<PAGE>
As filed with the Securities and Exchange Commission on March 17, 2000
Registration No. 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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BEATNIK, INC.
(Exact name of registrant as specified in its charter)
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California (prior to 7379 94-3244232
reincorporation) (Primary Standard (I.R.S. Employer
Delaware (after Industrial Identification No.)
reincorporation) Classification Code
(State or other Number)
jurisdiction
of incorporation or
organization)
2600 El Camino Real
San Mateo, CA 94403
(650) 295-2300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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LORRAINE HARITON
President and Chief Executive Officer
BEATNIK, INC.
2600 El Camino Real
San Mateo, CA 94403
(650) 295-2300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Jorge del Calvo, Esq. Nora L. Gibson, Esq.
Allison Leopold Tilley, Esq. Laura M. de Petra, Esq.
Davina K. Kaile, Esq. Jeanine M. Larrea, Esq.
Pillsbury Madison & Sutro LLP Dorothy Vinski, Esq.
2550 Hanover Street Brobeck, Phleger & Harrison LLP
Palo Alto, CA 94304 Spear Street Tower, One Market
San Francisco, CA 94105
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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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, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Aggregate Offering Amount of
Class of Securities To Be Registered Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.0001 par value.......................... $63,250,000 $16,698
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Inside Front Cover
Beatnik Audio is small enough to be experienced in real time on the web
page - not just downloaded or streamed from it...
Beatnik logo Interactive Music
Arrow going upwards toward "Interactive Music" appears here with
"Marketspace Over Time" appearing above arrow and "MP3 Downloads", "Streaming
Music Content" and "Internet Music Marketspace" appearing on arrow from bottom
to top of arrow.
<PAGE>
LEFT SIDE OF GATEFOLD
Beatnik: The Technology and Content Platform for Music on the Web
Direct Sales Web Sales
Technology Content and Services
Customer Channels to Beatnik.com
Top Websites and Broadcasters - Web site surfers
[logos of Web site and broadcaster relationships appear here]
Cell Phone - Cell phone customers
[logos of cell phone company relationships appear here]
Set Top Devices - set top box users
[logos of set top device company relationships appear here]
Software Partners - Software installed base of creative professionals
[logos of software partners appear here]
Web Design Firms - Software installed base of creative professionals
[logos of Web design firm relationships appear here]
Indirect Sales
Mixman Consumer Interactive Music/Software
Music Content Wrapped in Technology
Brick & Mortar
[logos of bricks & mortar company relationships appear here]
Music Consumers Move to the Web
OEM Licensing
[logos of OEM licensing relationships appear here]
<PAGE>
RIGHT SIDE OF GATEFOLD
Arrow connects all text on the left side of gatefold to a globe on right side of
gatefold. Globe has headphones with "Interactive Music and Sound Portal" over
the globe and the following words under the globe:
"Beatnik.com
Sonify your Digital World
Mixman Software to Make Music
Beatnik Software to Sonify Web Pages
Top 40 GrooveGrams & D*Plates
Commercial Production Music Libraries Cell Phone Ring Tones
Move/TV Theme Packs & Celebrity Voices
<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 securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 17, 2000
BEATNIK, INC.
Shares
Common Stock
Beatnik, Inc. is offering shares of its common stock. This is our initial
public offering, and no public market currently exists for our shares. We have
applied for approval for quotation of our common stock on the Nasdaq National
Market under the symbol "BTNK." We anticipate that the initial public offering
price will be between $ and $ per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Beatnik............................................. $ $
</TABLE>
--------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Beatnik has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
--------------
Robertson Stephens
CIBC World Markets
U.S. Bancorp Piper Jaffray
The date of this Prospectus is , 2000.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward Looking Statements............................................... 22
Use Of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Consolidated Financial Data..................................... 25
Selected Pro Forma Consolidated Financial Data........................... 26
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations.......................................................... 27
Business................................................................. 32
Management............................................................... 46
Certain Transactions..................................................... 53
Principal Stockholders................................................... 55
Description Of Capital Stock............................................. 57
Shares Eligible For Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find More Information...................................... 66
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------------
Until , 2000 all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
Unless otherwise noted, all information in this prospectus assumes:
. the reincorporation of Beatnik into Delaware;
. all of the outstanding preferred stock of Beatnik will be converted
into common stock;
. warrants for 575,530 shares of common stock will be exercised; and
. the underwriters will not exercise their over-allotment option.
