party hereof (or to any other party) for any
actions or omission unless such escrow holder is grossly negligent. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time. The Secretary of
the Company initially shall act as the escrow holder with respect to such
Shares.
8. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the Company
of its equity securities pursuant to an effective registration statement filed
under the Securities Act, including the Company's initial public offering,
Employee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to, any Shares without prior written consent of the Company or its underwriters.
Such limitations shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Company or such underwriters; provided, however, that in no event shall such
--------
period exceed one hundred eighty (180) days. The limitations of this Section 8
shall in all events terminate three (3) years after the effective date of the
Company's initial public offering.
(b) In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the Shares shall be immediately subject to the
provisions of this Section 8, to the same extent the Shares are at such time
covered by such provisions.
-5-
<PAGE>
(c) In order to enforce the limitations of this Section 8, the Company may
impose stop-transfer instructions with respect to the Shares until the end of
the applicable stand-off period.
9. Restrictive Legend. All certificates representing Shares shall have
------------------
affixed thereto a legend in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a certain Stock
Restriction Agreement between the corporation and the registered owner of this
certificate (or his predecessor in interest), and such Agreement is available
for inspection without charge at the office of the Treasurer of the
corporation."
10. Investment Representations. The Employee represents, warrants and
--------------------------
covenants as follows:
(a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.
(b) He has had such opportunity as he has deemed adequate to obtain
from representatives of the Company such information as is necessary to permit
him to evaluate the merits and risks of his investment in the Company.
(c) He has sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in the purchase of the Shares
and to make an informed investment decision with respect to such purchase.
(d) He can afford a complete loss of the value of the Shares and is
able to bear the economic risk of holding such Shares for an indefinite period.
(e) He understands that (i) the Shares have not been registered under
the Securities Act and are "restricted securities" within the meaning of Rule
144 under the Securities Act; (ii) the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 will not be available for
at least two years and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
-6-
<PAGE>
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be sold, transferred or
otherwise disposed of in the absence of an effective registration statement
under such Act or an opinion of counsel satisfactory to the corporation to the
effect that such registration is not required."
11. Adjustments for Stock Splits, Stock Dividends, etc.
---------------------------------------------------
(a) If from time to time during the term of the Purchase Option there
is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to any merger of the Company or acquisition of its
assets, then the rights of the Company under this Agreement shall inure to the
benefit of the Company's successor and this Agreement shall apply to the
securities or other property received upon such conversion, exchange or
distribution in the same manner and to the same extent as the Shares.
12. Withholding Taxes.
-----------------
(a) The Employee acknowledges and agrees that the Company has the
right to deduct from payments of any kind otherwise due to the Employee any
federal, state or local taxes of any kind required by law to be withheld with
respect to the purchase of the Shares by the Employee.
(b) If the Employee elects, in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended, to recognize ordinary income in the
year of acquisition of the Shares, the Company will require at the time of such
election an additional payment for withholding tax purposes based on the
difference, if any, between the purchase price for such Shares and the fair
market value of such Shares as of the day immediately preceding the date of the
purchase of such Shares by the Employee.
13. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
-7-
<PAGE>
14. Waiver. Any provision contained in this Agreement may be waived,
------
either generally or in any particular instance, by the Board of Directors of the
Company. The failure of the Company (or its assignees) in any instance to
exercise the Purchase Option or First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Company and Employee. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
15. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the Company and the Employee and their respective heirs, executors,
administrators, legal representatives, successors and assigns, subject to the
restrictions on transfer set forth in this Agreement.
16. No Rights To Employment. Nothing contained in this Agreement shall be
-----------------------
construed as giving the Employee any right to be retained, in any position, as
an employee of the Company.
17. Notice. All notices required or permitted hereunder shall be in
------
writing and deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail, postage prepaid,
addressed to the other party hereto at the address shown beneath his or its
respective signature to this Agreement, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 17.
18. Pronouns. Whenever the context may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.
19. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties, and supersedes all prior agreements and understandings,
relating to the subject matter of this Agreement.
20. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by both the Company and the Employee.
21. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the State of Delaware.
22. Undertaking of Parties. The parties hereto hereby agree to take
----------------------
whatever additional action and execute whatever additional documents the Company
may deem necessary or advisable in order to carry out or effect one or more of
the obligations or restrictions imposed on the parties hereto pursuant to the
express provisions of this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AUDIBLE INC.
By:________________________________
65 Willowbrook Blvd, 3rd Floor
Wayne, NJ 07470
EMPLOYEE
___________________________________
Name
Address: _____________________________
_____________________________
-9-
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers unto Audible Inc. (the "Company"), ____________________ shares of
Common Stock of the Company standing in the name of ______________________ on
the books of the Company represented by Certificate No. __________ herewith and
does hereby irrevocably constitute and appoint _________________________
Attorney to transfer the said stock on the books of the Company with full power
of substitution in the premises.
Dated: ________________________
____________________________
Signature
_________________________________
Spouse
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase right set forth in the Agreement without requiring additional
signatures.
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<PAGE>
EXHIBIT 10.18
PROMISSORY NOTE
---------------
$_____________ [Date]
Wayne, New Jersey
For value received, the undersigned promises to pay to the order of Audible
Inc. (hereinafter "Holder"), at 65 Willowbrook Boulevard Wayne New Jersey 07470,
or at such other place as the Holder may from time to time direct, the principal
sum of ______ ($______) (the "Principal Sum"), with interest computed annually
on the unpaid portion of the Principal Sum at an annual rate of eight percent
(8%). All accrued but unpaid Principal Sum and interest shall be due and payable
on __________. This Note may be prepaid in whole or in part at any time without
penalty. Any such prepayment shall be applied first to accrued interest and then
to principal.
The rate of interest chargeable under this Note will not exceed applicable
legal limits and in the event a payment is made by the undersigned or received
by the Holder in excess of the applicable legal limits, such excess payment
shall be credited as a payment of principal.
The undersigned hereby waives demand, presentment for payment, protest and
notice of dishonor, and agrees that at any time and from time to time and with
or without consideration, the Holder may without notice to or further consent of
the undersigned and without in any manner releasing, lessening, or affecting the
obligations of the undersigned: (1) release, surrender, waive, add, substitute,
settle, exchange, compromise, modify, extend, or grant indulgences with respect
to this Note and the undersigned; and (2) grant any extension or other
postponements of the time of payment hereof.
The occurrence of any one or more of the following events shall constitute
a default hereunder: (1) the failure to make any payment of principal or
interest when due on this Note and such failure continuing for more than 10
business days following the receipt of notice from the Holder of such failure
and Holder's intent to declare a default; (2) the failure to observe or perform
any material obligation on the part of the undersigned pursuant to the terms of
this Note; (3) the filing of any insolvency proceedings by or against the
undersigned pursuant to any federal or state law where a receiver or trustee is
appointed with respect to the undersigned or the assets of the undersigned, or
(4) the termination of the undersigned's employment with the Holder.
If the undersigned shall be in default under this Note and shall not cure
such default (i) within 10 business days after written notice thereof from
Holder to the undersigned in the case of a monetary default or (ii) within 30
days after written notice thereof from Holder to the undersigned in the case of
any other type of default, then, and in any such event, Holder shall have, in
addition to any and all rights, powers, remedies and recourses (collectively,
"Remedies") available or permitted to Holder, the right and option to declare
the unpaid balance of the Principal Sum hereof, together with all accrued and
unpaid interest thereon, immediately due and payable without notice, demand or
presentment for payment, and to proceed to invoke all Remedies permitted by law.
The Remedies available or permitted to Holder hereunder shall be cumulative and
concurrent, and not exclusive; and the exercise of any such Remedy shall not be
deemed a waiver of the right to exercise at the same time or at any time
thereafter any other such Remedy. No delay or omission on the part of Holder in
exercising any Remedy available or permitted to him hereunder upon the
occurrence of any event of default shall operate as a waiver or preclude the
exercise of such Remedy, or any other such Remedy, during the existence of such
event of default or upon the occurrence of any subsequent event of default.
<PAGE>
In the event of any default on this Note, the undersigned shall pay the
Holder any reasonable expenses, costs and attorney's fees which the Holder may
incur in connection with the collection of any monies due under this Note or in
connection with the enforcement of any rights under this Note or under any other
agreement related to the loan evidenced hereby.
This Note shall be governed by and interpreted under the laws of the State
of Delaware (but not including the choice of law rules thereof).
Each payment hereunder shall be applied first to the payment of all
interest accrued hereunder as of the date of such payment, and the balance of
such payment shall be applied to the principal amount hereof.
All notices, demands, requests for modification, consents or approvals
under this Note must be in writing and shall be deemed to have been properly
given when received by the Holder at its address as above stated, and when hand-
delivered or mailed by first class mail, postage prepaid, to the undersigned at
the address as it appears below, or at such other place as either party may
designate in writing.
__________________________
Name
___________________________
___________________________
(address)
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<PAGE>
EXHIBIT 10.19
OFFICE LEASE
JUNE 20, 1997
BY AND BETWEEN
PASSAIC INVESTMENT LLC,
SIXTY-FIVE WILLOWBROOK INVESTMENT LLC,
AND WAYNE INVESTMENT LLC,
AS TENANTS-IN-COMMON ("SIXTY-FIVE WILLOWBROOK TENANCY")
AS "LANDLORD"
AND
AUDIBLE, INC.
AS "TENANT"
WAYNE OFFICE BUILDING
65 WILLOWBROOK BLVD.
WAYNE, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLES PAGE
<S> <C>
1 - DEFINITIONS 5
2 - DEMISE AND TERM 9
3 - RENT 10
4 - USE OF DEMISED PREMISES 11
5 - PREPARATION OF DEMISED PREMISES 12
6 - TAX AND OPERATING EXPENSE PAYMENTS 13
7 - COMMON AREAS 15
8 - SECURITY 15
9 - SUBORDINATION 16
10 - QUIET ENJOYMENT 17
11 - ASSIGNMENT, SUBLETTING AND MORTGAGING 17
12 - COMPLIANCE WITH LAWS 20
13 - INSURANCE AND INDEMNITY 21
14 - RULES AND REGULATIONS 23
15 - ALTERATIONS 23
16 - LANDLORD'S AND TENANTS PROPERTY 24
17 - REPAIRS AND MAINTENANCE 25
18 - ELECTRIC ENERGY 26
19 - HEAT, VENTILATION AND AIR-CONDITIONING 27
20 - OTHER SERVICES; SERVICE INTERRUPTION 27
21 - ACCESS, CHANGES AND NAME 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
22 - MECHANICS' LIENS AND OTHER LIENS 29
23 - NON-LIABILITY AND INDEMNIFICATION 29
24 - DAMAGE OR DESTRUCTION 30
25 - EMINENT DOMAIN 32
26 - SURRENDER 33
27 - CONDITIONS OF LIMITATION 34
28 - RE-ENTRY BY LANDLORD 35
29 - DAMAGES 35
30 - AFFIRMATIVE WAIVERS 38
31 - NO WAIVERS 39
32 - CURING TENANTS DEFAULTS 39
33 - BROKER 39
34 - NOTICES 39
35 - ESTOPPEL CERTIFICATES 40
36 - ARBITRATION 40
37 - MEMORANDUM OF LEASE 40
39 - MISCELLANEOUS 42
40 - RIGHT OF FIRST REFUSAL 44
</TABLE>
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<PAGE>
EXHIBITS
Exhibit A - Demised Premises
Exhibit B - Space Drawing
Exhibit C - Description of Land
Exhibit D - Rules and Regulations
Exhibit E - Cleaning Specifications
<PAGE>
OFFICE LEASE
LEASE, dated June 20, 1997, between Passaic Investment LLC, a New Mexico
limited liability company, Sixty-Five Willowbrook Investment LLC, a New Mexico
limited liability company, and Wayne Investment LLC, a New Mexico limited
liability company, as Tenants-in-Common ("Sixty-Five Willowbrook Tenancy")
having an office at 2929 Coors Blvd., NW, Suite 310, Albuquerque, New Mexico
87120 ("Landlord"), and Audible, Inc., a Delaware corporation, having an office
at 65 Willowbrook Blvd., Wayne, New Jersey ("Tenant").
ARTICLE 1 - DEFINITIONS
1.01. As used in this Lease (including in all Exhibits and any Riders
attached hereto, all of which shall be deemed to be part of this Lease) the
following words and phrases shall have the meanings indicated:
A. Advance Rent: $7,902.50
B. Additional Charges: All amounts that become payable by Tenant to
Landlord hereunder other than the Fixed Rent.
C. Architect: As determined by Landlord.
D. Base Year: The calendar year in which the Lease is executed.
E. Broker: Newmark Partners, Inc.
F. Building: The building located on the Land and known or to be
known as "WAYNE OFFICE BUILDING", 65 Willowbrook Boulevard in Wayne, New Jersey.
G. Business Days: All days except Saturdays, Sundays, days observed
by the federal or state government as legal holidays and such other holidays as
shall be designated as holidays by the applicable building service union
employees' service contract or by the applicable operating engineers' contract.
H. Business Hours: Generally customary daytime business hours, but
not before 8:00 A.M. or after 6:00 P.M., Monday through Friday.
I. Calendar Year: Any twelve-month period commencing on a January 1.
J. Commencement Date: On or about July 1, 1997. In the event that
the Demised Premises are Ready for Occupancy up to fifteen days prior to the
Commencement Date, Tenant shall have the right to take possession in order to
arrange for installation of furniture and data equipment.
<PAGE>
K. Common Areas: All areas, spaces and improvements in the Building and
on the Land which Landlord makes available from time to time for the common use
and benefit of the tenants and occupants of the Building and which are not
exclusively available for use by a single tenant or occupant, including, without
limitation, parking areas, roads, walkways, sidewalks, landscaped and planted
areas, community rooms, if any, the managing agent's office, if any, and public
rest rooms, if any.
L. Demised Premises: The space that is or will be located on the fourth
floor of the Building and that is indicated on the floor plan(s) attached hereto
as Exhibit A. The Demised Premises contains or will contain approximately 6,322
square feet of Floor Space.
M. Expiration Date: The Expiration Date will be February 23, 2003.
However, if the Term is extended by Tenant's effective exercise of Tenant's
right, if any, to extend the Term, the "Expiration Date" shall be changed to the
last day of the last extended period as to which Tenant shall have effectively
exercised its right to extend the Term. For the purposes of this definition, the
earlier termination of this Lease shall not affect the "Expiration Date."
Fixed Rent: An amount at the annual rate per square foot multiplied by the
Floor Space of the Demised Premises.
<TABLE>
<CAPTION>
Annual Rate Rate per sq.ft.
<S> <C>
07/01/1997- 06/30/1998 $15.00
07/01/1998- 06/30/1999 $15.50
07/01/1999- 06/30/2000 $16.00
07/01/2000- 06/30/2001 $16.50
07/01/2001- 02/23/2002 $17.00
</TABLE>
O. Floor Space: As to the Demised Premises, the sum of the floor area
stated in square feet bounded by the exterior faces of the exterior walls, or by
the exterior or Common Area face of any wall between the Demised Premises and
any portion of the Common Areas, or by the center line of any wall between the
Demised Premises and space leased or available to be leased to a tenant or
occupant divided by eighty five percent (85%). Any reference to Floor Space of a
building shall mean the floor area of all levels or stories of such building,
excluding any roof, except such portion thereof (other than cooling towers,
elevator penthouses, mechanical rooms, chimneys and staircases, entrances and
exits) as is permanently enclosed, and including any interior basement level or
mezzanine area not occupied or used by a tenant on a continuing or repetitive
basis, and any mechanical room, enclosed or interior truck dock, interior Common
Areas, and areas used by Landlord for storage, for housing meters and/or other
equipment or for other purposes. Any reference to the Floor Space is intended to
refer to the Floor Space of the entire area in question irrespective of the
Person(s) who may be the owner(s) of all or any part thereof.
P. Guarantors: None.
Q. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or
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<PAGE>
any other similar body performing the same or similar functions and having
jurisdiction or cognizance over the Land and Building, whether now or hereafter
in force.
R. Land: The Land upon which the Building and Common Areas are located.
The Land is described on Exhibit C.
S. Landlord's Work. Landlord shall provide a turn-key build-out based
upon the single line drawing prepared by Aztec Corporation and attached hereto
as Exhibit B. Landlord's cost shall be capped at $65.000.
T. Legal Requirements: Laws and ordinances of all federal, state, city,
town, county, borough and village governments, and rules, regulations, orders
and directives of all departments, subdivisions, bureaus, agencies or offices
thereof, and of any other governmental, public or quasi-public authorities
having jurisdiction over the Land and Building, whether now or hereafter in
force, including, but not limited to, those pertaining to environmental matters.
U. Mortgage: A mortgage and/or a deed of trust.
V. Mortgagee: A holder of a mortgage or a beneficiary of a deed of trust.
W. Operating Expenses: The cost and expense (whether or not within the
contemplation of the parties) for the repair, replacement, maintenance,
policing, insurance and operation of the Building and Land. The "Operating
Expenses" shall, include, without limitation, the following: (i) the cost for
rent, casualty, liability, boiler and fidelity insurance, (ii) if an independent
managing agent is employed by Landlord, the fees payable to such agent (provided
the same are competitive with the fees payable to independent managing agents of
comparable facilities in Passaic County), and (iii) costs and expenses incurred
for legal, accounting and other professional services (including, but not
limited to, costs and expenses for in-house or staff legal counsel or outside
counsel at rates not to exceed the reasonable and customary charges for any such
services as would be imposed in an arms length third party agreement for such
services. In all years subsequent to Base Year, if Landlord is itself managing
the Building and has not employed an independent third party for such
management, Landlord shall be entitled to 25% of the resulting total of all of
the foregoing items making up "Operating Expenses" for Landlord's home office
administration and overhead cost and expense. All items included in Operating
Expenses shall be determined in accordance with generally accepted accounting
principles consistently applied.
X. Permitted Uses: Executive offices of a character consistent with that
of a first class office building.
Y. Person: A natural person or persons, a partnership, a corporation, or
any other form of business or legal association or entity.
Z. Ready for Occupancy: The condition of the Demised Premises when for
the first time the Landlord's Work shall have been substantially completed and
if Landlord is obligated to obtain same, a temporary, permanent, or continuing
Certificate of Occupancy shall have been
-3-
<PAGE>
issued permitting use of the Demised Premises for the Permitted Uses. The
Landlord's Work shall be deemed substantially completed notwithstanding the fact
that minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of the Demised Premises.
AA. Real Estate Taxes: The real estate taxes, assessments and special
assessments imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities, and any expenses
incurred by Landlord in contesting such taxes or assessments and/or the assessed
value of the Building and Land, which expenses shall be allocated to the period
of time to which such expenses relate. If at any time during the Term the
methods of taxation prevailing on the date hereof shall be altered so that in
lieu of, or as an addition to or as a substitute for, the whole or any part of
such real estate taxes, assessments and special assessments now imposed on real
estate there shall be levied, assessed or imposed (a) a tax, assessment, levy,
imposition, license fee or charge wholly or partially as a capital levy or
otherwise on the rents received therefrom, or (b) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be deemed to be included within the term "Real Estate
Taxes" for the purposes hereof.
BB. Rent: The Fixed Rent and the Additional Charges.
CC. Rules and Regulations: The reasonable rules and regulations that may
be promulgated by Landlord from time to time, which may be reasonably changed by
Landlord from time to time. The Rules and Regulations now in effect are attached
hereto as Exhibit D.
DD. Security Deposit: $15,805.00
EE. Substitute Premises: As defined in Section 38.01.
FF. Successor Landlord: As defined in Section 9.03.
GG. Superior Lease: Any lease to which this Lease is, at the time referred
to, subject and subordinate.
HH. Superior Lessor: The lessor of a Superior Lease or its successor in
interest, at the time referred to.
II. Superior Mortgage: Any Mortgage to which this Lease is, at the time
referred to, subject and subordinate.
JJ. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the time
referred to.
KK. Tenant's Fraction: The Tenant's Fraction shall mean the fraction, the
numerator of which shall be the Floor Space of the Demised Premises and the
denominator of which shall
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<PAGE>
be the Floor Space of the Building (4.80%). If the size of the Demised Premises
or the Building shall be changed from the initial size thereof, due to any
taking, any construction or alteration work or otherwise, the Tenant's Fraction
shall be changed to the fraction the numerator of which shall be the Floor Space
of the Demised Premises and the denominator of which shall be the Floor Space of
the Building. In the event Landlord determines that Tenant's utilization of any
item of Operating Expenses exceeds the fraction referred to above, Tenant's
Fraction with respect to such item shall, at Landlord's option, mean the
percentage of any such item (but not less than the fraction referred to above)
which Landlord reasonably estimates as Tenant's proportionate share thereof.
LL. Tenant's Property: As defined in Section 16.02.
MM. Tenant's Work: The facilities, materials and work which may be
undertaken by or for the account of Tenant (other than the Landlord's Work) to
equip, decorate and furnish the Demised Premises for Tenant's occupancy.
NN. Term: The period commencing on the Commencement Date and ending at
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
OO. Unavoidable Delays: A delay arising from or as a result of a strike,
lockout, or labor difficulty, explosion, sabotage, accident, riot or civil
commotion, act of war, fire or other catastrophe, Legal Requirement or an act of
the other party and any cause beyond the reasonable control of that party,
provided that the party asserting such Unavoidable Delay has exercised its best
efforts to minimize such delay.
ARTICLE 2 - DEMISE AND TERM
2.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises, for the Term.
2.02. Subject to the conditions set forth in this section of the Lease,
Landlord grants to Tenant an option to extend the term of the Lease for a period
of five (5) years (the "Extension Period") in accordance with the following
provisions:
(a) To exercise this option to extend, Tenant must provide Landlord with
written notice of its intent to exercise this option no later than twelve (12)
months prior to the date of expiration of the initial term of the Lease.
(b) The initial Monthly Rent for the Extension Period during the first
year shall be equal to the greater of (i) ninety five percent (95%) of the
Prevailing Rent (as hereinafter defined), or (ii) the Monthly Rent for the
Demised Premises in effect during the last full calendar month of the initial
term of the Lease. Notwithstanding such increase in Monthly Rent, Monthly Rent
shall continue to be subject to any and all costs, expenses and adjustments as
provided in this Lease.
-5-
<PAGE>
(c) The Monthly Rent for the Extension Period shall continue to be
subject to any and all costs, expenses and adjustments as provided in this
Lease, all of which shall continue uninterrupted and without modification
throughout the Extension Period.
(d) "Prevailing Rent" shall mean the base rent that would be received by
landlords renting space of quality, size and location comparable to the Demised
Premises, in buildings in the business district of Wayne, New Jersey, for a term
similar to the Extension Period, and subject to the terms of this Lease,
including that the provisions of the Lease related to any and all costs,
expenses and adjustments as provided in this Lease, all of which shall continue
uninterrupted and without modification throughout the Extension Period.
(e) The Prevailing Rent shall be determined by the mutual agreement of
Landlord and Tenant within thirty (30) days after the date Landlord receives
Tenant's notice of its election to exercise this option. In the event Landlord
and Tenant are unable to agree within said thirty (30) day period upon the
Prevailing Rent, then the Prevailing Rent shall be determined by a board of
three (3) licensed real estate brokers. Landlord and Tenant shall each appoint
one (1) broker within ten (10) days after expiration of the thirty (30) day
period, or sooner if mutually agreed upon. The two so appointed shall select a
third within fifteen (15) days after they both have been appointed. Each broker
on said board shall be licensed in the state of New Jersey as a real estate
broker, specializing in the field of commercial leasing in the business district
of Wayne, New Jersey, having no less than five (5) years experience in such
field, and recognized as ethical and reputable within his or her field. Each
broker, within fifteen (15) days after the third broker is selected, shall
submit his or her determination of Prevailing Rent. Prevailing Rent shall be the
mean of the two closest rental rate determination. Landlord and Tenant shall
each pay the fee of the broker selected by it and they shall share equally the
payment of the fee of the third broker.
(f) An addendum setting forth the appropriate terms and conditions upon
which the Demised Premises will be leased during the Extension Period shall be
executed by Landlord and Tenant within ten (10) days after the determination of
the Prevailing Rent.
(g) All terms and provisions of the Lease shall remain in full force and
effect during the Extension Period, except that Tenant shall have no further
option to extend the term of the Lease.
(h) This section (2.02) of the Lease shall become null and void and of no
force and effect if Tenant assigns this Lease or subleases any portion of the
Demised Premises, or if Tenant is in default under this Lease either on the date
Tenant notifies Landlord of its intent to exercise this option or at any time
thereafter up to and including the date upon which the Extension Period is to
commence.
(i) It is agreed and understood the space currently occupied by Tenant is
under a Sublease agreement. Landlord agrees to incorporate the renewal
provisions contained in this Lease to include the space currently under the
sublease, presuming the proper releases of existing options granted to Sublessor
(Painewebber) are released by Painewebber for the benefit of Tenant. Landlord
and Tenant will use best efforts to obtain such releases.
-6-
<PAGE>
ARTICLE 3 - RENT
3.01. Tenant shall pay the Fixed Rent in equal monthly installments due in
advance on the first day of each and every calendar month during the Term and
payable by the fifth business day thereafter (except that Tenant shall pay, upon
the execution and delivery of this Lease by Tenant, the Advance Rent, to be
applied against the first installment or installments of Fixed Rent becoming due
under this Lease). If the Commencement Date occurs on a day other than the first
day of a calendar month, the Fixed Rent for the partial calendar month at the
commencement of the Term shall be prorated.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord at its office, or such other place, or Landlord's agent, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not be required to accept the check of any other Person, and
any check received by Landlord shall be deemed received subject to collection.
If any cheek is mailed by Tenant, Tenant shall post such check in sufficient
time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due. Tenant shall assume the
risk of lateness or failure of delivery of the mails, and no lateness or failure
of the mails will excuse Tenant from its obligation to have made the payment in
question when required under this Lease.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives Tenant's
right, if any, to designate the items to which any payments made by Tenant are
to be credited, and Landlord may apply any payments made by Tenant to such items
as Landlord sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items to which any such payments shall be credited.
3.05. In the event that any installment of Rent due hereunder shall be
overdue past five (5) business days, a "Late Charge" equal to four percent (4%)
of any outstanding balance ("Late Payment Rate") for Rent so overdue may be
charged by Landlord for each month or part thereof that the same remains
overdue. In the event that any check tendered by Tenant to Landlord is returned
for insufficient funds, Tenant shall pay to Landlord, in addition to the charge
imposed by the preceding sentence, a fee of $25.00. Any such Late Charges if not
previously paid shall, at the option of the Landlord, be added to and become
part of the next succeeding Rent payment to be made hereunder.
-7-
<PAGE>
ARTICLE 4 - USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the Permitted
Uses, and Tenant shall not use or permit or suffer the use of the Demised
Premises or any part thereof for any other purpose.
4.02. Subject to Landlord's obligations setforth in Section 1.01(z) here
in above. If any governmental license or permit, including a Certificate of
Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises or any part thereof, Tenant shall duly procure
and thereafter maintain such license or permit and submit the same to Landlord
for inspection. Tenant shall at all times comply with the terms and conditions
of each such license or permit. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy the Demised Premises, or do or permit
anything to be done in the Demised Premises, in any manner which (a) violates
the Certificate of Occupancy for the Demised Premises or for the Building; (b)
causes or is liable to cause injury to the Building or any equipment, facilities
or systems therein; (c) constitutes a violation of the Legal Requirements or
Insurance Requirements; (d) impairs or tends to impair the character, reputation
or appearance of the Building as a first-class office building; (e) impairs or
tends to impair the proper and economic maintenance, operation and repair of the
Building and/or its equipment, facilities or systems; or (f) annoys or
inconveniences or tends to annoy or inconvenience other tenants or occupants of
the Building.
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.0l.(a) The Demised Premises shall be completed and prepared for Tenant's
occupancy in the manner described in, and subject to the provisions of
Landlord's Work defined in attachment. Tenant shall occupy the Demised Premises
promptly after the same are Ready for Occupancy and possession thereof is
delivered to Tenant by Landlord giving to Tenant a notice of such effect. Except
as expressly provided to the contrary in this Lease, the taking of possession by
Tenant of the Demised Premises shall be conclusive evidence as against Tenant
that the Demised Premises and the Building were in good and satisfactory
condition at the time such possession was taken.
5.01.(b) Tenant shall, within three (3) business days of the date hereof,
provide Landlord with all reasonable information Landlord needs to prepare
working drawings for the construction of Landlord's Work. Such information shall
include, but not be limited to layout of the Demised Premises, electrical,
mechanical, plumbing & structural requirements, materials & finishes. Within ten
(10) days of Landlord's receipt of all necessary information, Landlord shall
deliver working drawings to Tenant. Tenant shall, within two (2) business days
of its receipt of working drawings, review and approve the working drawings by
giving Landlord written notice thereof. If Tenant does not respond within said
two (2) business day period, the working drawings shall be deemed approved. If
Tenant disapproves of the working drawings, it shall specify in detail the
reasons for its disapproval. If Tenant makes changes in the working drawings,
the provisions
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<PAGE>
of Section 5.02 shall apply. Within 5 days after the working drawings are
approved or deemed approved, Landlord shall submit to Tenant prices for the
construction of any items in excess of Landlords' Work. Tenant shall, within
three (3) business days of its receipt of prices, review and approve the prices
by giving Landlord written notice thereof. If Tenant does not respond within
said three (3) business day period, the prices shall be deemed approved. If
Tenant disapproves of any prices, the provisions of Section 5.02 shall apply.
5.01.(c) Landlord has received approvals from Painewebber for the removal
of the "Common Wall" between Tenant's existing space and the Demised Premises
described herein. Tenant shall be under no obligation to reconstruct this
"Common Wall" at the end of this lease or extension period term.
5.02. If the substantial completion of the Landlord's Work shall be
delayed due to (a) any act or omission of Tenant or any of its employees, agents
or contractors (including, without limitation, f ii any delays due to changes in
or additions to the Landlord's Work, or (ii] any delays by Tenant in the
submission of plans, drawings, specifications or other information or in
approving any working drawings or estimates or in giving any authorizations or
approvals), or (b) any additional time needed for the completion of the
Landlord's Work by the inclusion in the Landlord's Work of any items specified
by Tenant that require long lead time for delivery or installation, then the
Demised Premises shall be deemed Ready for Occupancy on the date when they would
have been ready but for such delay(s). The Demised Premises shall be
conclusively presumed to be in satisfactory condition on the Commencement Date
except for the minor or insubstantial details of which Tenant gives Landlord
notice within thirty (30) days after the Commencement Date specifying such
details with reasonable particularity.
5.03. If Landlord is unable to give possession of the Demised Premises on
the Commencement Date because of the holding-over or retention of possession by
any tenant, undertenant or occupant, Landlord shall not be subject to any
liability for failure to give possession, the validity of this Lease shall not
be impaired under such circumstances, and the Term shall not be extended, but
the Rent shall be abated if Tenant is not responsible for the inability to
obtain possession.
5.04. Landlord reserves the right, at any time and from time to time, to
increase, reduce or change the number, type, size, location, elevation, nature
and use of any of the Common Areas and the Building and any other buildings and
other improvements on the Land, including, without limitation, the right to move
and/or remove same, provided same shall not unreasonably block or interfere with
Tenant's means of ingress or egress to and from the Demised Premises and
provided that such changes are consistent with a Class B office building.
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
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6.01. Tenant shall pay to Landlord, as hereinafter provided, Tenant's
Fraction of the Real Estate Taxes. Tenant's Fraction of the Real Estate Taxes
shall be the Real Estate Taxes in respect of the Building for the period in
question, less the Real Estate Taxes attributable to the Base Year, multiplied
by the Tenant's Fraction, plus the Real Estate Taxes in respect of the Land for
the period in question, less the Real Estate Taxes attributable to the Base
Year, multiplied by the Tenant's Fraction. If any portion of the Building shall
be exempt from all or any part of the Real Estate Taxes, then for the period of
time when such exemption is in effect, the Floor Space on such exempt portion
shall be excluded when making the above computations in respect of the part of
the Real Estate Taxes for which such portion shall be exempt. Landlord shall
estimate the annual amount of Tenant's Fraction of the Real Estate Taxes (which
estimate may be changed by Landlord at any time and from time to time), and
Tenant shall pay to Landlord 1/12th of the amount so estimated on the first day
of each month in advance. Tenant shall also pay to Landlord on demand from time
to time the amount which, together with said monthly installments, will be
sufficient in Landlord's estimation to pay Tenant's Fraction of any Real Estate
Taxes thirty (30) days prior to the date when such Real Estate Taxes shall first
become due. When the amount of any item comprising Real Estate Taxes is finally
determined for a real estate fiscal tax year, Landlord shall submit to Tenant a
statement in reasonable detail of the same, and the figures used for computing
Tenant's Fraction of the same, and if Tenant's Fraction so stated is more or
less than the amount theretofore paid by Tenant for such item based on
Landlord's estimate, Tenant shall pay to Landlord the deficiency within ten (10)
business days after submission of such statement, or Landlord shall, at its sole
election, either refund to Tenant the excess or apply same to future
installments of Real Estate Taxes due hereunder. Any Real Estate Taxes for a
real estate fiscal tax year, a part of which is included within the Term and a
part of which is not so included, shall be apportioned on the basis of the
number of days in the real estate fiscal tax year included in the Term, and the
real estate fiscal tax year for any improvement assessment will be deemed to be
the one-year period commencing on the date when such assessment is due, except
that if any improvement assessment is payable in installments, the real estate
fiscal tax year for each installment will be deemed to be the one-year period
commencing on the date when such installment is due. The above computations
shall be made by Landlord in accordance with generally accepted accounting
principles, and the Floor Space referred to will be based upon the average of
the Floor Space in existence on the first day of each month during the period in
question. In addition to the foregoing, Tenant shall be responsible for any
increase in Real Estate Taxes attributable to assessments for improvements
installed by or for the account of Tenant at the Demised Premises. If the
Demised Premises are not separately assessed, the amount of any such increase
shall be determined by reference to the records of the tax assessor.
6.02. Tenant shall pay to Landlord, as hereinafter provided, Tenant's
Fraction of the Operating Expenses. Tenant's Fraction of the Operating Expenses
shall be the Operating Expenses for the period in question, less the Operating
Expenses for the Base Year, multiplied by Tenant's Fraction. Landlord shall
estimate Tenant's annual Fraction of the Operating Expenses (which estimate may
be reasonably changed by Landlord from time to time), and Tenant shall pay to
Landlord 1/12th of the amount so estimated on the first day of each month in
advance. If at any time Landlord changes its estimate of Tenant's Fraction of
the Operating Expenses for the then current Calendar Year or partial Calendar
Year, Landlord shall give notice to Tenant of such change and within ten (10)
business days after such notice Landlord and
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Tenant shall adjust for any overpayment or underpayment during the prior months
of the then current Calendar Year or partial Calendar Year. After the end of
each Calendar Year, including any partial Calendar Year at the beginning of the
Term, and after the end of the Term, Landlord shall submit to Tenant a statement
in reasonable detail stating Tenant's Fraction of the Operating Expenses for
such Calendar Year, or partial Calendar Year in the event the Term shall begin
on a date other than a January 1st and/or end on a date other than a December
31st, as the case may be, and stating the Operating Expenses for the period in
question and the figures used for computing Tenant's Fraction, and if Tenant's
Fraction so stated for such period is more or less than the amount paid for such
period, Tenant shall pay to Landlord the deficiency within ten (10) business
days after submission of such statement, or Landlord shall, at its sole
election, either refund to Tenant the excess or apply same to future
installments of Operating Expenses due hereunder. All computations shall be made
in accordance with generally accepted accounting principles.
6.03. Each such statement given by Landlord pursuant to Section 6.01 or
Section 6.02 shall be conclusive and binding upon Tenant unless within thirty
(30) days after the receipt of such statement Tenant shall notify Landlord that
it disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect. If such dispute is not
settled by agreement, either party may submit the dispute to arbitration as
provided in Article 36. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall, within ten (10) business days after
receipt of such statement, pay the Additional Charges in accordance with
Landlord's statement, without prejudice to Tenant's position. If the dispute
shall be determined in Tenant's favor, Landlord shall forthwith pay to Tenant
the amount of Tenant's overpayment resulting from compliance with Landlord's
statement.
ARTICLE 7 - COMMON AREAS
7.01. Subject to the provisions of Section 5.04, Landlord will operate,
manage, equip, light, repair and maintain, or cause to be operated, managed,
equipped, lighted, repaired and maintained, the Common Areas for their intended
purposes. Landlord reserves the right, at any time and from time to time, to
construct within the Common Areas kiosks, fountains, aquariums, planters, pools
and sculptures, and to install vending machines, telephone booths, benches and
the like, provided same shall not unreasonably block or interfere with Tenant's
means of ingress or egress to and from the Demised Premises and provided the
same shall not be inconsistent with the operation of the building as a Class B
of the building.