"Beatnik(R)," "Headspace(R)" and "Mixman(R)" are our registered trademarks.
D*Plates, Soundiscs and Radio Mixman are also our common law trademarks. This
prospectus also contains brand names, logos, service marks and trademarks of
other companies.
3
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Our Company
Beatnik brings interactive music and sound to the Web through our
combination of technology, content and community. The Internet is still
essentially a silent movie. We believe the next step in the evolution of
Internet infrastructure will be the proliferation of rich media content across
the Web, requiring the integration of audio content into Web sites. Our
solution includes a line of software technologies, applications and production
music and sound content that enables the integration of interactive audio
content into the Web experience, known as sonification. Because our interactive
audio solution provides benefits to Web sites, content providers and users, we
believe that our success is closely tied to the rapid growths of audio content
across the Web and to the expansion of audio enabled digital devices.
We are building a community of creative professionals and consumers, and
have begun to drive our sonification solutions across the Web and into other
digital devices through our licensing agreements with companies such as
Liberate, Nokia and Sun; our relationships with Web media sites and software
companies such as Macromedia, Media 100, MTV.com and its affiliated sites and
Yahoo!; our relationships with production music libraries such as FirstCom
Music, Killer Tracks and Network Music; our relationships with leading media,
art and design schools; and our relationships with major record labels such as
BMG, Sony Music and Zomba, which provide us access to Top 40 and other popular
music artists including Lou Bega, David Bowie and Puff Daddy.
The gap between the audio experience of traditional media, such as
television and movies, and the Internet creates substantial opportunities for
our solutions, which enable the integration of interactive audio solutions into
the Web experience. Current audio solutions on the Web have focused on the
distribution of music through streaming and download technologies. Our
interactive audio platform provides a fundamentally different way to use the
Internet, wherein sound is interwoven directly with the text and graphics
contained in a Web page.
Emerging interactive audio technologies and solutions must provide
opportunities to music, entertainment and ecommerce Web sites and creative
professionals to make their online offerings more compelling and to leverage
the Internet to reach new markets more quickly. To take full advantage of the
Internet's potential as a new medium for music entertainment, new interactive
audio solutions must foster development of a community to provide artists with
a platform to connect with their fans and for music hobbyists to create and
share music. To achieve these goals, we believe professional music and sound
content providers require solutions to transform their audio assets into
formats more ideally suited for the Internet. We believe that creative
professionals, content providers and Internet users will increasingly seek rich
media Web experiences that match the current capabilities of audio in
traditional media and leverage the interactive capabilities of the Internet.
We provide our interactive audio solution to a community of creative
professionals, potential licensees of our technology and consumers enabling
them to build and interact with music and sound over the Web, on personal
computers and other digital devices. Our platform is comprised of the following
elements:
. We license and resell our technology enabling the integration of our
solution into new interactive technologies, applications and digital
devices.
. Through our proprietary Web ready, compact and secure audio file format,
or Rich Music Format, technology, we put music on the Web page to allow
users both to experience audio content real time and to interact with
that content.
4
<PAGE>
. We have recently launched our Beatnik Music site targeted at media
professionals, including post production video producers and Web
developers. This ecommerce initiative enables creative professionals to
browse, audition, license and download professional music and sound
content for synchronization into Web pages, digital applications and
video.
. Through our Beatnik portal, we provide a forum for a Web based community
where professionals can acquire the tools, content and information to
sonify the Web. We also provide sonification services through our
consulting organization.
. Through our relationships with popular record labels and our content
driven applications, we enable consumers to create, remix, process,
edit, publish and share music. These relationships also give us the
ability to meet the demand for content from the most searched music
artists and provide access to that content on Web sites such as MTV.com
and its affiliated sites and Yahoo!
Our objective is to build on our platform of technology, content and
community to become the leading provider of interactive audio solutions that
sonify the Web and digital content and devices. By establishing our Beatnik
portal as the ultimate source of interactive audio technology, content,
applications and information, we believe we can create a Web destination that
will meet the interactive audio needs of creative professionals, music
enthusiasts and hobbyists, while providing music publishers and record
companies with a new revenue source on the Internet. To achieve this objective,
we intend to focus our efforts in the following areas:
. Expand the technology adoption--We target leading Web and media
production software companies and digital device manufacturers to
promote the integration of our sonification solutions into their Web
pages, interactive applications and products.
. Expand our Beatnik Music site--We intend to establish Beatnik as the
leading provider on the Internet of production music and sound content
for professional Web developers and other media professionals.
. Extend Professional Sonification--We will continue to develop and
provide enhanced software tools, information and services to enable a
turnkey solution for sonifying the Web and other digital devices.
. Establish a consumer community of music enthusiasts--We target the most
popular and highly trafficked Web sites to extend sonification across
the Web and continue to develop, market and sell new Web based
interactive audio applications.
Our Address
We were incorporated in California on May 1, 1996 and changed our name to
Beatnik, Inc. on April 12, 1999. We will be reincorporated as a Delaware
corporation prior to completion of this offering. Our principal executive
offices are located at 2600 El Camino Real, San Mateo, California 94403, and
our telephone number at that address is (650) 295-2300. Our Web site is located
at www.beatnik.com. The information on our Web site is not part of this
prospectus.
5
<PAGE>
Recent Events
On March 10, 2000, 6,750,951 shares of Series E convertible preferred stock
were issued at a price of $5.00 per share for cash proceeds of approximately
$29.8 million and $4.0 million in services. These investors included MTVN
Online, Hikari Tsushin America, Cyber Lifestyle Limited, Sun Microsystems and
Media 100. The Series E preferred stock contains substantially the same rights
and preferences as the Series A, B, C and D preferred stock. The Series E
preferred stock will convert to common stock at a one to one ratio upon
completion of this offering.
The Offering
<TABLE>
<S> <C>
Common stock offered by Beatnik......... shares
Common stock to be outstanding after the shares
offering..............................
Use of proceeds......................... For working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol.. BTNK
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the total number of shares outstanding on December 31, 1999,
includes 6,750,951 shares of common stock issuable upon conversion of our
Series E preferred stock and excludes:
. 5,566,576 shares issuable upon exercise of options outstanding at
December 31, 1999 at a weighted average exercise price of $0.10 per
share;
. 833,888 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.67 per share; and
. additional shares available for future issuance under our stock
plans.
In addition, we entered into a promotions agreement with Yahoo! in August
1999 for a term of one year. The agreement is automatically renewed at the end
of the one year term unless either party gives the other notice that it does
not want to renew the agreement. If the agreement is renewed, Yahoo! Inc. will
receive an additional warrant for shares equal to one percent of our
outstanding capital stock exercisable at the then fair market value of the
stock.
6
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except per share data)
The following summary financial information sets forth historical
information for Beatnik, as well as Beatnik's unaudited pro forma information
for the year ended December 31, 1999. The pro forma statement of operations
data reflects the combination of Beatnik with Mixman as if this combination had
occurred on January 1, 1999. The pro forma balance sheet data as of December
31, 1999 reflects the conversion of our outstanding preferred stock into common
stock upon completion of this offering, the proceeds of $29.8 million in cash
and $4.0 million in services from the sale of 6,750,951 shares of Series E
preferred stock. The pro forma as adjusted balance sheet reflects the
application of the net proceeds from the sale of the shares of
common stock offered by Beatnik at an assumed initial public offering price of
$ per share, after deducting the underwriting discounts and
commissions and our estimated offering expenses. Please see note 2 of the notes
to the consolidated financial statements for an explanation of the
determination of the number of shares used in computing per share data and for
an explanation of the determination of the number of shares used in computing
pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Total revenue..................................... $ 194 $ 675 $ 1,492
Cost of revenue................................... 296 294 1,036
Gross profit (loss)............................... (102) 381 456
Total operating expense(1)........................ 1,523 1,941 11,110
Loss from operations.............................. (1,625) (1,560) (10,654)
Net loss.......................................... (1,527) (1,596) (10,473)
Basic and diluted net loss per share.............. (0.35) (0.35) (1.60)
Pro forma basic and diluted net loss per share
(unaudited)..................................... (0.65)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
(unaudited)
<S> <C>
Pro Forma Consolidated Statement of Operations Data:
Total revenue................................................. $ 3,491
Cost of revenue............................................... 1,304
Gross profit.................................................. 2,187
Total operating expenses...................................... 21,940
Loss from operations.......................................... (19,753)
Net loss...................................................... (19,568)
Basic and diluted net loss per share.......................... (1.44)
</TABLE>
- --------
(1) Included in total operating expense for the year ended December 31, 1999 is
amortization of deferred stock based compensation of $2,972,000,
amortization of purchased goodwill and other intangibles of $364,000 and a
writeoff of in process research and development of $241,000.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma as Adjusted
------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 6,191 $35,946 $
Working capital................................. 4,507 38,262
Total assets.................................... 36,786 70,541
Convertible preferred stock..................... 22,221 --
Stockholders' equity............................ 9,649 65,625
</TABLE>
7
<PAGE>
RISK FACTORS
Any investment in our shares of common stock involves a high degree of
risk. You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in shares of our
common stock. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
Risks Related to our Business
We expect continuing losses, which may harm our business and may cause the
market price of our stock to decline
As of December 31, 1999, we had an accumulated deficit of approximately
$14.3 million. We expect to continue to incur substantial net losses for the
foreseeable future. If we continue to incur net losses, we may not be able to
increase our number of employees or our investment in capital equipment, sales,
marketing and research and development programs in accordance with our present
plans. We do not know when or if we will become profitable. If we do not become
profitable within the timeframe expected by securities analysts or investors,
the market price of our stock will likely decline. If we do achieve
profitability, we may not sustain or increase profitability in the future and
may not be able to continue to operate.