7.02. Tenant and its subtenants and concessionaires, and their respective
officers, employees, agents, customers and invitees, shall have the non-
exclusive right, in common with Landlord and all others to whom Landlord has
granted or may hereafter grant such right, but subject to the Rules and
Regulations, to use the Common Areas. Landlord reserves the right, at any time
and from time to time, to close temporarily all or any portions of the Common
Areas when in Landlord's reasonable judgment any such closing is necessary or
desirable (a) to make repairs or changes or to effect construction, (b) to
prevent the acquisition of public rights in such areas, (c) to discourage
unauthorized parking, or (d) to protect or preserve natural persons or
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property. Landlord may do such other acts in and to the Common Areas as in its
judgment may be desirable to improve or maintain same.
7.03. Tenant agrees that it, any subtenant or licensee and their
respective officers, employees, contractors and agents will park their
automobiles and other vehicles only where and as permitted by Landlord. Tenant
will, if and when so requested by Landlord, furnish Landlord with the license
numbers of any vehicles of Tenant, any subtenant or licensee and their
respective officers, employees and agents.
ARTICLE 8 - SECURITY
8.01. Tenant has deposited with Landlord the Security Deposit as security
for the full and faithful payment and performance by Tenant of Tenant's
obligations under this Lease. If Tenant defaults in the full and prompt payment
and performance of any of its obligations under this Lease, including, without
limitation, the payment of Rent, Landlord may use, apply or retain the whole or
any part of the Security Deposit to the extent required for the payment of any
Rent or any other sums as to which Tenant is in default or for any sum which
Landlord may expend or may be required to expend by reason of Tenant's default
in respect of any of Tenant's obligations under this Lease, including, without
limitation, any damages or deficiency in the reletting of the Demised Premises,
whether such damages or deficiency accrue before or after summary proceedings or
other re-entry by Landlord. If Landlord shall so use, apply or retain the whole
or any part of the security, Tenant shall upon demand immediately deposit with
Landlord a sum equal to the amount so used, applied and retained, as security as
aforesaid. If Tenant shall fully and faithfully pay and perform all of Tenant's
obligations under this Lease, the Security Deposit or any balance thereof to
which Tenant is entitled shall be returned or paid over to Tenant after the date
on which this Lease s II expire or sooner end or terminate, and after delivery
to Landlord of entire possession of the Demised Premises. In the event of any
sale or leasing of the Land, Landlord shall have the right to transfer the
security to which Tenant is entitled to the vendee or lessee and upon receipt of
written acknowledgement by Tenant from such vendee or lessee of the assumption
of Landlord's obligations under the Lease, including acknowledgement of the
receipt of Security Deposits. Landlord shall thereupon be released by Tenant
from all liability for the return or payment thereof, and Tenant shall look
solely to the new landlord for the return or payment of the same; and the
provisions hereof shall apply to every transfer or assignment made of the same
to a new landlord. Tenant shall not assign or encumber or attempt to assign or
encumber the monies deposited herein as security, and neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
ARTICLE 9 - SUBORDINATION
9.01. This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all ground leases and underlying leases of the Land
and/or the Building now or hereafter existing and to all Mortgages which may now
or hereafter affect the Land and/or building and/or any of such leases, whether
or not such Mortgages or leases shall also cover
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other lands and/or buildings, to each and every advance made or hereafter to be
made under such Mortgages, and to all renewals, modifications, replacements and
extensions of such leases and such Mortgages and spreaders and consolidations of
such Mortgages. The provisions of this Section 9.01 shall be self-operative and
no further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the Mortgagee of
any such Mortgage or any of their respective successors in interest may
reasonably request to evidence such subordination; and if Tenant fails to
execute, acknowledge or deliver any such instruments within 10 business days
after request therefor, Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's attorney-in-fact, coupled with an interest to execute and
deliver any such instruments for and on behalf of Tenant.
9.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the period to which Landlord would be entitled
under this Lease or otherwise, after similar notice, to effect such remedy),
provided such Superior Mortgagee or Superior Lessor shall with due diligence
give Tenant notice of intention to, and commence and continue to, remedy such
act or omission.
9.03. If any Superior Lessor or Superior Mortgagee shall succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action or delivery of a new lease or deed, then at the request of such party so
succeeding to Landlord's rights ("Successor Landlord") and upon such Successor
Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn
to and recognize such Successor Landlord as Tenant's landlord under this Lease
and shall promptly execute and deliver any instrument that such Successor
Landlord may reasonably request to evidence such attornment. Upon such
attornment this Lease shall continue in full force and effect as a direct lease
between the Successor Landlord and Tenant upon all of the terms, conditions and
covenants as are set forth in this Lease except that the Successor Landlord
shall not (a) be liable for any previous act or omission of Landlord under this
Lease; (b) be subject to any offset, not expressly provided for in this Lease,
which theretofore shall have accrued to Tenant against Landlord; (c) be liable
for the return of any Security Deposit, in whole or in part, to the extent that
same is not paid over to the Successor Landlord; or (d) be bound by any previous
modification of this Lease or by any previous prepayment of more than one
month's Fixed Rent or Additional Charges, unless such modification or prepayment
shall have been expressly approved in writing by the Superior Lessor of the
Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of
which the Successor Landlord shall have succeeded to the rights of Landlord
under this Lease.
9.04. If any then present or prospective Superior Mortgagee shall require
any modification(s) of this Lease, Tenant shall promptly execute and deliver to
Landlord such
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instruments effecting such modification(s) as Landlord shall request, provided
that such modification(s) do not adversely affect in any material respect any of
Tenant's rights under this Lease.
ARTICLE 10 - QUIET ENJOYMENT
10.01. So long as Tenant pays all of the Rent and performs all of Tenant's
other obligations hereunder, Tenant shall peaceably and quietly have, hold and
enjoy the Demised remises without hindrance, ejection or molestation by Landlord
or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease.
ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING
11.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease, or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or advertise to do so, or allow the same to be used, occupied
or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or
otherwise hypothecate this Lease in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed.
11.02. If at anytime (a) the original Tenant named herein, (b) the then
Tenant, (c) any Guarantor, or (d) any Person owning a majority of the voting
stock of, or directly or indirectly controlling, the then Tenant shall be a
corporation or partnership, any transfer of voting stock or partnership interest
resulting in the person(s) who shall have owned a majority of such corporation's
shares of voting stock or the general partners' interest in such partnership, as
the case may be, immediately before such transfer, ceasing to own a majority of
such shares of voting stock or general partner's interest, as the case may be,
except as the result of transfers by inheritance, shall be deemed to be an
assignment of this Lease as to which Landlord's consent shall have been
required, and in any such event Tenant shall notify Landlord. The provisions of
this Section 11.02 shall not be applicable to any corporation all the
outstanding voting stock of which is listed on a national securities exchange
(as defined in the Securities Exchange Act of 1934, as amended) or is traded in
the over-the-counter market with quotations reported by the National Association
of Securities Dealers through its automated system for reporting quotations and
shall not apply to transactions with a corporation into or with which the then
Tenant is merged or consolidated or to which substantially all of the then
Tenant's assets are transferred or to any corporation which controls or is
controlled by the then Tenant or is under common control with the then Tenant,
provided that in any of such events (i) the successor to Tenant has a net worth
computed in accordance with generally accepted accounting principles at least
equal to the greater of(l) the net worth of Tenant immediately prior to such
merger, consolidation or transfer, or (2) the net worth of the original Tenant
on the date of this Lease, and (ii) proof satisfactory to Landlord of such net
worth shall have been delivered to Landlord at least 10 days prior to the
effective date of any such transaction. For the purposes of this Section, the
words "voting stock" shall refer to shares of stock regularly entitled to vote
for the election of directors of the corporation. Landlord shall have the right
at any time and from time to time during the Term to
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the stock record books of the corporation to which the provisions of this
Section 11.02 apply, and Tenant will produce the same on request of Landlord.
11.03 If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default by
Tenant, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant. In either event, Landlord may apply the net amount
collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 11.01 or
Section 11.02, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.04. Any permitted assignment or transfer, whether made with Landlord's
consent pursuant to Section 11.01 or without Landlord's consent if permitted by
Section 11.02, shall be made only if, and shall not be effective until, the
assignee shall execute, acknowledge and deliver to Landlord an agreement in form
and substance satisfactory to Landlord whereby the assignee shall assume
Tenant's obligations under this Lease and whereby the assignee shall agree that
all of the provisions in this Article 11 shall, notwithstanding such assignment
or transfer, continue to be binding upon it in respect to all future assignments
and transfers. Notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent by Landlord from an assignee, transferee, or any other party, the original
Tenant and any other person)s) who at any time was or were Tenant shall remain
fully liable for the payment of the Rent and for Tenant's other obligations
under this Lease.
11.05. The liability of the original named Tenant and any other Person(s)
(including but not limited to any Guarantor) who at any time are or become
responsible for Tenant's obligations under this Lease shall not be discharged,
released or impaired by any agreement extending the time of, or modifying any of
the terms or obligations under this Lease, or by any waiver or failure of
Landlord to enforce, any of this Lease.
11.06. The listing of any name other than that of Tenant, whether on the
doors of the Demised Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Demised Premises,
nor shall it be deemed to be the consent of Landlord to any assignment or
transfer of this Lease or to any sublease of the Demised Premises or to the use
or occupancy thereof by others. Notwithstanding anything contained in this
Lease to the contrary, Landlord shall have the absolute right to withhold its
consent to an assignment or subletting to a Person who is otherwise a tenant or
occupant of the Building, or of a building
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owned or managed by Landlord or its affiliated entities.
11.07. Without limiting any of the provisions of Article 27, if pursuant
to the Federal Bankruptcy Code (or any similar law hereafter enacted having the
same general purpose), Tenant is permitted to assign this Lease notwithstanding
the restrictions contained in this Lease, adequate assurance of future
performance by an assignee expressly permitted under such Code shall be deemed
to mean the deposit of cash security in an amount equal to the sum of one (1)
year's Fixed Rent plus an amount equal to the Additional Charges for the
Calendar Year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord for the balance of the Term,
without interest, as security for the full performance of all of Tenant's
obligations under this Lease, to be held and applied in the manner specified for
security in Section 8.01.
11.08. If Tenant shall propose to assign or in any manner transfer this
Lease or any interest therein, or sublet the Demised Premises or any part or
parts thereof, or grant any concession or license or otherwise permit occupancy
of all or any part of the Demised Premises by any person, Tenant shall give
notice thereof to Landlord, together with a copy of the proposed instrument that
is to accomplish same and such financial and other information pertaining to the
proposed assignee, transferee, subtenant, concessionaire or licensee as Landlord
shall reasonably require. If Tenant does not consummate the subject transaction
within 60 days after the last day on which Landlord might have so terminated
this Lease as a result of such transaction, Tenant shall again be required to
comply with the provisions of this Section 11.08 in connection with any such
transaction as if the notice by Tenant referred to above in this Section 11.08
had not been given. Notwithstanding anything contained in this Lease to the
contrary, Landlord shall not be obligated to entertain or consider any request
by Tenant to consent to any proposed assignment of this Lease or sublet of all
or any part of the Demised Premises unless each request by Tenant is accompanied
by a non-refundable fee payable to Landlord in the amount of One Thousand
Dollars ($1,000.00) to cover Landlord's administrative, legal, and other costs
and expenses incurred in processing each of Tenant's requests. Neither Tenant's
payment nor Landlord's acceptance of the foregoing fee shall be construed to
impose any obligation whatsoever upon Landlord to consent to Tenant's request.
ARTICLE 12 - COMPLIANCE WITH LAWS
12.01. Tenant shall comply with all Legal Requirements which shall, in
respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
reasonable costs and expenses, plus all fines, penalties and damages which may
be imposed upon Landlord or any Superior Lessor by reason of or arising out of
Tenant's failure to fully and promptly comply with and observe the provisions of
this Section 12.01. However, Tenant need not comply with any such law or
requirement of any public authority so long as Tenant shall be contesting the
validity thereof, or the applicability thereof to the Demised Premises, in
accordance with Section 12.02.
12.02. Tenant may contest, by appropriate proceedings prosecuted
diligently and in good
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faith, the validity, or applicability to the Demised Premises, of any Legal
Requirement, provided that (a) Landlord shall not be subject to criminal penalty
or to prosecution for a crime, and neither the Demised Premises nor any part
thereof shall be subject to being condemned or vacated, by reason of non-
compliance or otherwise by reason of such contest; (b) before the commencement
of such contest, Tenant shall furnish to Landlord either (i) the bond of a
surety company satisfactory to Landlord, which bond shall be, as to its
provisions and form, satisfactory to Landlord, and shall be in an amount at
least equal to 125% of the cost of such compliance (as estimated by a reputable
contractor designated by Landlord) and shall indemnify Landlord against the cost
thereof and against all liability for damages, interest, penalties and expenses
(including reasonable attorneys' fees and expenses), resulting from or incurred
in connection with such contest or non-compliance, or (ii) other security in
place of such bond satisfactory to Landlord, (c) such non-compliance or contest
shall not constitute or result in any violation of any Superior Lease or
Superior Mortgage, or if any such Superior Lease and/or Superior Mortgage shall
permit such non-compliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
advised as to the status of such proceedings. Without limiting the application
of the above, Landlord shall be deemed subject to prosecution for a crime if
Landlord, or its managing agent, or any officer, director, partner, shareholder
or employee of Landlord or its managing agent, as an individual, is charged with
a crime of any kind or degree whatsoever, whether by service of a summons or
otherwise, unless such charge is withdrawn before Landlord or its managing
agent, or such officer, director, partner, shareholder or employee of Landlord
or its managing agent (as the case may be) is required to plead or answer
thereto. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall not file any Real Estate Tax Appeal with respect to the Land,
Building or the Demised Premises.
ARTICLE 13 - INSURANCE AND INDEMNITY
13.01. Landlord shall maintain or cause to be maintained All Risk
insurance in respect of the Building and other improvements on the Land normally
covered by such insurance (except for the property Tenant is required to cover
with insurance under Section 13.02 and similar property of other tenants and
occupants of the Building or buildings and other improvements which are on land
neither owned by nor leased to Landlord) for the benefit of Landlord, any
Superior Lessors, any Superior Mortgagees and any other parties Landlord may at
any time and from time to time designate, as their interests may appear, but not
for the benefit of Tenant, and shall maintain rent insurance as required by any
Superior Lessor or any Superior Mortgagee. The All Risk insurance will be in
the amounts required by any Superior Lessor or any Superior Mortgagee but not
less than the amount sufficient to avoid the effect of the co-insurance
provisions of the applicable policy or policies. Landlord may also maintain any
other forms and types of insurance which Landlord shall deem reasonable in
respect of the Building and Land. Landlord shall have the right to provide any
insurance maintained or caused to be maintained by it under blanket policies.
13.02. Tenant shall maintain the following insurance: (a) comprehensive
general public liability insurance in respect of the Demised Premises and the
conduct and operation of business
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therein, having not less than a $2,000,000.00 combined single limit per
occurrence for bodily injury or death to any one person and for bodily injury or
death to any number of persons in any one occurrence, and for property damage,
including water damage and sprinkler leakage legal liability (coverage to
include but not be limited to (i) premises operation, completed operations,
broad form contractual liability and product liability, (ii) comprehensive
automobile, truck and vehicle liability insurance covering all owned, hired and
non-owned vehicles used by the contractor(s) in connection with their work and
any loading of such vehicles, with limits as stated above and (iii) worker's
compensation, employers liability and occupational disease insurance as required
by statutes, but in any event not less than $500,000.00 for Coverage B covering
all damages and injuries arising from each accident or occupational disease);
and (b) All Risk insurance in respect of Tenant's stock in trade, fixtures,
furniture, furnishings, removable floor coverings, equipment, signs and all
other property of Tenant in the Demised Premises in any amounts required by any
Superior Lessor or any Superior Mortgagee but not less than eighty percent (80%)
of the full insurable value of the property covered and not less than the amount
sufficient to avoid the effect of the co-insurance provisions of the applicable
policy or policies, and (c) such other insurance as is required for compliance
with the Insurance Requirements. Landlord may at any time and from time to time
require that the limits for the comprehensive general public liability insurance
to be maintained by Tenant be increased to the limits that new tenants in the
Building are required by Landlord to maintain. Tenant shall deliver to Landlord
and any additional named insured(s) certificates for such fully paid-for
policies upon execution hereof. Tenant shall procure and pay for renewals of
such insurance from time to time before the expiration thereof, and Tenant shall
deliver to Landlord and any additional insured(s) certificates therefor at least
thirty (30) days before the expiration of any existing policy. All such policies
shall be issued by companies of recognized responsibility, having a Bests Key
Rating Guide of not less than A, Class VII, licensed to do business in New
Jersey, and all such policies shall contain a provision whereby the Landlord and
any additional insured(s) are given at least thirty (30) days' prior written
notice of such cancellation. The certificates of insurance to be delivered to
Landlord by Tenant shall name Landlord as an additional insured and, at
Landlord's request, shall also name any Superior Lessors or Superior Mortgagees
as additional insureds, and the following phrase must be typed on the
certificate of insurance: "Passaic Investment LLC, a New Mexico limited
liability company, Sixty-Five Willowbrook Investment LLC, a New Mexico limited
liability company, and Wayne Investment LLC, a New Mexico limited liability
company, as Tenants-in-Common , and its respective subsidiaries, affiliates,
associates, joint ventures, and partnerships, are hereby named as additional
insureds as their interests may appear (and if Landlord has so requested, Tenant
shall include any Superior Lessors and Superior Mortgagees as additional
insured(s)). It is intended for this insurance to be primary and non-
contributing." Tenant shall give Landlord at least thirty (30) days' prior
written notice that any such policy is being canceled or replaced.
13.03. Tenant shall not do, permit or suffer to be done any act, matter,
thing or failure to act in respect of the Demised Premises or use or occupy the
Demised Premises or conduct or operate Tenant's business in any manner
objectionable to any insurance company or companies whereby the fire insurance
or any other insurance then in effect in respect of the Land and Building or any
part thereof shall become void or suspended or whereby any premiums in respect
of insurance maintained by Landlord shall be higher than those which would
normally have been in effect for the occupancy contemplated under the Permitted
Uses. In case of a
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breach of the provisions of this Section 13.03, in addition to all other rights
and remedies of Landlord hereunder, Tenant shall (a) indemnify Landlord and the
Superior Lessors and hold Landlord and the Superior Lessors harmless from and
against any loss which would have been covered by insurance which shall have
become void or suspended because of such breach by Tenant and (b) pay to
Landlord any and all increases of premiums on any insurance, including, without
limitation, rent insurance, resulting from any such breach.