If we do not meet quarterly financial expectations due to fluctuations in our
quarterly results, our stock price could decline
Since our inception in 1996, our operating activities have consisted
primarily of developing the software applications and content to provide
professionals and consumers with the ability to access and manipulate audio
content on the Web. Because of our limited operating history and other factors,
our quarterly revenue and operating results are difficult to predict. In
addition, due to the emerging nature of the Web based interactive audio market
and other factors, our quarterly revenue and operating results may fluctuate
from quarter to quarter. It is likely that our operating results in some
quarters will be below the expectations of securities analysts or investors. In
this event, the market price of our common stock is likely to decline.
A number of factors are likely to cause fluctuations in our operating
results, including, but not limited to, the following:
. the growth rate of the Web based interactive audio market;
. demand for Web based interactive audio software products and audio
content;
. timing of recognition of revenue associated with our licensing
contracts;
. our ability to attract and retain customers and maintain customer
satisfaction;
. the announcement, introduction and market acceptance of new or enhanced
products and services by our competitors;
. our ability to develop new or enhanced products and services in a
timely manner;
. our ability to upgrade, develop and maintain our systems and
infrastructure;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
. technical difficulties or system outages;
. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly technical personnel;
. the price and mix of products and services we offer and the channels
through which those products and services are distributed;
8
<PAGE>
. changes in customer buying patterns due to seasonality, particularly in
connection with the sales of our Mixman software products;
. changes in our pricing policies and those of our competitors;
. failure to increase our international sales; and
. governmental regulation surrounding the Internet.
In addition to the factors set forth above, our operating results will be
impacted by the extent to which we incur non cash charges associated with stock
based arrangements with employees and non employees. In particular, we expect
to incur substantial non cash charges associated with a portion of the issuance
of Series E preferred stock to MTVN Online. Because a portion of these shares
are subject to forfeiture if certain milestones are not met, the value of these
shares, which totaled $4.0 million, will be remeasured until such time as these
milestones are met. We expect that future changes in the trading price of our
common stock will cause additional substantial changes in the ultimate amount
of such charges.
Our technology licensing agreements are primarily for project specific
technology applications. As a result, we have several one time technology
agreements under which the associated revenue is recognized over a finite
period of time, typically one or two years. Because we do not frequently
provide updates or new versions of our technology, our licensing agreements are
generally not renewed when they expire. Therefore, we have experienced
quarterly fluctuations in our operating results due in significant part to
timing between the expiration of existing contracts and the signing of new
contracts. Due to the foregoing and other factors, we believe that period to
period comparisons of our operating results are not a good indication of our
future performance.
Our future success depends on the broad adoption and acceptance of interactive
music and sound on the Web
Our products and services are designed to enable the addition of
interactive music and sound to the Web, also referred to as "sonification." The
market for Web based interactive audio is new and rapidly evolving. As a
result, demand and market acceptance for our products and services is highly
uncertain. Our future success depends on our ability to achieve broad market
acceptance and adoption of the benefits of adding interactive music and sound
to Web sites and demand and market acceptance for our interactive audio
products and services. In particular, our success depends on rapidly expanding
the number of downloads of our Beatnik Player application to introduce the
concept of Web site sonification as well as the number of Web sites which add
interactive music and sound to their Web pages through our technology and
content. To accomplish this, we must, among other things, do the following:
. offer competitive products and services that meet industry standards;
. provide access to more music content through relationships with major
record labels and music libraries; and
. develop relationships with music, entertainment, ecommerce and other
high traffic Web sites and Web design firms.
Our success will also depend on growth in consumer acceptance of our
platform as a method for delivery of interactive music and sound over the
Internet. Factors that might influence market acceptance of our platform
include the following, over which we have little or no control:
. the availability of sufficient bandwidth on the Internet to enable
consumers to download interactive music and sound rapidly and easily;
. willingness of Web sites to use a plug in architecture;
. the willingness of consumers to download our Beatnik Player
application;
. the cost of time based Internet access;
9
<PAGE>
. the number and variety of digital recordings available for purchase
through our system relative to those available through other online
delivery companies, music Web sites or through traditional physical
delivery of recordings; and
. the fidelity and quality of the sound of the digital recorded music.
We may not be successful in achieving any of these objectives. If our
efforts to achieve broad market acceptance and adoption of our products and
services for Web site sonification fail, our business and operating results
will suffer.
Our operating expenses may increase as we build our business and this increase
may harm our operating results and financial condition
We have spent heavily on technology and infrastructure development. We
expect to continue to spend substantial financial and other resources on
developing and introducing new products and services, and expanding our sales
and marketing organization and operating infrastructure. We expect that our
operating expenses will continue to increase in absolute dollars and may
increase as a percentage of revenue. If our revenue does not correspondingly
increase, our business and operating results could suffer. We base our expense
levels in part on our expectations regarding future revenue levels. If our
revenue for a particular quarter is lower than we expect, we may be unable to
proportionately reduce our operating expenses for that quarter.
Because our business is based on an unproven business model, our business may
not be successful and may not sustain revenue growth or be profitable
Our model for conducting business and generating revenue is, in large part,
new and unproven. Our business model depends upon our ability to generate
revenue streams from multiple sources, including licensing our technology,
sales of software products and audio content through our Web site, sales of
advertising space on our Web site, retail software sales and continued revenue
from software licensing arrangements with other businesses. The demand for our
product and service offerings is largely undetermined at this time. We do not
know if our business model will succeed or be sustainable as our business
grows. Furthermore, we will need to develop new offerings as consumer
preferences change and new competitors emerge.
We recently launched our Beatnik content licensing Web site, Beatnik Music,
through which we license content to professionals. If our Beatnik Music site is
not successful, our business would be harmed. Additionally, we currently
provide many of our products and services without charge, and, accordingly, may
not be able to generate sufficient revenue to pay for these products and
services. Consequently, our business model may not be successful and may not
sustain revenue growth or be profitable.
We depend on audio standards and protocols for Web based interactive audio
content and must have access to, adapt and respond to changes in such standards
and protocols or our business will be harmed
We currently rely on certain audio formats upon which we have based the
design of our interactive audio products and services. We do not own or control
all of these formats. Widespread industry and consumer acceptance of any of
these audio formats could significantly harm our business if we are unable to
adapt and respond to these changing standards. Specifically, although we are
not tied exclusively to any one technology or standard for the electronic
delivery of audio content, if a proprietary, or closed, music delivery format
receives widespread industry and consumer acceptance, we may be required to
license additional technology and information from third parties in order to
adopt that format. This third party technology and information may not be
available to us on commercially reasonable terms, if at all. Any failure to
obtain any of these technology and information licenses or to successfully
reconfigure our audio content libraries and audio production software to
support these technologies could prevent us from making our audio content
available in the most widely accepted formats, or render our audio production
software incompatible with dominant audio formats, and thus harm our business.
10
<PAGE>
We rely on revenue from a small number of customers and distributors
Nokia accounted for 33.0% of our total revenue in 1999 and Sun Microsystems
for 30.0% of our total revenue in 1999. No other single customer accounted for
10% or more of our total revenue in 1999. In addition, in 1999, Ingram Micro
accounted for approximately 36.8% of Mixman's revenue. We may not retain these
customers in the future or obtain additional customers. The loss of any of
these customers or failure to obtain additional customers will harm our
business and operating results.
Problems with downloading our Beatnik Player will harm our business
In the past, some Internet users have experienced problems associated with
downloading our Beatnik Player software from our Beatnik portal. For example,
users have experienced difficulty downloading the Beatnik Player behind a
firewall. We believe these problems may continue to occur from time to time.