13.04. Tenant shall indemnify and hold harmless Landlord and all Superior
Lessors and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any and all claims
arising from or in connection with (a) the conduct or management of the Demised
Premises or of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in the Demised Premises during
the Term or during the period of time, if any, prior to the Commencement Date
that Tenant may have been given access to the Demised Premises; (b) any
negligent act, omission or negligence of Tenant or any of its subtenants or
licensees or its or their partners, joint venturers, directors, officers,
agents, employees or contractors; (c) any accident, injury or damage whatever
(unless caused solely by Landlord's negligence) occurring in the Demised
Premises; and (d) any breach or default by Tenant in the full and prompt payment
and performance of Tenant's obligations under this Lease; together with all
reasonable costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon, including, without
limitation, all reasonable attorneys' fees and expenses. In case any action or
proceeding is brought against Landlord and/or any Superior Lessor and/or its or
their partners, joint venturers, directors, officers, agents and/or employees by
reason of any such claim, Tenant, upon notice from Landlord or such Superior
Lessor, shall resist and defend such action or proceeding by counsel reasonably
satisfactory to Landlord.
13.05. Neither Landlord nor any Superior Lessor shall be liable or
responsible for, and Tenant hereby releases Landlord and each Superior Lessor
from, all liability and responsibility to Tenant and any person claiming by,
through or under Tenant, by way of subrogation or otherwise, for any injury,
loss or damage to any person or property in or around the Demised Premises or to
Tenant's business irrespective of the cause of such injury, loss or damage, and
Tenant shall require its insurers to include in all of Tenant's insurance
policies which could give rise to a right of subrogation against Landlord or any
Superior Lessor a clause or endorsement whereby the insurer waives any rights of
subrogation against Landlord and such Superior Lessors or permits the insured,
prior to any loss, to agree with a third party to waive any claim it may have
against said third party without invalidating the coverage under the insurance
policy.
ARTICLE 14- RULES AND REGULATIONS
14.01. Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations and such reasonable changes therein
(whether by modification, elimination or addition) as Landlord at any time or
times hereafter may make and communicate to Tenant, which in Landlord's
judgment, shall be necessary for the reputation, safety, care or appearance of
the Land and Building, or the preservation of good order therein, or the
operation or maintenance of the Building or its equipment and fixtures, or the
Common Areas, and which
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do not unreasonably affect the conduct of Tenant's business in the Demised
Premises; provided, however, that in case of any conflict or inconsistency
between the provisions of this Lease and any of the Rules and Regulations, the
provisions of this Lease shall control. Nothing in this Lease contained shall be
construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations against any other tenant or any employees or agents of any other
tenant, and Landlord shall not be liable to Tenant for violation of the Rules
and Regulations by any other tenant or its employees, agents, invitees or
licensees.
ARTICLE 15 - ALTERATIONS
15.01. Tenant shall not make any alterations or additions to the Demised
Premises, or make any holes or cuts in the walls, ceilings, roofs, or floors
thereof, or change the exterior color or architectural treatment of the Demised
Premises, without on each occasion first obtaining the consent of Landlord,
which shall not be unreasonably withheld or delayed. Tenant shall be allowed to
make alterations of less than $1,000.00 (One Thousand Dollars) in total cost
(excluding structural and mechanical alterations) without the consent of
Landlord. Tenant shall submit to Landlord plans and specifications for such
work at the time Landlord's consent is sought. Tenant shall pay to Landlord
upon demand the reasonable cost and expense of Landlord in (a) reviewing said
plans and specifications and (b) inspecting the alterations to determine whether
the same are being performed in accordance with the approved plans and
specifications and all Legal Requirements and Insurance Requirements, including,
without limitation, the fees of any architect or engineer employed by Landlord
for such purpose. Before proceeding with any permitted alteration which will
cost more than $50,000 (exclusive of the costs of decorating work and items
constituting Tenant's Property), as estimated by a reputable contractor
designated by Landlord, Tenant shall obtain and deliver to Landlord either (i) a
performance bond and a labor and materials payment bond (issued by a corporate
surety licensed to do business in New Jersey), each in an amount equal to 125%
of such estimated cost and in form satisfactory to Landlord, or (ii) such other
security as shall be satisfactory to Landlord. Tenant shall fully and promptly
comply with and observe the Rules and Regulations then in force in respect of
the making of alterations. Any review or approval by Landlord of any plans
and/or specifications with respect to any alterations is solely for Landlord's
benefit, and without any representation or warranty whatsoever to Tenant in
respect of the adequacy, correctness or efficiency thereof or otherwise.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance therewith and with all applicable Legal Requirements and
Insurance Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the better of (a) the original installations of the Building, or
(b) the then standards for the Building established by Landlord. Alterations
shall be performed by contractors first approved by Landlord; provided, however,
that any alterations in or to the mechanical, electrical, sanitary, heating,
ventilating, air conditioning or other systems of the Building shall be
performed only by the contractor(s) designated by Landlord. Alterations shall
be made in such manner as not to unreasonably interfere with or delay and as not
to impose any
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additional expense upon Landlord in the construction, maintenance, repair or
operation of the Building; and if any such additional expense shall be incurred
by Landlord as a result of Tenant's making of any alterations, Tenant shall pay
any such additional expense upon demand. Throughout the making of alterations,
Tenant shall carry, or cause to be carried, worker's compensation insurance in
statutory limits and general liability insurance, with completed operation
endorsement, for any occurrence in or about the Building, under which Landlord
and its managing agent and any Superior Lessor whose name and address shall
previously have been furnished to Tenant shall be named as parties insured, in
such limits as Landlord may reasonably require, with insurers reasonably
satisfactory to Landlord. Tenant shall furnish Landlord with reasonably
satisfactory evidence that such insurance is in effect at or before the
commencement of alterations and, on request, at reasonable intervals thereafter
during the making of alterations.
ARTICLE 16 - LANDLORD'S AND TENANTS PROPERTY
16.01. All fixtures, equipment, improvements and appurtenances attached to
or built into the Demised Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant, shall be and remain a part of the
Demised Premises, shall be deemed to be the property of Landlord and shall not
be removed by Tenant, except as provided in Section 16.02. Further, any
carpeting or other personal property in the Demised Premises on the Commencement
Date, unless installed and paid for by Tenant, shall be and shall remain
Landlord's property and shall not be removed by Tenant.
16.02. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of the Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Demised Premises, the
Building or the Common Areas resulting from the installation and/or removal
thereof, reasonable wear and tear accented. Any equipment or other property for
which Landlord shall have granted any allowance or credit to Tenant shall not be
deemed to have been installed by or for the account of Tenant without expense to
Landlord, shall not be considered as the Tenant's Property and shall be deemed
the property of Landlord.
16.03. At or before the Expiration Date or the date of any earlier
termination of this Lease, or within fifteen (15) days after such an earlier
termination date, Tenant shall remove from the Demised Premises all of the
Tenant's Property (except such items thereof as Landlord shall have expressly
permitted to remain, which property shall become the property of Landlord if not
removed), and Tenant shall repair any damage to the Demised Premises, the
Building and the Common Areas resulting from any installation and/or-removal of
the Tenant's Property, reasonable wear and tear accepted. Any items of the
Tenant's Property which shall remain in the Demised Premises after the
Expiration Date or after a period of fifteen (15) days following an earlier
termination date, may, at the option of Landlord, be deemed to have been
abandoned, and
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in such case such items may be retained by Landlord as its property or disposed
of by Landlord, without accountability, in such manner as Landlord shall
determine at Tenant's Expense.
ARTICLE 17 - REPAIRS AND MAINTENANCE
17.01. Tenant shall, throughout the Term, take good care of the Demised
Premises, the fixtures and appurtenances therein. Tenant shall be responsible
for all repairs, interior and exterior, structural and nonstructural, ordinary
and extraordinary, in and to the Demised Premises, and the Building (including
the facilities and systems thereof) and the Common Areas the need for which
arises out of (a) the performance or existence of the Tenant's Work or
alterations, (b) the installation, use or operation of the Tenant's Property in
the Demised Premises, (c) the moving of the Tenant's Property in or out of the
Building, or (d) the act, omission, misuse or neglect of Tenant or any of its
subtenants or its or their employees, agents, contractors or invitees. Tenant
shall promptly replace or repair to reasonable satisfaction of Landlord all
scratched, damaged or broken doors and glass in and about the Demised Premises
and shall be responsible for all repairs, maintenance and replacement of wall
and floor coverings in the Demised Premises and for the repair and maintenance
of all sanitary and electrical fixtures and equipment therein. Tenant shall
promptly make all repairs in or to the Demised Premises for which Tenant is
responsible, and any repairs required to be made by Tenant to the mechanical,
electrical, sanitary, heating, ventilating, air-conditioning or other systems of
the Building shall be performed only by contractor(s) designated by Landlord.
Any other repairs in or to the Building and the facilities and systems thereof
for which Tenant is responsible shall be performed by Landlord at Tenant's
expense; but Landlord may, at its option, before commencing any such work or at
any time thereafter, require Tenant to furnish to Landlord such security, in
form (including, without limitation, a bond issued by a corporate surety
licensed to do business in New Jersey) and amount, as Landlord shall deem
necessary to assure the payment for such work by Tenant. Tenant shall not
permit or suffer the overloading of the floors of the Demised Premises beyond
eighty (80) pounds per square foot.
17.02. So long as Tenant is not in default under this Lease, Landlord
shall be responsible for all repairs and maintenance in and to the Building
(including the facilities and systems thereof), except for those repairs and
maintenance for which Tenant is responsible pursuant to any of the provisions of
this Lease.
17.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's doing any repairs, maintenance, or changes which Landlord is required
or permitted by this Lease, or required by Law, to make in or to any portion of
the Building.
ARTICLE 18 - ELECTRIC ENERGY
18.01. Tenant shall purchase the electric energy required by it in the
Demised Premises
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at its own expense on a direct-metered basis from the public utility servicing
the Building, and Landlord shall permit the risers, conduits and feeders in the
Building, to the extent available, suitable and safely capable, to be used for
the purpose of transmitting such electric energy to the Demised Premises.
Landlord shall not be liable for any failure, inadequacy or defect in the
character or supply of electric current furnished to the Demised Premises. If
Landlord is permitted by law to provide electric energy to the Demised Premises
by re-registering meters or otherwise and to collect any charges for electric
energy, Landlord shall have the right to do so, in which event Tenant shall pay
to Landlord upon receipt of bills therefor charges for electric energy provided
the rates for such electric energy shall not be more than the rates Tenant would
be charged for electric energy if furnished directly to Tenant by the public
utility which would otherwise have furnished electric energy. Until such
separate metering of the electric usage of the Demised Premises is accomplished,
Tenant shall pay Landlord One Dollar and Twenty-five Cents ($1.25) per square
foot of Floor Space for electric service.
18.02. Tenant's use of electric energy in the Demised Premises shall not
at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. In order to insure that
such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld or delayed), connect
any fixtures, appliances or equipment to the Building's electric distribution
system or make any alteration or addition to the electric system of the Demised
Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant to Landlord on demand.
ARTICLE 19 - HEAT, VENTILATION AND AIR-CONDITIONING
19.01. So long as Tenant is not in default under this Lease, Landlord
shall maintain and operate the heating, ventilating and air-conditioning systems
("HVAC") serving the Demised Premises, and shall furnish HVAC in the Demised
Premises as may be reasonably required (except as otherwise provided in this
Lease and except for any special requirements of Tenant arising from its
particular use of the Demised Premises) for reasonably comfortable occupancy of
the Demised Premises, during Business Hours on Business Days within the limits
prescribed by the Legal Requirements. If Tenant shall require HVAC at any other
time, Landlord shall furnish such service for such times upon not less than six
(6) hours advance notice from Tenant, and Tenant shall pay to Landlord upon
demand Landlord's then established charges therefor.
19.02. The performance by Landlord of its obligation under Section 19.01
in respect of HVAC is conditioned on the connected electric load within the
Demised Premises not exceeding three and one-half (3 1/2) watts per usable
square foot in the Demised Premises and the occupancy of the Demised Premises
not exceeding one (1) person for each one hundred and fifty (150) usable square
feet. Use of the Demised Premises, or any part thereof in a manner exceeding
the HVAC design conditions (including occupancy and connected electrical load),
or rearrangement of partitioning which interferes with normal operation of the
HVAC in the Demised Premises, or the use of computer or data processing machines
or other machines or
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equipment, may require changes in the HVAC systems servicing the Demised
Premises, in order to provide comfortable occupancy. Such changes, so
occasioned, shall be made by Tenant, at its expense, as alterations in
accordance with the provisions of Article 15, but only to the extent permitted
and upon the conditions set forth in Article 15. Tenant shall have the right,
with Landlord consent not unreasonably withheld or delayed, to place a "plenum"
or "closet unit" HVAC within the leased space. All costs and approvals will be
paid by Tenant. Any and all ducting, shafting or placing of HVAC shall not
interfere with the building system currently provided by Landlord. Any HVAC
electric usage will be billed directly to Tenant on a direct meter basis or an
amount agreed to by Landlord and Tenant. Tenant will be obligated to insure that
electrical configuration will support the additional unit.
ARTICLE 20 - OTHER SERVICES; SERVICE INTERRUPTION
20.01. Landlord shall provide elevator service to the Demised Premises
during Business Hours on Business Days, and Landlord shall have at least one (1)
elevator subject to call at all other times. The use of the elevators shall be
subject to the Rules and Regulations.
20.02. Landlord shall cause the Demised Premises, including the exterior
and the interior of the windows thereof, to be cleaned in a manner standard to
the Building and in accordance with the standards set forth in Exhibit E.
Tenant shall pay to Landlord on demand the costs incurred by Landlord for (a)
extra cleaning work in the Demised Premises required because of (i) misuse or
neglect on the part of Tenant or its subtenants or its or their employees or
visitors, (ii) use of portions of the Demised Premises for preparation, serving,
consumption of food or beverages, training rooms, data processing or reproducing
operations, private lavatories or toilets or other special purposes requiring
greater or more difficult cleaning work than office areas, (iii) interior glass
partitions or unusual quantity of interior glass surfaces, and (iv) non-building
standard materials or finishes installed by Tenant or at its request, and (b)
removal from the Demised Premises and the Building of any refuse and rubbish of
Tenant in excess of that ordinarily accumulated in business office occupancy or
at times other than Landlord's standard cleaning times, and (c) the use of the
Demised Premises by Tenant other than during Business Hours on Business Days.
20.03. Landlord, its cleaning contractor and their employees shall have
access to the Demised Premises after 5:30 P.M. and before 8:00 A.M. and shall
have the right to use, without charge therefor, all light, power and water in
the Demised Premises reasonably required to clean the Demised Premises as
required under Section 20.02.
20.04. Landlord shall furnish adequate hot and cold water to the Demised
Premises for drinking, lavatory and cleaning purposes. If Tenant uses water for
any other purpose Landlord may install and maintain, at Tenant's expense, meters
to measure Tenant's consumption of cold water and/or hot water for such other
purpose. Tenant shall reimburse Landlord for the quantities of cold water and
hot water shown on such meters on demand.
ARTICLE 21 - ACCESS, CHANGES AND NAME
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21.01. Except for the space within the inside surfaces of all walls, hung
ceilings, floors, windows and doors bounding the Demised Premises, all of the
Building, including, without limitation, exterior Building walls, core corridor
wails and doors and any core corridor entrance, any terraces or roofs adjacent
to the Demised Premises, and any space in or adjacent to the Demised Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities and the use thereof, as well as
access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved to Landlord. Landlord also
reserves the right, to install, erect, use and maintain pipes, ducts and
conduits in and through the Demised Premises, provided such are properly
enclosed.
21.02. Landlord and its agents shall have the right to enter and/or pass
through the Demised Premises at any time or times (a) to examine the Demised
Premises and to show them to actual and prospective Superior Lessors, Superior
Mortgagees, or prospective purchasers of the Building, and (b) to make such
repairs, alterations, additions and improvements in or to the Demised Premises
and/or in or to the Building or its facilities and equipment as Landlord is
required or desires to make. Landlord shall be allowed to take all materials
into and upon the Demised Premises that may be required in connection therewith,
without any liability to Tenant and without any reduction of Tenant's
obligations hereunder. During the period of fifteen (15) months prior to the
Expiration Date, Landlord and its agents may exhibit the Demised Premises to
prospective tenants.
21.03. If at any time any windows of the Demised Premises are temporarily
darkened or obstructed by reason of any repairs, improvements, maintenance
and/or cleaning in or about the Building, or if any part of the Building or the
Common Areas, other than the Demised Premises, is temporarily or permanently
closed or inoperable, the same shall not be deemed a constructive eviction and
shall not result in any reduction or diminution of Tenant's obligations under
this Lease.
21.04. If, during the last month of the Term, Tenant has removed all or
substantially all of the Tenant's Property from the Demised Premises, Landlord
may, without notice to Tenant, immediately enter the Demised Premises and alter,
renovate and decorate the same, without liability to Tenant and without reducing
or otherwise affecting Tenant's obligations hereunder.
21.05. Landlord reserves the right, at any time and from time to time, to
make such changes, alterations, additions and improvements in or to the Building
and the fixtures and equipment thereof as Landlord shall deem necessary or
desirable.
21.06. Landlord may adopt any name for the Building. Landlord reserves
the right to change the name and/or address of the Building at any time.
ARTICLE 22 - MECHANICS' LIENS AND OTHER LIENS
22.01. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to subject
Landlord's interest or estate to
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any liability under any mechanic's or other lien law. If any mechanic's or other
lien or any notice of intention to file a lien is filed against the Land, or any
part thereof; or the Demised Premises, or any part thereof, for any work, labor,
service or materials claimed to have been performed or furnished for or on
behalf of Tenant or anyone holding any part of the Demised Premises through or
under Tenant, Tenant shall cause the same to be canceled and discharged of
record by payment, bond or order of a court of competent jurisdiction within
fifteen (15) days after notice by Landlord to Tenant.
ARTICLE 23 - NON-LIABILITY AND INDEMNIFICATION
23.01. Neither Landlord nor any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other Person, or to its or their
property, irrespective of the cause of such injury, damage or loss, unless
caused by or resulting from the willful misconduct or negligence of Landlord,
its agents, servants or employees in the operation or maintenance of the Land or
Building without contributory' negligence on the part of Tenant or any of its
subtenants or licensees or its or their employees, agents or contractors.