Our business will suffer if we experience frequent problems that result in the
inability to download the Beatnik Player.
Failure to successfully develop and introduce new interactive audio products
and services would harm our business
Our future success depends in large part on our ability to timely develop
new or enhanced interactive audio products and services and to provide new
products and services that achieve rapid and broad market acceptance. We may
fail to identify new product and service opportunities successfully or develop
and timely bring new products and services to market. We may also experience
delays in completing development of enhancements to, and new versions of, our
major products. We also may need to develop and acquire new software products
or content libraries to broaden our product offerings. For example, if we wish
to offer additional audio content for our Web audio production software, we may
need to obtain additional content licenses. We also may be unable to develop or
acquire marketable products timely or at all. In addition, product innovations
may not achieve the market penetration or price stability necessary for
profitability.
As the online medium continues to evolve, we plan to leverage our
technology by developing complementary products and services as additional
sources of revenue. Accordingly, we may change our business model to take
advantage of new business opportunities, including business areas in which we
do not have extensive experience. For example, we recently focused on, and will
continue to devote significant resources to, the development of our Beatnik
Music site. If we fail to develop these or other businesses successfully, our
business would be harmed.
We face a number of integration risks and significant goodwill costs related to
our recent acquisition of Mixman
We will face integration risks and record significant goodwill costs as a
result of our acquisition of Mixman in December 1999. We may be unable to
effectively integrate the operations, personnel and systems of Mixman with our
other operations timely, or at all. In addition, we may not achieve value from
our acquisition of Mixman commensurate with the consideration paid. For
example, customer satisfaction or performance problems with Mixman's products
could also significantly harm our reputation or the Mixman product line could
significantly underperform relative to our expectations. We have just begun to
integrate Mixman with our operations and we expect this integration to place a
significant burden on our management team. If we are unable to effectively
integrate Mixman into our operations or to generate sufficient revenue from
Mixman's products or our combined operations, our business and operating
results are likely to suffer.
As a result of the Mixman acquisition, we have recorded a significant
amount of goodwill that will adversely affect our operating results for the
foreseeable future. As of December 31, 1999, we recorded goodwill and other
intangible assets of approximately $27.9 million, which we expect to amortize
over 3 years from the date of the acquisition. If the amount of recorded
goodwill or other intangible assets is increased or
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we have future losses and are unable to demonstrate our ability to recover the
amount of goodwill, the amount of amortization could be increased or the period
of amortization could be shortened. This would increase annual amortization
charges or result in the write off of goodwill in a one time non cash charge,
which could be significant and would likely harm our operating results.
We may engage in future acquisitions or investments that could dilute our
existing stockholders, cause us to incur significant expenses or harm our
business
We may review acquisition or investment prospects that may include
acquiring complementary businesses, technologies, content or products.
Integrating any newly acquired businesses, technologies or products, may be
expensive and time-consuming. To finance any acquisitions, it may be necessary
for us to raise additional funds through public or private financings.
Additional funds may not be available on terms that are favorable to us and, in
the case of equity financings, may result in dilution to our stockholders. We
may be unable to complete any acquisitions or investments on commercially
reasonable terms, if at all. Even if completed, we may be unable to operate any
acquired businesses profitably or otherwise implement our growth strategy
successfully. If we are unable to integrate any newly acquired entities or
technologies effectively, our operating results could suffer. Future
acquisitions by us could also result in large and immediate write offs,
incurrence of debt and contingent liabilities, or amortization of expenses
related to goodwill and other intangibles, any of which could harm our
operating results.
Our business could suffer if the gross margin on our software products
distributed through retail channels declines
Retail prices on software products drop quickly. In addition, our
competitors will attempt to offer products which meet or exceed our products'
performance and capabilities. We intend to introduce new software products,
software upgrades and software features in response to anticipated competitive
price pressures and new product introductions. If prices fall faster than we
expect or if we must reduce our prices for any reason, we may experience
pressure on our gross margin. In addition, our gross margin will depend in part
on the following:
. our success in introducing new products to the market and phasing out
older products;
. our competitors prices, products and market share;
. favorable royalty agreements with content providers; and
. general economic conditions.
If we are not successful in meeting these challenges, our business and
operating results may suffer.