Further, neither Landlord nor any partner, joint venturer, director, officer,
agent, servant or employee of Landlord shall be liable (a) for any such damage
caused by other tenants or Persons in, upon or about the Land or Building, or
caused by operations in construction of any private, public or quasi-public
work; or (b) even if negligent, for consequential damages arising out of any
loss of use of the Demised Premises or any equipment or facilities therein by
Tenant or any Person claiming through or under Tenant.
23.02. Tenant shall indemnify and hold harmless Landlord and all Superior
Lessors and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any and all claims
arising from or in connection with (a) the conduct or management of the Demised
Premises or of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in the Demised Premises during
the Term or during the period of time, if any, prior to the Commencement Date
that Tenant may have been given access to the Demised Premises; (b) any act,
omission or negligence of Tenant or any of its subtenants or licensees or its or
their partners, joint venturers, directors, officers, agents, employees or
contractors; (c) any accident, injury or damage whatever (unless caused solely
by Landlord's willful misconduct or negligence) occurring in the Demised
Premises; and (d) any breach or default by Tenant in the full and prompt payment
and performance of Tenant's obligations under this Lease; together with all
reasonable costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon, including, without
limitation, all attorneys' fees and expenses. In case of any action or
proceeding is brought against Landlord and/or any Superior Lessor and/or its or
their partners, joint venturers, directors, officers, agents and/or employees by
reason of any such claim, Tenant, upon notice from Landlord or such Superior
Lessor, shall resist and defend such action or proceeding (by counsel reasonably
satisfactory to Landlord).
23.03. Notwithstanding any provision to the contrary, Tenant shall look
solely to the estate and property of Landlord in and to the Land and Building
(or the proceeds received by Landlord on a sale of such estate and property but
not the proceeds of any financing or
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refinancing thereof) in the event of any claim against Landlord arising out of
or in connection with this Lease, the relationship of Landlord and Tenant or
Tenant's use of the Demised Premises or the Common Areas, and Tenant agrees that
the liability of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas shall be limited to such estate and property of Landlord (or
sale proceeds). No other properties or assets of Landlord or any partner, joint
venturer, director, officer, agent, servant or employee of Landlord shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of any judgment (or other judicial process) or for the satisfaction of any other
remedy of Tenant arising out of; or in connection with, this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas and if Tenant shall acquire a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
acknowledging and delivering to Landlord an instrument to that effect prepared
by Landlord's attorneys. Tenant hereby waives the right of specific performance
and any other remedy allowed in equity if specific performance or such other
remedy could result in any liability of Landlord for the payment of money to
Tenant, or to any court or governmental authority (by way of fines or otherwise)
for Landlord's failure or refusal to observe a judicial decree or determination,
or to any third party.
ARTICLE 24 - DAMAGE OR DESTRUCTION
24.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as in this Article 24 hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property) with reasonable dispatch after
notice to it of the damage or destruction and the collection of the insurance
proceeds attributable to such damage.
24.02. Subject to the provisions of Section 24.05, if all or part of the
Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised Premises,
for the period from the date of the damage or destruction to (a) the date the
damage to the Demised Premises shall be substantially repaired, or (b) if the
Building and not the Demised Premises is so damaged or destroyed, the date on
which the Demised Premises shall be made tenantable; provided, however, should
Tenant reoccupy a portion of the Demised Premises during the period the repair
or restoration work is taking place and prior to the date that the Demised
Premises are substantially repaired or made tenantable the Rent allocable to
such reoccupied portion, based upon the proportion which the area of the
reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
24.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other casualty, or (b) the Building shall be so
damaged or destroyed by fire or other casualty (whether or not the Demised
Premises are damaged or destroyed) that its repair or
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restoration requires the expenditure, as estimated by a reputable contractor or
architect designated by Landlord, of more than twenty percent (20%) (or ten
percent [10%] if such casualty occurs during the last two [2] years of the Term)
of the full insurable value of the Building immediately prior to the casualty,
or (c) the Building shall be damaged or destroyed by fire or other casualty
(whether or not the Demised Premises are damaged or destroyed) and either the
loss shall not be covered by Landlord's insurance or the net insurance proceeds
(after deducting all expenses in connection with obtaining such proceeds) shall,
in the estimation of a reputable contractor or architect designated by Landlord
be insufficient to pay for the repair or restoration work, then in either such
case Landlord may terminate this Lease by giving Tenant notice to such effect
within ninety (90) days after the date of the fire or other casualty. In the
event the Demised Premises are damaged or destroyed to such an extent that such
are untenantable, Landlord shall use reasonable efforts to relocate Tenant to
other, reasonably suitable space within the Property during the period of repair
or restoration, in which case Tenant will pay rent for such space in accordance
with the terms of the Lease. If, (i.) in the estimation of a reputable
contractor or architect reasonably approved by Landlord, the Demised Premises
are damaged or destroyed to such an extent that Tenant may not reasonably expect
to occupy the Demised Premises within one-hundred eighty (180) days after the
date of the fire or other casualty; and (ii.) Landlord is unable to relocate
Tenant to other, reasonably suitable space within the Property, Tenant may
terminate this Lease by giving Landlord notice to such effect within sixty (60)
days after the date of the fire or other casualty.
24.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 24.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as not unreasonably to interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Business Hours on Business Days.
24.05. Notwithstanding any of the foregoing provisions of this Article 24,
if by reason of some act or omission on the part of Tenant or any of its
subtenants or its or their partners, directors, officers, servants, employees,
agents or contractors, either (a) Landlord or any Superior Lessor or any
Superior Mortgagee shall be unable to collect all of the insurance proceeds
(including, without limitation, rent insurance proceeds) applicable to damage or
destruction of the Demised Premises or the Building by fire or other casualty,
or (b)the Demised Premises or the Building shall be damaged or destroyed or
rendered completely or partially untenantable on account of fire or other
casualty, then, without prejudice to any other remedies which may be available
against Tenant, there shall be no abatement or reduction of the Rent. Further,
nothing contained in this Article 24 shall relieve Tenant from any liability
that may exist as a result of any damage or destruction by fire or other
casualty.
24.06. Landlord will not carry insurance of any kind on the Tenant's
Property, and, except as provided by law or by reason of Landlord's breach of
any of its obligations hereunder, shall not be obligated to repair any damage to
or replace the Tenant's Property.
24.07. The provisions of this Article 24 shall be deemed an express
agreement governing
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any case of damage or destruction of the Demised Premises and/or Building by
fire or other casualty, and any law providing for such a contingency in the
absence of an express agreement, now or hereafter in force, shall have no
application in such case.
ARTICLE 25 - EMINENT DOMAIN
25.01 If the whole of the Demised Premises shall be taken by any public or
quasi-public authority under the power of condemnation, eminent domain or
expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If 25% or less of the Floor Space of the
Demised Premises shall be so taken or conveyed, this Lease shall terminate only
in respect of the part so taken or conveyed as of the day possession shall be
taken by such authority. If more than 25% of the Floor Space of the Demised
Premises shall be so taken or conveyed, this Lease shall terminate only in
respect of the part so taken or conveyed as of the day possession shall be taken
by such authority, but either party shall have the right to terminate this Lease
upon notice given to the other party within 30 days after such taking
possession. If more than 25% of the Floor Space of the Building shall be so
taken or conveyed, Landlord may, by notice to Tenant, terminate this Lease as of
the day possession shall be taken. If so much of the parking facilities shall
be so taken or conveyed that the number of parking spaces necessary, in
Landlord's judgment, for the continued operation of the Building shall not be
available, Landlord shall, by notice to Tenant, terminate this Lease as of the
day possession shall be taken. If this Lease shall continue in effect as to any
portion of the Demised Premises not so taken or conveyed, the Rent shall be
computed as of the day possession shall be taken on the basis of the remaining
Floor Space of the Demised Premises. Except as specifically provided herein, in
the event of any such taking or conveyance there shall be no reduction in Rent.
If this Lease shall continue in effect, Landlord shall, at its expense, but
shall be obligated only to the extent of the net award or other compensation
(after deducting all expenses in connection with obtaining same) available to
Landlord for the improvements taken or conveyed (excluding any award or other
compensation for land or for the unexpired portion of the term of any Superior
Lease), make all necessary alterations so as to constitute the remaining
Building a complete architectural and tenantable unit, except for the Tenant's
Property, and Tenant shall make all alterations or replacements to the Tenant's
Property and decorations in the Demised Premises. All awards and compensation
for any taking or conveyance, whether for the whole or a part of the Land or
Building, the Demised Premised or otherwise, shall be the property of Landlord,
and Tenant hereby assigns to Landlord all of Tenant's right, title and interest
in and to any and all such awards and compensation, including, without
limitation, any award or compensation for the value of the unexpired portion of
the Term. Tenant shall be entitled to claim, prove and receive in the
condemnation proceeding such award or compensation as may be allowed for the
Tenant's Property and for loss of business, good will, and depreciation or
injury to and cost of removal of the Tenant's Property, but only if such award
or compensation shall be made by the condemning authority in addition to, and
shall not result in a reduction of, the award or compensation made by it to
Landlord.
25.02. If the temporary use or occupancy of all or any part of the Demised
Premises shall be taken during the Term, Tenant shall be entitled, except as
hereinafter set forth, to receive that
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portion of the award or payment for such taking which represents compensation
for the use and occupancy of the Demised Premises, for the taking of the
Tenant's Property and for moving expenses, and Landlord shall be entitled to
receive that portion which represents reimbursement for the cost of restoration
of the Demised Premises. This Lease shall be and remain unaffected by such
taking and Tenant shall continue to be responsible for all of its obligations
hereunder insofar as such obligations are not affected by such taking and shall
continue to pay the Rent in full when due. If the period of temporary use or
occupancy shall extend beyond the Expiration Date, that part of the award or
payment which represents compensation for the use and occupancy of the Demised
Premises (or a part thereof) shall be divided between Landlord and Tenant so
that Tenant shall receive (except as otherwise provided below) so much thereof
as represents compensation for the period up to and including the Expiration
Date and Landlord shall receive so much thereof as represents compensation for
the period after the Expiration Date. All monies to be paid to Tenant as, or as
part of, an award or payment for temporary use and occupancy for a period beyond
the date to which the Rent has been paid shall be received, held and applied by
the first Superior Mortgagee (or if there is no Superior Mortgagee, by Landlord
as a trust fund) for payment of the Rent becoming due hereunder.
ARTICLE 26 - SURRENDER
26.01. On the Expiration Date, or upon any earlier termination of this
Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall
quit and surrender the Demised Premises to Landlord "broom-clean" and in good
order, condition and repair, except for ordinary wear and tear and such damage
or destruction as Landlord is required to repair or restore under this Lease,
and Tenant shall remove all of Tenant's Property therefrom except as otherwise
expressly provided in this Lease.
26.02. If Tenant remains in possession of the Demised Premises after rue
expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises at the sufferance of Landlord subject to all of the provisions of this
Lease, except that the monthly Fixed Rent shall be 150% the Fixed Rent in
effect during the last month of the Term.
26.03. No act or thing done by Landlord or its agents shall be deemed an
acceptance of a surrender of the Demised Premises, and no agreement to accept
such surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 27 - CONDITIONS OF LIMITATION
27.01. This Lease is subject to the limitation that whenever Tenant or any
Guarantor (a) shall make an assignment for the benefit of creditors, or (b)
shall commence a voluntary case or have entered against it an order for relief
under any chapter of the Federal Bankruptcy Code (Title II of the United States
Code) or any similar order or decree under any federal or state law, now in
existence, or hereafter enacted having the same general purpose, and such order
or decree shall have not been stayed or vacated within 30 days after entry, or
(c) shall cause, suffer, permit or consent to the appointment of a receiver,
trustee, administrator, conservator, sequestrator,
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liquidator or similar official in any federal, state or foreign judicial or
nonjudicial proceeding, to hold, administer and/or liquidate all or
substantially all of its assets, and such appointment shall not have been
revoked, terminated, stayed or vacated and such official discharged of his
duties within 30 days of his appointment, then Landlord, at any time after the
occurrence of any such event, may give Tenant a notice of intention to end the
Term at the expiration of five (5) days from the date of service of such notice
of intention, and upon the expiration of said five (5) day period, whether or
not the Term shall theretofore have commenced, this Lease shall terminate with
the same effect as if that day were the expiration date of this Lease, but
Tenant shall remain liable for damages as provided in Article 29.
27.02. This Lease is subject to the further limitations that: (a) if
Tenant shall default in the payment of any Rent, or (b) if Tenant shall, whether
by action or inaction, be in default of any of its obligations under this Lease
(other than a default in the payment of Rent) and such default shall continue
and not be remedied within fifteen (15) days after Landlord shall have given to
Tenant a notice specifying the same, or, in the case of a default which cannot
with due diligence be cured within a period of fifteen (15) days and the
continuance of which for the period required for cure will not subject Landlord
or any Superior Lessor to prosecution for a crime (as more particularly
described in the last sentence of Section 12.02) or termination of any Superior
Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within
said fifteen (15) day period advise Landlord of Tenant's intention to take all
steps necessary to remedy such default, (ii) duly commence within said fifteen
(15) day period, and thereafter diligently prosecute to completion all steps
necessary to remedy the default, and (iii) complete such remedy within a
reasonable time after the date of said notice by Landlord, or (c) if any event
shall occur or any contingency shall arise whereby this Lease would, by
operation of law or otherwise, devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted by Article 11, or
(d) if Tenant shall vacate or abandon the Demised Premises, or (e) if there
shall be any default by Tenant (or any person which, directly or indirectly,
controls, is controlled by, or is under common control with Tenant) under any
other lease with Landlord (or any person which, directly or indirectly,
controls, is controlled by, or is under common control with Landlord) which
shall not be remedied within the applicable grace period, if any, provided
therefor under such other lease, then in any of said cases Landlord may give to
Tenant a notice of intention to end the Term at the expiration of five (5)
business days from the date of the service of such notice of intention, and upon
the expiration of said five (5) business days, whether or not the Term shall
theretofore have commenced, this Lease shall terminate with the same effect as
if that day were the expiration date of this Lease, but Tenant shall remain
liable for damages as provided in Article 29.
ARTICLE 28 - RE-ENTRY BY LANDLORD
28.01. If Tenant shall default in the payment of any Rent, or if this
Lease shall terminate as provided in Article 27, Landlord or Landlord's agents
and employees may immediately or at any time thereafter re-enter the Demised
Premises, or any part thereof, either by summary dispossess proceedings or by
any suitable action or proceeding at law without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove any
Person therefrom, to the end that Landlord may have, hold and enjoy the Demised
Premises.
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The word re-enter," as used herein, is not restricted to its technical legal
meaning. If this Lease is terminated under the provisions of Article 27, or if
Landlord shall re-enter the Demised Premises under the provisions of this
Article 28, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceedings or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall
thereupon pay to Landlord the Rent payable up to the time of such termination of
this Lease, or of such recovery of possession of the Demised Premises by
Landlord, as the ease may be, and shall also pay to Landlord damages as provided
in Article 29.
28.02. In the vent of a breach or threatened breach by Tenant of any of
its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
28.03. If this Lease shall terminate under the provisions of Article 27,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article 28, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all monies, if any, paid by Tenant to Landlord, whether as
Advance Rent, security or otherwise, but such monies shall be credited by
Landlord against any Rent due from Tenant at the time of such termination or re-
entry or, at Landlord's option, against any damages payable by Tenant under
Article 29 or pursuant to law.
ARTICLE 29 - DAMAGES
29.01. If this Lease is terminated under the provisions of Article 27, or
if Landlord shall re-enter the Demised Premises under the provisions of Article
28, or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceeding or action or any provision of
law by reason of default hereunder on the part of Tenant, Tenant shall pay as
Additional Charges to Landlord, at the election of Landlord, either or any
combination of:
(a) a sum which at the time of such termination of this Lease or at the
time of any such reentry by Landlord, as the case may be, represents the then
value of the excess, if any, of (i) the aggregate amount of the Rent which would
have been payable by Tenant (conclusively presuming the average monthly
Additional Charges to be the same as were the average monthly Additional Charges
payable for the year, or if less than 365 days have then elapsed since the
Commencement Date, the partial year, immediately preceding such termination or
re-entry) for the period commencing with such earlier termination of this Lease
or the date of any such re-entry, as the case may be, and ending with the
Expiration Date, over (ii) the aggregate rental value of the Demised Premises
for the same period, or
(b) sums equal to the Fixed Rent and the Additional Charges which would
have been payable by Tenant had this Lease not so terminated, or had Landlord
not so re-entered the
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Demised Premises, payable upon the due dates therefor specified herein following
such termination or such re-entry and until the Expiration Date, provided,
however, that if Landlord shall relet the Demised Premises during said period,
Landlord shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the gross
rents as and when received by Landlord from such reletting the expenses incurred
or paid by Landlord in terminating this Lease or in re-entering the Demised
Premises and in securing possession thereof, as well as the expenses of
reletting, including, without limitation, altering and preparing the Demised
Premises for new tenants, brokers' commissions, legal fees, and all other
expenses properly chargeable against the Demised Premises and the rental
therefrom, it being understood that any such reletting may be for a period
shorter or longer than the period ending on the Expiration Date; but in no event
shall Tenant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any
suit for the collection of damages pursuant to this subsection (b) to a credit
in respect of any rents from a reletting, except to the extent that such net
rents are actually received by Landlord. If the Demised Premises or any part
thereof should be relet in combination with other space, then proper
apportionment on a square foot basis shall be made of the rent received from
such reletting and of the expenses of reletting; or
(c) a sum which at the time of such termination of this Lease or at the
time of any such reentry by Landlord, as the case may be, represents the
aggregate amount of the Rent which would have been payable by Tenant
(conclusively presuming the average monthly Additional Charges to be the same as
were the average monthly Additional Charges payable for the year, or if less
than 365 days have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry) for the period commencing
with such earlier termination of this Lease or the date of any such re-entry, as
the case may be, and ending with the Expiration Date; provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord shall
credit Tenant with the net rents received by Landlord from such reletting, such
net rents to be determined by first deducting from the gross rents as and when
received by Landlord from such reletting the expenses incurred or paid by
Landlord in terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof as well as the expenses of reletting, including,
without limitation, altering and preparing the Demised Premises for new tenants,
brokers' commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being understood that
any such reletting may be for a period shorter or longer than the period ending
on the Expiration Date; but in no event shall Landlord have to account to Tenant
for any rents in excess of the total damages recovered by Landlord hereunder,
nor shall Tenant be entitled in any suit for the collection of damages pursuant
to this subdivision (c) to a credit in respect of any rents from a reletting,
except to the extent that such net rents are actually received by Landlord. If
the Demised Premises or any part thereof should be relet in combination with
other space, then proper apportionment on a square foot basis shall be made of
the rent received from such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting. Landlord shall not be liable in
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any way whatsoever for its failure or refusal to relet the Demised Premises or
any part thereof, or if the Demised Premises or any part thereof are relet, for
its failure to collect the rent under such reletting, and no such refusal or
failure to relet or failure to collect rent shall release or affect Tenant's
liability for damages or otherwise under this Lease.
29.02. Suit or suits for the recovery of such damages or, any installments
thereof, may be brought by Landlord at any time and from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 27, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant. Nothing herein contained shall be construed to limit or
prejudice the right of Landlord to prove for and obtain as damages by reason of
the termination of this Lease or re-entry of the Demised Premises for the
default of Tenant under this Lease, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time, whether or not such amount be
greater than, equal to, or less than any of the sums referred to in Section
29.01.
29.03. In addition, if this Lease is terminated under the provisions of
Article 27, or if Landlord shall re-enter the Demised Premises under the
provisions of Article 28, Tenant covenants that: (a) the Demised Premises then
shall be in the same condition as that in which Tenant has agreed to surrender
the same to Landlord at the Expiration Date; (b) Tenant shall have performed
prior to any such termination any obligation of Tenant contained in this Lease
for the making of any alteration or for restoring or rebuilding the Demised
Premises or the Building, or any part thereof; and (c) for the breach of any
covenant of Tenant set forth above in this Section 29.03, Landlord shall be
entitled immediately, without notice or other action by Landlord, to recover,
and Tenant shall pay, as and for liquidated damages therefor, the cost of
performing such covenant (as estimated by an independent contractor selected by
Landlord).
29.04. In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under this Article 29, if any Rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) business days of demand
therefor, the same shall bear interest at the Late Payment Rate or the maximum
rate permitted by law, whichever is less, from the due date thereof until paid,
and the amounts of such interest shall be Additional Charges hereunder.
29.05. In addition to any remedies which Landlord may have under this
Lease, if there shall be a default hereunder by Tenant which shall not have been
remedied within the applicable grace period, Landlord shall not be obligated to
furnish to Tenant or the Demised Premises any HVAC services outside of Business
Hours or Business Days, or any extra or additional cleaning services; and the
discontinuance of any one or more such services shall be without liability by
Landlord to Tenant and shall not reduce, diminish or otherwise affect any of
Tenant's covenants and obligations under this Lease.
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ARTICLE 30 - AFFIRMATIVE WAIVERS
30.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or any of them might have under or by reason of any present or
future law, to redeem the Demised Premises or to have a continuance of this
Lease after being dispossessed or ejected from the Demised Premises by process
of law or under the terms of this Lease or after the termination of this Lease
as provided in this Lease.
30.02. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including, without limitation, any
claim of injury or damage, and any emergency and other statutory remedy with
respect thereto. Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the Demised
Premises.
ARTICLE 31 - NO WAIVERS
31.01. The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 32 - CURING TENANTS DEFAULTS
32.01. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of fifteen (15) days from
the date Landlord gives Tenant notice of the default. Tenant shall be allowed a
reasonable time to cure any default beyond said fifteen (15) days for those
issues not curable beyond the reasonable control of Tenant within fifteen (15)
days. In addition Tenant will use best efforts to cure and Tenant will keep
Landlord aware in writing of all progress in any circumstance of default not
curable within fifteen (15) days. As long as Tenant diligently pursues cure
than Tenant may have sixty (60) days to cure. Bills for any expenses incurred
by Landlord in connection with any such performance by it for the account of
Tenant, and bills for all costs, expenses and disbursements of every kind and
nature whatsoever, including reasonable attorneys' fees and expenses, involved
in collecting or endeavoring to collect the Rent or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant or Tenant's
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obligations hereunder, under or in connection with this Lease or pursuant to
law, including any such reasonable cost, expense and disbursement involved in
instituting and prosecuting summary proceedings or in recovering possession of
the Demised Premises after default by Tenant or upon the expiration of the Term
or sooner termination of this Lease, and interest on all sums advanced by
Landlord under this Article at the Late Payment Rate or the maximum rate
permitted by law, whichever is less, may be sent by Landlord to Tenant monthly,
or immediately, at Landlord's option, and such amounts shall be due and payable
in accordance with the terms of such bills.
ARTICLE 33 - BROKER
33.01. Tenant and Landlord mutually represents that no broker except the
Broker was instrumental in bringing about or consummating this Lease and that
Tenant had no conversations or negotiations with any broker except the Broker
concerning the leasing of the Demised Premises. Tenant and Landlord agrees to
indemnify and hold harmless each other against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, attorneys' fees and expenses, arising
out of any conversations or negotiations had by Tenant with any broker other
than the Broker. Landlord shall pay any brokerage commissions due the Broker
pursuant to a separate agreement between Landlord and the Broker.
ARTICLE 34 - NOTICES
34.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered or sent by United States
registered or certified mail, return receipt requested, addressed to the other
party at the address hereinabove set forth (except that after the Commencement
Date, Tenant's address, unless Tenant shall give notice to the contrary, shall
be the Building) as to Landlord, to the attention of General Counsel with a
concurrent notice to the attention of Controller, and shall be deemed to have
been given, rendered or made on the second day after the day so mailed, unless
mailed outside the State of New Jersey, in which case it shall be deemed to have
been given, rendered or made on the third business day after the day so mailed.
Either party may, by notice as aforesaid, designate a different address or
addresses for notices, statements, demands, consents, approvals or other
communications intended for it. In addition, upon and to the extent requested
by Landlord, copies of notices shall be sent to the Superior Mortgagee.
ARTICLE 35 - ESTOPPEL CERTIFICATES
35.01. Each party shall, at any time and from time to time, as requested
by the other party, upon not less than ten (10) days' prior notice, execute and
deliver to the requesting party a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
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modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge, and
stating whether or not, to the best knowledge of the party giving the statement,
any event has occurred which with the giving of notice or passage of time, or
both, would constitute such a default of the requesting party, and, if so,
specifying each such event; any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom such party may be dealing,
regardless of independent investigation. Tenant also shall include in any such
statement such other information concerning this Lease as Landlord may
reasonably request.
ARTICLE 36 - ARBITRATION
36.01. Landlord may at any time request arbitration, and Tenant may at any
time request arbitration, of any matter in dispute but only where arbitration is
expressly provided for in this Lease. The party requesting arbitration shall do
so by giving notice to that effect to the other party, specifying in said notice
the nature of the dispute, and said dispute shall be determined in Newark, New
Jersey, by a single arbitrator, in accordance with the rules then obtaining of
the American Arbitration Association (or any organization which is the successor
thereto). The award in such arbitration may be enforced on the application of
either party by the order or judgment of a court of competent jurisdiction. The
fees and expenses of any arbitration shall be borne by the parties equally, but
each party shall bear thc expense of its own attorneys and experts and the
additional expenses of presenting its own proof. If Tenant gives notice
requesting arbitration as provided in this Article, Tenant shall simultaneously
serve a duplicate of the notice on each Superior Mortgagee and Superior Lessor
whose name and address shall previously have been furnished to Tenant, and such
Superior Mortgagees and Superior Lessor shall have the right to participate in
such arbitration.
ARTICLE 37 - MEMORANDUM OF LEASE
37.01. Tenant shall not record this Lease. However, at the request of
Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording. Such
memorandum shall not be deemed to change or otherwise affect any of the
obligations or provisions of this Lease. Whichever party records such
memorandum of Lease shall pay all recording costs and expenses, including any
taxes that are due upon such recording.
ARTICLE 39 - MISCELLANEOUS
39.01. Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth
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<PAGE>
in this Lease or in any other written agreement(s) which may be made between the
parties concurrently with the execution and delivery of this Lease. All
understandings and agreements heretofore had between the parties are merged in
this Lease and any other written agreement(s) made concurrently herewith, which
alone fully and completely express the agreement of the parties and which are
entered into after full investigation. Neither party has relied upon any
statement or representation not embodied in this Lease or in any other written
agreement(s) made concurrently herewith. The submission of this Lease to Tenant
does not constitute by Landlord a reservation of, or an option to Tenant for,
the Demised Premises, or an offer to lease on the terms set forth herein and
this Lease shall become effective as a lease agreement only upon execution and
delivery thereof by Landlord and Tenant.
39.02. No agreement shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
39.03. If Tenant shall at any time request Landlord to sublet or let the
Demised Premises for Tenant's account, Landlord or its agent is authorized to
receive keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord of any
liability for loss or damage to any of the Tenant's Property in connection with
such subletting or letting.
39.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights ii any
successor or assignee of Tenant and (b) the provisions of this Section 39.04
shall not be construed as modifying the conditions of limitation contained in
Article 27.
39.05. Except for Tenant's obligations to pay Rent, the time for Landlord
or Tenant, as the case may be, to perform any of its respective obligations
hereunder shall be extended if and to the extent that the performance thereof
shall be prevented due to any Unavoidable Delay. Except as expressly provided
to the contrary, the obligations of Tenant hereunder shall not be affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
(a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of
its obligations under this Lease due to any of the matters set forth in the
first sentence of this Section 39.05, or (b) because of any failure or defect in
the supply, quality or character of electricity, water or any other utility or
service furnished to the Demised Premises for any reason beyond Landlord's
reasonable control.
39.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration of the Term or
earlier termination of this Lease.
39.07. If Tenant shall request Landlord's consent and Landlord shall fail
or refuse to give such consent, Tenant shall not be entitled to any damages for
any withholding by Landlord
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<PAGE>
of its consent; Tenant's sole remedy shall be an action for specific performance
or injunction, and such remedy shall be available only in those cases where
Landlord has expressly agreed in writing not to unreasonably withhold or delay
its consent or where as a matter of law Landlord may not unreasonably withhold
its consent.
39.08. If an excavation shall be made upon land adjacent to or under the
Building, or shall be authorized to be made, Tenant shall afford to the Person
causing or authorized to cause such excavation, license to enter the Demised
Premises for the purpose of performing such work as said Person shall reasonably
deem necessary or desirable to preserve and protect the Building from injury or
damage and to support the same by proper foundations, without any claim for
damages or liability against Landlord and without reducing or otherwise
affecting Tenant's obligations under this Lease.
39.09. Tenant shall not exercise its rights under Article 15 or any other
provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing, labor disruption or dispute or
any interference with the business of Landlord or any tenant or occupant of the
Building.
39.10. Tenant shall give prompt notice to Landlord of(a) any occurrence in
or about the Demised Premises for which Landlord might be liable, (b) any fire
or other casualty in the Demised Premises, (c) any damage to or defect in the
Demised Premises, including the fixtures and equipment thereof, for the repair
of which Landlord might be responsible, and (d) any damage to or defect in any
part of the Building's sanitary, electrical, heating, ventilating, air-
conditioning, elevator or other systems located in or passing through the
Demised Premises or any part thereof.
39.11. This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey. Tenant hereby irrevocably agrees that any
legal action or proceeding arising out of or relating to this Lease may be
brought in the Courts of the State of New Jersey, or the Federal District Court
for the District of New Jersey, as Landlord may elect. By execution and
delivery of this Lease, Tenant hereby irrevocably accepts and submits generally
and unconditionally for itself and with respect to its properties, to the
jurisdiction of any such court in any such action or proceeding, and hereby
waives in the case of any such action or proceeding brought in the courts of the
State of New Jersey, or Federal District Court for the District of New Jersey,
any defenses based on jurisdiction, venue or forum non conveniens. If any
provision of this Lease shall be invalid or unenforceable, the remainder of this
Lease shall not be affected and shall be enforced to the extent permitted by
law. The table of contents, captions, headings and titles in this Lease are
solely for convenience of reference and shall not affect its interpretation.
This Lease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Lease to be drafted. If
any words or phrases in this Lease shall have been stricken out or otherwise
eliminated, whether or not any other words or phrases have been added, this
Lease shall be construed as if the words or phrases so stricken out or otherwise
eliminated were never included in this Lease and no implication or inference
shall be drawn from the fact that said words or phrases were so stricken out or
otherwise eliminated. Each covenant, agreement, obligation or other provision
of this Lease on Tenant's part to be performed, shall be deemed and construed as
a separate and independent covenant of Tenant, not
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<PAGE>
dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require. Tenant specifically agrees to pay all of Landlord's costs, charges and
expenses, including attorneys' fees, incurred in connection with any document
review requested by Tenant and upon submission of bills therefor. In the event
Landlord permits Tenant to examine Landlord's books and records with respect to
any Additional Charge imposed under this Lease, such examination shall be
conducted at Tenant's sole cost and expense and shall be conditioned upon Tenant
retaining an independent accounting firm for such purposes which shall not be
compensated on any type of contingent fee basis with respect to such
examination. Wherever in this Lease or by law Landlord is authorized to charge
or recover costs and expenses for legal services or attorneys' fees, same shall
include, without limitation, the costs and expenses for in-house or staff legal
counsel or outside counsel at rates not to exceed the-reasonable and customary
charges for any such services as would be imposed in an arms length third party
agreement for such services.
39.12. Within thirty (30) days of each anniversary date of this Lease,
Tenant shall annually furnish to Landlord a copy of its then current audited
financial statement which shall be employed by Landlord for purposes of
financing the Premises and not distributed otherwise without prior authorization
of Tenant. Any material adverse change of Tenant's financial condition shall be
furnished to Landlord in writing forthwith and without request by Landlord for
same.
39.13. Tenant shall be allotted four (4) unreserved parking spaces per
1,000 square rentable square feet.
ARTICLE 40 - RIGHT OF FIRST REFUSAL
Tenant will be granted a right of first refusal on all available office
space on the floor they currently occupy. All terms and conditions will reflect
an amount agreeable between Landlord and Tenant at the time additional space is
occupied. Tenant's notification by Landlord will be upon Landlord receiving a
bona-fide offer, in writing. Tenant's decision to proceed upon the terms
received by Landlord will be accepted or rejected by Tenant within three (3)
business days after receipt of notice to Tenant.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
landlord
SIXTY-FIVE WILLOWBROOK TENANCY
by: Passaic Investment LLC
Managing Tenant
James M. Long, Managing Member
Tenant
Audible, Inc.
BY: _______________________________
Name:
[Corporate Seal] Title: President
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
LANDLORD
SIXTY-FIVE WILLOWBROOK TENANCY
by: Passaic Investment LLC
Managing Tenant
/s/ Christopher R. Smith
----------------------------------
Christopher R. Smith, President
American Property Global Partners
TENANT
Audible, Inc.
BY: /s/ Patrick C. Barry
---------------------------
Name: Patrick C. Barry
[Corporate Seal] Title: CFO, VP
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<PAGE>
EXHIBIT 10.20
---------------------------
SUBLEASE
---------------------------
PAINEWEBBER INCORPORATED,
Sublessor
to
AUDIBLE WORDS, INC.,
Sublessee
Premises:
A portion of the Third (3rd) Floor,
65 Willowbrook Boulevard
Wayne, New Jersey
dated as of
July 19, 1996
<PAGE>
SCHEDULE 1 TO SUBLEASE
DEFINED TERMS
For purposes of this Sublease, the following terms shall have the following
meanings:
EXECUTION DATE: July 19, 1996.
SUBLESSOR: PaineWebber Incorporated.
SUBLESSEE: Audible Words, Inc.
LESSOR: Hartz Mountain Industries, Inc.
SUBLESSOR'S ADDRESS
FOR RENT: PaineWebber Incorporated
1000 Harbor Boulevard - 5th Floor
Weehawken, NJ 07087
Attn.: Real Estate Finance
SUBLESSOR'S ADDRESS
FOR NOTICES: PaineWebber Incorporated
1000 Harbor Boulevard - 5th Floor
Weehawken, NJ 07087
Attn.: Real Estate Finance
With a copy of all default notices to:
PaineWebber Incorporated
1200 Harbor Boulevard - 10th Floor
Weehawken, NJ 07087
Attn.: Managing Attorney - Real Estate
MASTER LEASE: Lease, dated March 31, 1993, between
Lessor, as landlord, and Sublessor, as tenant.
BUILDING: The Building (as defined in the Master Lease),
and commonly known as 65 Willowbrook
Boulevard, Wayne, New Jersey.
MASTER PREMISES: The Demised Premises (as defined in the Master
Lease), consisting of approximately 7,947
square feet of net rentable area on the third
(3rd) floor of the Building.
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<PAGE>
PREMISES: The Master Premises, consisting of
approximately 7,947 square feet of net
rentable area on the third (3rd) floor of the
Building and more particularly described on
the floor plan attached hereto as Exhibit B.
COMMENCEMENT DATE: The later to occur of (a) the date that
Sublessor receives the consent of Lessor under
Section 16 of this Sublease and (b) July 19,
1996.
EXPIRATION DATE: February 27, 2003.
FIXED RENT: (a) Eighty Seven Thousand Four Hundred
Seventeen and 00/100 Dollars ($87,417.00) per
annum, payable in equal monthly installments
of Seven Thousand Two Hundred Eighty Four and
75/100 ($7,284.75), in advance, on the first
calendar day of each calendar month during the
period commencing on the Commencement Date and
continuing through the day before the third
(3rd) anniversary of the Commencement Date;
and
(b) One Hundred Eleven Thousand Two Hundred
Fifty Eight and 00/100 ($111,258.00) per
annum, payable in equal monthly installments
of Nine Thousand Two Hundred Seventy One and
50/100 ($9,271.50), in advance, on the first
calendar day of each month during the period
commencing on the third (3rd) anniversary of
the Commencement Date and continuing through
the Expiration Date.
SECURITY DEPOSIT: Zero and 00/100 Dollars ($0.00).
FIRST MONTH'S RENT: Seven Thousand Two Hundred Eighty Four and
75/100 ($7,284.75).
SUBLESSEE'S PRO
RATA SHARE: One Hundred Percent (100%).
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<PAGE>
SUBLESSOR'S BROKER: The Garibaldi Group.
SUBLESSEE'S BROKER: Newmark Partners, Inc.
EXCLUDED PROVISIONS: 1.01(C), (E), (J), (L), CM), (N), (P) (S),
(Z), (DD), (EE), and (NN); 2.01; 3.01; the
first sentence of 3.02; 5.01; the second
sentence of 11.01; 33.01; 34; R2; R3; R4; R8;
and Exhibit "C" (Workletter).
SUBLEASE
This SUBLEASE is dated as of the Execution Date (as defined in Schedule 1
to this Sublease) between Sublessor (as defined in Schedule I to this Sublease)
and Sublessee (as defined in Schedule 1 to this Sublease)
1. MASTER LEASE
------------
1.1. Sublessor is the tenant under the Master Lease (as defined in Schedule
1 to this Sublease) wherein Lessor (as defined in Schedule 1 to this Sublease)
leased to Sublessor the Master Premises (as defined in Schedule 1 to this
Sublease) of the Building (as defined in Schedule 1 to this Sublease).
A copy of the Master Lease is attached hereto as Exhibit "A".
-----------
2. PREMISES
--------
2.1 Sublessor hereby subleases to Sublessee, and Sublessee hereby takes
and hires from Sublessor, on the terms and conditions set forth in this
Sublease, the Premises (as defined in Schedule 1 to this Sublease).
2.2 From and after the receipt of the consent of Lessor, as required by
the terms of this Sublease, all personal property then existing in the Premises
shall be and become the property of Sublessee. At such time, upon the request of
Sublessee, Sublessor will execute and deliver to Sublessee a bill of sale. It is
acknowledged by the parties hereto that no portion of the consideration for this
Sublease is allocable to said personal property.
Sublessee acknowledges that such personal property is being taken "as is",
"where is", and "with all faults" as of the date hereof without any
representation or warranty whatsoever as to its
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<PAGE>
condition, fitness for any particular purpose, merchantability or any other
warranty, express or implied. Sublessor has only limited knowledge of the
condition of the personal property. Sublessee is hereby acquiring such personal
property based solely upon Sublessee's own independent investigations and
inspections of such personal property and not in reliance on any information
provided by Sublessor or any of its agents or contractors. Sublessor has made no
agreement to alter, repair or improve any of such personal property. Sublessor
specifically disclaims any warranty, guaranty or representation, oral or
written, past or present, express or implied, concerning such personal property.
3. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
3.1 Sublessor represents and warrants to Sublessee that the following are
true and correct as of the date hereof:
(i) except as indicated herein, the Master Lease is unmodified and in
full force and effect, and Sublessor's leasehold estate with respect to the
Premises has not been assigned, mortgaged, pledged, encumbered, or
otherwise transferred or sublet, in whole or in part;
(ii) the Master Lease evidences the entire written agreement with
respect to the Premises between Sublessor and Lessor;
(iii) all rent and additional rent billed to date and payable by
Sublessor, as "Tenant" under the Master Lease, has been paid, and
Sublessor, as "Tenant" under the Master Lease, will continue to make all
payments as they become due and payable under the Master Lease, provided
Sublessee is not in default hereunder;
(iv) Sublessor has received no written notice from Lessor of default
by Sublessor under the Master Lease which remains uncured; and
(v) Sublessor, to the best of Sublessor's knowledge, is not in default
under the Master Lease.
The aforesaid representations and warranties shall be deemed repeated at and as
of the Commencement Date (as defined in Schedule 1 to this Sublease) except to
the extent that Sublessor has notified Sublessee in writing that any such
representation or warranty is no longer true and correct, specifying in said
notice in reasonable detail the reason said representation or warranty is no
longer true and correct,
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<PAGE>
and, if such incorrect representation or warranty is material and adverse to
Sublessee, in Sublessee's reasonable discretion, Sublessee shall have the right
to terminate this Sublease by giving notice to Sublessor to such effect at any
time within five (5) days following the Commencement Date. Time shall be of the
essence with respect to the obligations of Sublessee hereunder.
4. TERM
----
4.1 The Term of this Sublease shall, subject to the last sentence of this
Paragraph, commence on the Commencement Date and shall continue, unless
otherwise sooner terminated in accordance with provisions of this Sublease or at
law, until the Expiration Date (as defined in Schedule 1 to this Sublease). If
for any reason outside of Sublessor's reasonable control Sublessor does not
deliver possession of the Premises ("Possession") to Sublessee on the
----------
Commencement Date, Sublessor shall not be subject to any liability for such
failure and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession.
5. RENT
----
5.1 Rent. Sublessee shall pay Fixed Rent (as defined in Schedule 1 to this
----
Sublease) to Sublessor without deduction, abatement, setoff, notice, or demand,
at Sublessor's Address for Rent (as defined in Schedule 1 to this Sublease) or
at such other place as Sublessor shall designate from time to time by notice to
Sublessee, in lawful money of the United States of America.
Sublessee shall pay to Sublessor, as rent for the first month of the Term,
upon the execution of this Sublease, the First Month's Rent (as defined in
Schedule 1 to this Sublease) in respect of the Fixed Rent. If the Term begins or
ends on a day other than the first or last day of a month, the rent for the
partial months shall be prorated on a per diem basis.
5.2 In addition to Fixed Rent and any other sums which Sublessee may be
obligated to pay pursuant to any other provision of this Sublease, Sublessee
shall pay to Sublessor as additional rent hereunder (i) Sublessee's pro--rata
share of the increase payable by Sublessor in the Tenant's Fraction of the Real
Estate Taxes and Tenant's Fraction of the Operating Expenses (as such terms are
defined in Sections 6.01 and 6.02, respectively, of the Master Lease) pursuant
to Section 6 of the Master Lease over the Tenant's Fraction of the Real Estate
Taxes and Tenant's Fraction of the Operating Expenses for the 1996 Calendar Year
(as defined in the Master Lease) and (ii) Tenant Surcharges (as hereinafter
defined). For purposes of
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<PAGE>
this Sublease, the amounts payable by Sublessee pursuant to subsections (i) and
(ii) above are hereinafter referred to as "Additional Rent". For purposes of
----------------
this Sublease, "Subleasee's pro rata share" shall mean the amount set forth in
Schedule 1 to this Sublease, which represents the percentage obtained by
dividing the rentable area of the Premises by the rentable area currently
included in the definition of Master Premises. If the rentable area of the
Master Premises increases or decreases (as the case may be), Sublessee's pro
rata share shall be adjusted effective as of the effective date of change in the
size of the Master Premises.
5.3 Notwithstanding anything to the contrary contained herein, provided
Sublessee shall not have defaulted under any of the terms and conditions of this
Sublease, the Fixed Rent payable by Sublessee as set forth in Paragraph 5.1
above shall be abated during the period commencing on the Commencement Date and
continuing through the date that is fifteen (15) days after the Commencement
Date. Nothing contained in this Paragraph 5.3 shall reduce or otherwise abate
any Additional Rent, Tenant Surcharges, or other rent payable by Tenant
hereunder during such period.
6. SECURITY DEPOSIT.
----------------
6.1 Upon execution of this Sublease, Sublessee shall deposit with
Sublessor an amount in cash equal to the Security Deposit (as defined in
Schedule 1 to this Sublease) as partial consideration for this Sublease and as
security for the faithful performance and observance by Sublessee of the terms,
provisions, covenants and conditions of this Sublease. It is agreed that in the
event Sublessee defaults beyond any applicable notice and grace period provided
herein for the cure thereof in respect of any of the terms, provisions,
covenants and conditions of this Sublease, including, but not limited to, the
payment of Fixed Rent and Additional Rent, Sublessor may, upon written notice to
Sublessee, use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any Fixed Rent and
Additional Rent or any other sum as to which Sublessee is in default or for any
sum which Sublessor may expend or may be required to expend by reason of
Sublessee's default in respect of any of the terms, provisions, covenants and
conditions of this Sublease, including, but not limited to, any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Sublessor. In the event that Sublessee shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Sublease, the
security shall be returned to Sublessee after the Expiration Date and after
delivery of entire possession of the Premises to Sublessor. In the event of an
assignment of Sublessor's interest in the Master Lease, Sublessor shall have the
right to transfer the security to the
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<PAGE>
assignee and, provided such assignee acknowledges, in writing, receipt of and
liability to Sublessee for such security, Sublessor shall thereupon be released
by Sublessee from all liability for the return of such security; and Sublessee
agrees to look solely to such assignee for the return of said security; and it
is agreed that the provisions hereof shall apply to every assignment made of the
security to any such assignee. Sublessor further covenants that it will not
assign or encumber or attempt to assign or encumber the moneys deposited herein
as security and that neither Sublessor nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. In the event Sublessor applies or retains any portion or all of the
security deposited, Sublessee shall forthwith restore the amount so applied or
retained so that at all times the amount deposited shall be the amount set forth
above.
7. ELECTRICITY.
-----------
7.1 Sublessor shall not furnish electricity to the Premises. Sublessee
shall diligently obtain electric energy directly from the public utility
furnishing electric service to the Building. The costs for such service shall be
paid by Sublessee directly to such public utility. Such electricity may be
furnished to Sublessee by means of the existing electrical facilities serving
the Premises to the extent the same are available, suitable and safe for such
purposes as determined by Sublessor. All meters and all additional panel boards,
feeders, risers, wiring and other conductors and equipment which may be required
to obtain electricity and which are in addition to that which exists in the
Premises on the Commencement Date shall be installed and, at the expiration or
sooner termination of this Sublease, removed by Sublessee at Sublessee's sole
cost and expense. Sublessor shall not in anywise be liable or responsible to
Sublessee for any loss or damage or expense which Sublessee may sustain or incur
if either the quantity or character of electric service is changed or is no
longer available or suitable for Sublessee's requirements except for actual
damages suffered by Sublessee by reason of any such failure, inadequacy or
defect caused by the negligence or wilful misconduct of Sublessor.
7.2 Sublessee covenants and agrees that at all times its use of electric
current shall not exceed the capacity of the then existing feeders to the
Building or the risers or wiring installation. Sublessee shall not make or
perform, or permit the making or performing of, any alterations to wiring
installations or other electrical facilities in-or serving the Premises (any
such work, "Electrical Work"), other than that required for Sublessee' s initial
---------------
occupancy of the Premises, without the prior written consent of
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<PAGE>
Sublessor in each instance. In the event that Lessor does not consent to such
Electrical Work, Sublessor may arbitrarily and unreasonably withhold, condition
or delay its consent in Sublessor's sole and absolute discretion. In the event
that Lessor consents to such Electrical Work, Sublessor may not unreasonably
withhold, condition or delay its consent (it being specifically agreed that
Sublessor may, among other things, condition such consent to provide that
Sublessee indemnify Sublessor against any loss, cost or expense with respect to
restoring the Premises upon the termination of this Sublease and to provide that
Sublessee pay any expenses reasonably incurred by Sublessor with respect to
reviewing such Electrical Work) Should Sublessor grant any such consent, all
additional risers or other equipment required therefor shall be installed by
Sublessee at its sole cost and expense. In no event shall Sublessee use or
install any fixtures, equipment or machines the use of which in conjunction with
other fixtures, equipment and machines in the Premises would result in an
overload of the electrical circuits servicing the Premises.
8. USE OF PREMISES
---------------
8.1 The Premises shall be used and occupied for general business office
purposes only and for no other use or purpose. Nothing set forth herein shall
permit Tenant to use and occupy the Premises otherwise than to the extent
permitted pursuant to the terms of the Master Lease.
9. ASSIGNMENT AND SUBLETTING
-------------------------
9.1 In addition to satisfying the requirements of the Master Lease,
Sublessee shall not, without the prior written consent of the Sublessor (which
Sublessor may not unreasonably withhold, condition or delay if Lessor consents
to such proposed assignment, mortgage, pledge, encumbrance, transfer or sublet,
it being specifically agreed that Sublessor may, among other things, condition
such consent to provide that Sublessee may not assign, sublet or transfer its
interest in this Sublease or in the Premises to any competitor of Sublessor) by
operation of law or otherwise, assign, mortgage, pledge, encumber or in any
manner transfer this Sublease, or any part thereof or any interest of Sublessee
hereunder or sublet or permit the Premises or any part thereof to be used or
occupied by others.
10. TENANT SURCHARGES
-----------------
10.1 "Tenant Surcharges" shall mean any and all amounts (other than Fixed
-----------------
Rent and Sublessee's pro rata share of Annual Expenses increases) which, by the
terms of the Master Lease, become due and
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<PAGE>
payable by Sublessor to Lessor as additional rent under the Master Lease or
otherwise -and which would not have become due and payable but for the acts,
requests for services, and/or failures to act of Sublessee, its agents,
officers, representatives, employees, servants, contractors, invitees, licensees
or visitors under this Sublease, including, but not limited to: (i) any
increases in Lessor's fire, rent or other insurance premiums, as provided in the
Master Lease, resulting from any act or omission of Sublessee and not of
Sublessor, (ii) any additional charges to Sublessor on account of Sublessee's
request for heating, ventilation or air conditioning after hours, and (iii) any
additional charges to Sublessor on account of Sublessee's use of cleaning and
freight elevator services after hours or in excess of normal usage as provided
in the Master Lease.
10.2 After receipt by Sublessor of any statement or written demand from
Lessor which includes demand for payment of any amounts payable hereunder as
Tenant Surcharges, Sublessor shall deliver to Sublessee a copy of such statement
or demand, together with Sublessor's statement of the amount of such Tenant
Surcharges. Sublessee shall pay to Sublessor the amount of such Tenant
Surcharges within ten (10) days after Sublessee's receipt of such statement or
demand; provided, however, that in any instance in which Sublessee shall receive
any such statement or demand directly from Lessor, provided Sublessee delivers a
copy of such statement or demand to Sublessor as soon as reasonably practicable
after such receipt, Sublessee may pay the amount of the same directly to Lessor.
Sublessor agrees that if Sublessee pays the amount due directly to Lessor, in
accordance with the preceding sentence, any obligation of Sublessee to pay the
same to Sublessor shall be satisfied by the payment to Lessor. The amount of
Tenant Surcharges payable hereunder by Sublessee shall at all times be equal to
the amounts payable by Sublessor under the Master Lease which would not have
become due and payable but for the acts, requests for services, and/or failures
to act of Sublessee, its agents, officers, representatives, employees, servants,
contractors, invitees, licensees or visitors, as provided in Paragraph 10.1
above.
10.3 If amounts billed to Sublessor by Lessor include amounts payable by
Sublessee hereunder as Tenant Surcharges together with other charges of a
similar nature which are not attributable to the acts, requests for services
and/or failure to act of Sublessee, its agents, officers, representatives,
employees, servants, contractors, invitees, licensees or visitors, then the
amount payable hereunder by Sublessee as Tenant Surcharges shall be determined
as follows:
(i) if such amounts are billed by Lessor on a per square foot basis,
then the amount payable by Sublessee shall be equal
-10-
<PAGE>
to the product of (a) the dollar amount per square foot charged and (b) the
amount of square footage of the Premises covered by the statement or demand
from Lessor; and
(ii) if such amounts are billed by Lessor on anything other than a per
square foot basis, then the amount payable by Sublessee shall be equal to
the product of (a) the amount of the charge made by Lessor and (b) a
fraction, the numerator of which is the square footage of the Premises
covered by Lessor's statement or demand, and the denominator of which is
the total square footage covered by such statement or demand.
10.4 Payments shall be made pursuant to this Paragraph 10 notwithstanding
the fact that the statement to be provided by Sublessor is furnished to
Sublessee after the expiration of the term of this Sublease and notwithstanding
the fact that by its terms this Sublease shall have expired or have been
canceled or terminated.
10.5 Sublessee shall pay the Additional Rent as and when such rent is
payable by Sublessor under the terms of the Master Lease. In that regard, within
a reasonable time after the receipt by Sublessor of any projected additional
rent statement from Lessor or any change in the additional rent payable on
account of Annual Expenses increases pursuant to Section 6 of the Master Lease,
Sublessor will furnish Sublessee with a copy of such statement and copies of any
additional materials relating to the Premises and received by Sublessor in
connection with such charge. Upon submission of such statement, all subsequent
installments of Additional Rent hereunder shall include 1/12th of the annual
amount of the Additional Rent as shown on such statement; provided, however,
that, to the same extent that Sublessor shall be required to pay Lessor any
retroactive or other lump sum payments with respect to any such Additional Rent,
Sublessee shall pay to Sublessor the amount thereof within fifteen (15) days (or
less if the Master Lease stipulates a shorter period for payment by Sublessor to
Lessor of the amount in question) after receipt by Sublessee of a statement from
Sublessor setting forth the amount of the same; and provided further, that if
any such payment shall be for a period which is in part prior to the
Commencement Date, Sublessee shall pay only that portion thereof which shall be
attributable to the period occurring on or after the Commencement Date.
10.6 If Sublessor shall receive from Lessor any refund of any amounts for
which Sublessee shall have paid Additional Rent to Sublessor or Lessor under the
provisions of this Paragraph 10, Sublessor shall retain out of such refund the
costs and expenses, if any, of obtaining such refund, including but not limited
to
-11-
<PAGE>
reasonable attorneys' fees, and shall then pay to Sublessee, within ten (10)
days of receipt of such refund by Sublessor, the pro rata portion of the
remainder of such refund which is equitably attributable to amounts paid by
Sublessee as Additional Rent hereunder. Sublessor agrees to notify Sublessee in
advance that Sublessor intends to expend money in order to claim a refund from
Lessor.
10.7 Sublessee agrees it shall indemnify and save Sublessor harmless
against all costs, claims, loss or liability resulting from delay by Sublessee
in surrendering the Premises, including, without limitation, any claims made by
any succeeding tenant founded on such delay. The parties recognize and agree
that the damage to Sublessor resulting from any failure by Sublessee timely to
surrender the Premises will be substantial, will exceed the amount of monthly
rent theretofore payable hereunder, and will be impossible of accurate
measurement. Sublessee therefore agrees that if possession of the Premises is
not surrendered to Sublessor on the date of the expiration or sooner termination
of the term of this Sublease, then Sublessee will pay Sublessor as liquidated
damages for each month and for each portion of any month during which Sublessee
holds over in the Premises after expiration or termination of the term of this
Sublease, a sum equal to two (2) times the average rent and additional rent
which was payable per month by Sublessor under the Master Lease during the last
six months of the term hereof for the entire Master Premises.
10.8 If Sublessee shall fail to pay all or any part of any installment of
Fixed Rent or Additional Rent for more than five (5) days after Sublessor's
notice that the same is due and payable, Sublessee shall pay as additional rent
hereunder to Sublessor a late charge of four (4) cents for each dollar of the
amount of such Fixed Rent or Additional Rent which shall not have been paid to
Sublessor within such five (5) days after becoming due and payable. The late
charge payable pursuant hereto shall be (i) payable on demand and (ii) without
prejudice to any of Sublessor's rights and remedies hereunder at law or in
equity for nonpayment or late payment of rent or other sum and in addition to
any such rights and remedies. No failure by Sublessor to insist upon the strict
performance by Sublessee of Sublessee's obligations to pay late charges as
provided herein shall constitute a waiver by Sublessor of its right to enforce
the provisions hereof in any instance thereafter occurring. The provisions of
this paragraph shall not be construed in any way to extend the grace periods or
notice periods provided for elsewhere in this Sublease.
10.9 The provisions of this Paragraph 10 shall survive the
-12-
<PAGE>
expiration or any earlier cancellation or termination of this Sublease.
11. OTHER PROVISIONS OF SUBLEASE
----------------------------
11.1 All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if Sublessor were the
Landlord thereunder (except that for purposes of the insurance to be provided
and indemnities given by Sublessee, both Lessor and Sublessor shall be
included); Sublessee, the Tenant thereunder; the Premises, the Demised Premises
thereunder; the Fixed Rent, the Fixed Rent thereunder; and this Sublease, the
Lease. thereunder, except for the Excluded Provisions (as defined in Schedule 1
to this Sublease)
In connection with the incorporation of the Master Lease, the term
"Landlord" shall, with respect to those provisions which, by their terms, reside
exclusively with Lessor (including, but not limited to, the provision of
services and the promulgation of Building-wide rules and standards), be deemed
to mean "Lessor" and otherwise shall be deemed, for the purposes of this
Sublease, to mean "Sublessor shall use its best efforts, without, however,
incurring any liabilities or expenses not otherwise provided for in the Master
Lease or this Sublease, to ensure that Lessor" whenever such a modification is
required so that an incorporated provision reflects the agreement of the parties
hereto as expressed in this Paragraph 11.
Sublessee assumes and agrees to perform the Sublessor's obligations under
the Master Lease to the extent incorporated herein during the Term and to the
extent such obligations are applicable to the Premises, except that the
obligation to pay rent to Lessor under the Master Lease shall be considered
performed by Sublessee to the extent and in the amount rent is paid to Sublessor
in accordance with Paragraph 5 of this Sublease. Sublessee shall not commit or
suffer any act or omission that will violate any of the provisions of the Master
Lease. Sublessor shall exercise due diligence in attempting to cause Lessor to
perform its obligations under the Master Lease for the benefit of Sublessee. In
the event Sublessor shall commit any breach of the Master Lease, including but
not limited to the payment of any rent or other charges provided for in the
Master Lease, Sublessee shall have the right but not the obligation to make such
payments directly to Lessor, or cure any other breach of the Master Lease in the
name, place and stead of Sublessor, and Sublessee shall deduct such payments
from any amounts due under this Sublease.
Except as may otherwise be specifically provided herein, if the
-13-
<PAGE>
Master Lease terminates, this Sublease shall terminate and the parties shall be
relieved of any further liability or obligation under this Sublease, provided,
however, that if the Master Lease terminates as a result of a default or breach
by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the
defaulting party shall be liable to the non-defaulting party for the damage
suffered as a result of such termination, except that Sublessor shall be
permitted to agree with Lessor to terminate the Master Lease without liability
to Sublessee provided Lessor is prepared to enter into a direct lease with
Sublessee on the same economic terms as contained in this Sublease.
Notwithstanding the foregoing, if the Master Lease gives Sublessor any right to
terminate the Master Lease in the event of the partial or total damage,
destruction, or condemnation of the Premises or the Building or project of which
the Premises are a part or otherwise, the exercise of such right by Sublessor
shall not constitute a default or breach hereunder, and Sublessee agrees that
Sublessor shall be free to exercise any such rights as may be available to
Sublessor without first obtaining any approval from, or consulting with,
Sublessee.
Sublessee acknowledges and agrees that Sublessor shall not be responsible
or liable in any manner for making any repairs or otherwise complying with any
of Lessor's obligations or providing any of the services and/or utilities
required to be provided by Lessor under the Master Lease to the Premises and
Sublessee agrees to look solely to Lessor for the making of repairs, complying
with such obligations or providing any such services and/or utilities and in
connection therewith Sublessor shall reasonably cooperate with Sublessee in
Sublessee's efforts to have the same made, complied with or provided. If Lessor
shall default in any of its obligations to Sublessor with respect to the
Premises, Sublessor shall be obligated to take such steps (other than
instituting any lawsuit) which, in Sublessor's reasonable judgment, may be
reasonably necessary, considering the nature of Lessor's default and Sublessee
shall be entitled to participate with Sublessor in the enforcement of
Sublessor's rights against Lessor. If, after written request from Sublessee,
Sublessor shall fail or refuse to take such action for the enforcement of
Sublessor's rights against Lessor with respect to the Premises within a
reasonable period of time considering the nature of Lessor's default,
Sublessee's sole remedy with respect to Sublessor shall be to take, and
Sublessee shall have the right to take, such action (inclding the institution of
a lawsuit against Lessor) in its own name, and for that purpose and only to such
extent, all of the rights of Sublessor under the Master Lease hereby are
conferred upon and assigned to Sublessee and Sublessee hereby is subrogated to
such rights to the extent that the same shall apply to the Premises. If any such
action against Lessor in Sublessee's name shall be barred by
-14-
<PAGE>
reason of lack of privity, non-assignability or otherwise, Sublessee may take
such action in Sublessor's name (provided Sublessee has obtained the prior
written consent of Sublessor, which consent shall not be unreasonably withheld
or delayed), and Sublessee hereby agrees that Sublessee shall indemnify and hold
Sublessor harmless from and against all liability, loss, damage or expense,
including, without limitation, reasonable attorneys' fees, which Sublessor shall
suffer or incur by reason of such action. The failure of Lessor to make such
repairs, comply with such obligations or provide any such services and/or
utilities shall not result in any claim or right of action of Sublessee against
Sublessor or entitle Sublessee to withhold or otherwise reduce any rent or other
payments to be made to Sublessor pursuant to the terms of this Sublease.
12. BROKER
------
12.1 Sublessee and Sublessor each warrant and represent to the other party
that it has had no dealings or negotiations with any broker or agent other than
Sublessor's Broker (as defined in Schedule 1 to this Sublease) and Sublessee's
Broker (as defined in Schedule 1 to this Sublease) in connection with this
sublease transaction and each covenants and agrees to indemnify and save the
other party harmless from and against any and all loss, damage, cost and
expense, including reasonable attorneys' fees, that may be incurred by the other
party as a result of any claims made against the other party by any broker or
agent, other than Sublessor's Broker and Sublessee's Broker, claimed to have
arisen from any conversation, correspondence, or other dealings between such
party and any other broker or agent in connection with this Sublease transaction
or the Premises. Sublessor shall be responsible for the payment of all
commissions to Sublessor's Broker and Sublessee's Broker in accordance with a
separate agreement between Sublessor and such brokers.
13. ATTORNEYS' FEES
---------------
13.1. If Sublessor or Sublessee shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorneys' fees.
14. NOTICES
-------
14.1 All notices and demands which may be or are required or permitted to
be given by either party to the other hereunder shall be in writing. All notices
and demands by Sublessor to Sublessee shall be sent by United States certified
mail/return receipt requested, postage prepaid, addressed to Sublessee at the
Premises, or to such
-15-
<PAGE>
other place as Sublessee may from time to time designate in a notice to
Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent
by United States certified mail/return receipt requested, postage prepaid,
addressed to Sublessor at Sublessor's Address for Notices (as defined in
Schedule 1 to this Sublease) and to such other person or place as the Sublessor
may from time to time designate in a notice to the Sublessee.
Wherever in the Master Lease, Sublessor is required or permitted to provide
notices or to receive notices in connection with the commission of a default,
Sublessee will have five (5) days less time to give such notice or to cure such
default under the terms hereof.
Sublessor agrees that it will promptly deliver to Sublessee a copy of any
default notice that Sublessor receives from Lessor.
15. SUBLESSOR'S CONSENT
-------------------
15.1 Sublessor and Sublessee covenant and agree that wherever Lessor's
consent or approval is required under the terms of the Master Lease, Sublessee
must obtain both Lessor's and Sublessor's consent or approval (as the case may
be) to such act and it shall be a condition precedent to Sublessor's obligation
to consider consenting to or approving such act that Sublessee first obtain
Lessor's consent or approval (as the case may be) . In the event that the Lessor
does not give its consent or approval (as the case may be) to such act,
Sublessee acknowledges and agrees that Sublessor may arbitrarily and
unreasonably withhold, condition or delay its consent to such act but in the
event that Lessor gives its consent or approval (as the case may be) to such
act, Sublessor shall (except as otherwise specifically set out in this Sublease
to the contrary) not unreasonably withhold its consent to such act. Sublessee
agrees that its sole remedies in cases where Sublessor's reasonableness in
exercising its judgment or withholding or delaying its consent or approval is
applicable pursuant to a specific provision of this Sublease shall be those in
the nature of any injunction, declaratory judgment, or specific performance, the
rights to money damages or other remedies being hereby specifically waived.
16. CONSENT BY LESSOR
-----------------
16.1 This Sublease shall be of no force or effect unless Sublessor receives
a written consent to this Sublease, in form and substance satisfactory to
Sublessor in all respects, from Lessor within thirty (30) days after execution
hereof by both Sublessor and Sublessee. In connection therewith, Sublessee
shall, (a) upon the request of Sublessor, promptly furnish to Sublessor all
information
-16-
<PAGE>
pertaining to the Sublessee requested by Lessor pursuant to the terms of the
Master Lease, and (b) reasonably cooperate with Sublessor in its efforts to
obtain written consent to this Sublease from Lessor. Sublessor shall have no
obligation to pay any fee or charge of any nature whatsoever not specifically
required to be paid under the Master Lease in connection with or as a condition
to obtaining Lessor's consent, and Sublessor shall suffer and incur no liability
to Sublessee for its failure to obtain such consent of Lessor.
17. DEFINITION OF SUBLESSOR
-----------------------
17.1 The term "Sublessor" as used in this Sublease insofar as covenants or
obligations on the part of Sublessor are concerned shall be limited to mean and
include only the owner or owners at the time in question of the "Tenant's"
interest in the Master Lease and landlord's interest in this Sublease, and in
the event of any transfer or transfers of the "Tenant's" interest in the Master
Lease or landlord's interest in this Sublease, Sublessor herein named (and in
the case of any subsequent transfer or conveyance, the then transferor of the
"Tenant's" interest in the Master Lease) shall be automatically freed and
relieved from and after the date of such transfer of all personal liability as
respects the performance of any covenants or obligations on the part of
Sublessor contained in this Sublease thereafter to be performed; provided,
however, that any sums received by Sublessor which are payable to Sublessee
shall be retained by Sublessor for payment of any such sums to Sublessee, and
provided further, that any other funds in the hands of such Sublessor or the
then transferor at the time of such transfer in which Sublessee has an interest
shall be turned over to the new owner and holders of the tenant's interest in
the Master Lease and any amount then due and payable by Sublessee to Sublessor,
or the then transferor or under any provision of this Sublease, shall be so
paid.
18. CONDITION OF PREMISES
---------------------
18.1 Sublessee represents that it has made a thorough inspection of the
Premises and is fully familiar with the condition of every part thereof.
Sublessee agrees to accept possession of the Premises "As Is" in its condition
on the date hereof, free, however, of any furniture or furnishings of Sublessor
which are not being leased to Sublessee pursuant hereto subject, nevertheless,
to ordinary wear and tear occurring prior to the Commencement Date, and
Sublessor shall not be required to make any alterations, decorations,
installations, additions, repairs or improvements of any kind whatsoever to
prepare the Premises for Sublessee's occupancy, except that Sublessor shall
deliver the Premises `broom-clean'.
-17-
<PAGE>
18.2 During the term of this Sublease, Sublessee shall not make or suffer
to be made any alterations, additions, or improvements to the Premises or any
part thereof without complying with the provisions of the Master Lease and
without obtaining the prior written consent of the Sublessor. In the event that
Lessor does not consent to such alterations, additions or improvements,
Sublessor may arbitrarily and unreasonably withhold, condition or delay its
consent in Sublessor's sole and absolute discretion. In the event that Lessor
consents to such alterations, additions or improvements, Sublessor may not
unreasonably withhold, condition or delay its consent (it being specifically
agreed that Sublessor may, among other things, condition such consent to provide
that Sublessee indemnify Sublessor against any loss, cost or expense with
respect to restoring the Premises upon the termination of this Sublease and to
provide that Sublessee pay any expenses reasonably incurred by Sublessor with
respect to reviewing such alterations, additions or improvements).
19. CASUALTY OR CONDEMNATION
------------------------
19.1 If the Premises or the Building shall be partially or totally damaged
by fire or other cause, the consequences thereof shall be determined pursuant to
Section 24 of the Master Lease, as though the Premises had not been sublet by
Sublessor pursuant to this Sublease. Sublessee shall not be entitled to
participate with Sublessor in the enforcement of Sublessor's rights against
Lessor under such Section 24; in such event, however, Sublessor agrees to use
commercially reasonable efforts to enforce its rights against Lessor under such
Article 24 and Sublessee shall have the same right to an apportionment of rent
and to repairs with respect to Sublessor as Sublessor shall have with respect to
Lessor under said Section 24. No damage, compensation or claims shall be payable
by Sublessor for any inconvenience, loss of business or annoyance arising from
any such damage by fire or other cause or by the repair or restoration of any
portion of the Premises or of the Building. Nothing contained herein shall be
deemed to obligate or require Sublessor to repair or restore all or any portion
of the Premises.
19.2 Sublessor will not carry insurance of any kind on its own or
Sublessee's personal property kept at the Premises, and Sublessor shall not be
obligated to repair any damage thereto or replace the same. Sublessee will not
carry insurance of any kind on Sublessor's personal property kept at the Master
Premises, and Sublessee shall not be obligated to repair any damage thereto or
replace the same.
19.3 In the event that the Premises or any part thereof or the Building
shall be acquired or condemned by eminent domain for any public or quasi-public
use or purpose, the consequences of such
-18-
<PAGE>
acquisition or condemnation shall be determined pursuant to Section 25 of the
Master Lease, as though the Premises had not been sublet by Sublessor pursuant
to this Sublease. Sublessee shall not be entitled to participate with Sublessor
in the enforcement of Sublessor's rights against Lessor under such Section 25.
No damage, compensation or claims shall be payable by Sublessor for any
inconvenience, loss of business or annoyance arising from any such condemnation
or acquisition.
20. SUBORDINATION TO MASTER LEASE
-----------------------------
20.1 Sublessee acknowledges and agrees that this Sublease and the estate
hereby granted are subject and subordinate to all of the terms, covenants,
provisions, conditions and agreements contained in the Master Lease and to all
leases, mortgages, encumbrances and other agreements and/or matters to which the
Master Lease is now or may hereafter become subject and subordinate. This clause
shall be self-operative and no further instrument of subordination shall be
required. Sublessee shall, however, execute any certificates confirming such
subordination which Sublessor may request within ten (10) days after receipt of
such request. Sublessee also agrees that this Sublease shall be subject and
subordinate to the Master Lease as the same may hereafter be amended or
modified; provided, however, that no such amendment or modification shall either
increase the obligations of Sublessee hereunder or adversely affect Sublessee's
rights, powers or privileges hereunder.
21. EXCULPATION
-----------
21.1 Notwithstanding anything to the contrary provided elsewhere in this
Sublease, Sublessor and Sublessee each agrees that it shall not make a claim or
seek personal judgment against any officer, director, employee, agent,
beneficiary or shareholder of the other for any default in the performance or
observance of any of the terms or conditions of this Sublease, nor seek nor
assert a deficiency judgment or any other amount claimed payable against any
officer, director, employee, agent, beneficiary or shareholder of the other in
the same proceeding arising out of any alleged breach or non-performance of this
Sublease.
22. DIRECTORY LISTINGS.
------------------
22.1 Subject to the provisions of the Master Lease, provided Sublessee
reimburses Sublessor for the charges therefore, Sublessee may use Sublessee's
pro rata share of Sublessor's space on the Building Directory allocable to the
Premises for the listing of Sublessee.
-19-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date hereof
WITNESSES: SUBLESSOR:
PAINEWEBBER INCORPORATED
By: /s/ Lawrence G. DiSalvo
------------------------------
Name: Lawrence G. DiSalvo
Title: Corporate Vice President
WITNESSES: SUBLESSEE:
AUDIBLE WORDS, INC.
By: /s/ Don R. Katz
------------------------------
Name:
Title:
-20-
<PAGE>
The undersigned ("Lessor"), Landlord under the Master Lease, hereby
------
consents to the foregoing Sublease without waiver of any restriction in the
Master Lease concerning further assignment or subletting.
Dated: July ___, 1996
LESSOR:
HARTZ MOUNTAIN INDUSTRIES, INC.
By: ____________________________________
Name:
Title:
-21-
<PAGE>
Exhibit 11.1
Computation of net loss per share
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
----------------------------------------------------- ------------------
1996 1997 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss per common share ..................... $(3,508,770) $(8,029,247) $(8,138,074) $ (1,461,184)
=========== =========== =========== ============
Weighted average shares
outstanding ................................... 2,117,883 3,586,002 4,731,296 4,968,043
=========== =========== =========== ============
Basic and diluted net loss per
common share .................................. $ (1.66) $ (2.24) $ (1.72) $ (0.29)
=========== =========== =========== ============
Pro forma weighted average
shares outstanding ............................ 3,660,217 8,045,002 10,861,130 13,818,710
=========== =========== =========== ============
Pro forma basic and diluted
net loss per common share ..................... $ (0.96) $ (1.00) $ (0.75) $ (0.11)
=========== =========== =========== ============
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Audible, Inc:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
- ---------------------
Short Hills, New Jersey
April 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 9,652 10,526
<SECURITIES> 0 0
<RECEIVABLES> 243 30
<ALLOWANCES> 8 21
<INVENTORY> 190 130
<CURRENT-ASSETS> 10,385 10,996
<PP&E> 1,568 1,472
<DEPRECIATION> 1,164 1,074
<TOTAL-ASSETS> 10,991 11,600
<CURRENT-LIABILITIES> 2,845 2,926
<BONDS> 0 0
28,719 27,725
0 0
<COMMON> 51 49
<OTHER-SE> (21,001) (19,578)
<TOTAL-LIABILITY-AND-EQUITY> 10,991 11,600
<SALES> 315 376
<TOTAL-REVENUES> 315 376
<CGS> 215 928
<TOTAL-COSTS> 1,844 8,453
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15 115
<INCOME-PRETAX> (1,461) (8,138)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,461) (8,138)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,461) (8,138)
<EPS-PRIMARY> (.29) (1.72)
<EPS-DILUTED> (.29) (1.72)
</TABLE>