If we fail to expand our sales and marketing activities, we may be unable to
expand our brand recognition and our business
If we do not successfully expand our sales and marketing activities, we
cannot expand our business and our stock price could decline. We believe that
continued expansion of our brand recognition will be critical to achieve
widespread acceptance of our products and services. Favorable public perception
of our brand will depend largely on our ability to continue providing users
with high quality products and services, and the success of our marketing
efforts. We plan to increase our marketing expenditures to create and maintain
brand recognition. However, our brand promotion activities may not yield
increased revenue and, even if they do, any increased revenue may not offset
the expenses we incur in building our brand. With our relatively brief
operating history and our plans for expansion, we have considerable need to
recruit, train and retain qualified sales and marketing staff. Any delays or
difficulties we encounter in these staffing efforts could impair our ability to
attract new customers and to enhance our relationships with existing customers.
This in turn would adversely impact the timing and extent of recognizing
revenue. Because the majority of our sales and marketing personnel have
recently joined us and have limited experience working together, our sales,
marketing and
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customer support organizations may not be able to compete successfully against
bigger and more experienced organizations of our competitors.
If our platform does not sufficiently address piracy or rights reporting
concerns of record labels and music libraries, we might not have sufficient
content to attract consumers and our business might be harmed
Our success depends on our ability to aggregate a sufficient amount of high
quality music and sound for syndication. We currently do not create the
majority of our content; rather, we rely on record companies and music
libraries for music and sound content. We believe these music and sound content
providers will remain reluctant to make their content accessible over the
Internet unless they are satisfied that this will not result in the
unauthorized copying and distribution of that content. If we do not
sufficiently address these piracy concerns, we might not have sufficient
content to attract consumers, and our business would be harmed.
We license third party technologies and our inability to continue to do so may
harm our business
We intend to continue to license technologies, including our Web server
technology, from third parties. These technologies are integrated into our
products and services and used to perform key functions. To the extent we need
to license third party technologies, we may be unable to do so on commercially
reasonable terms or at all. In addition, we may fail to successfully integrate
any licensed technology into our services. Third party licenses may expose us
to increased risks, including risks with the integration of new technology, the
diversion of resources from the development of our own proprietary technology
or our inability to generate revenue from new technology sufficient to offset
associated acquisition and maintenance costs. Our inability to obtain any of
these licenses could delay product and service development until equivalent
technology can be identified, licensed and integrated. This in turn would harm
our business and operating results.
Our recent growth has placed a strain on our resources and if we fail to manage
our future growth, our business could suffer
We are currently experiencing a period of rapid expansion in our personnel,
facilities, infrastructure and Web site traffic. For example, substantially all
of our employees were hired in 1999, and we expect that our hiring rate will
continue at a rapid pace. If we cannot integrate these employees into our
business, we will not be able to manage our growth effectively. In addition,
several members of our management team, including our Chief Financial Officer
and our Senior Vice President of Marketing and Business Development, joined
Beatnik in the past year. If our senior managers are unable to work effectively
as a team, our business operations could be significantly disrupted. We expect
further significant expansion will be required to address any future growth in
our consumer base, the breadth of our product and service offerings and other
opportunities. This expansion has placed, and we expect that it will continue
to place, a significant strain on our management, operational and financial
resources. Our failure to manage growth could disrupt our operations, delay
execution of our business plan and consequently harm our business.
We must recruit and retain our key employees to expand our business
Our success will depend on the skills, experience and performance of our
senior management, engineering, sales, marketing and other key personnel, many
of whom have worked together for only a short period of time. The loss of the
services of any of our senior management or other key personnel, including our
President and Chief Executive Officer, Lorraine Hariton, and our founder,
Thomas Dolby Robertson, could harm our business. We do not have employment
agreements with, or life insurance policies on, any of our key employees.
Our future success will also depend on our ability to attract, train,
retain and motivate other highly skilled engineering, technical, managerial,
sales and marketing and customer support personnel. Competition for these
personnel is intense, especially in the San Francisco Bay Area, and we have had
difficulty hiring employees in
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the timeframe we desire. In particular, we may be unable to hire a sufficient
number of qualified engineers, Web designers and audio producers. Our inability
to hire, integrate and retain qualified personnel in sufficient numbers could
reduce the quality of our products and services. If we fail to retain and
recruit necessary engineering, sales, marketing or other personnel, our
business and our ability to develop new products and services and to provide
acceptable levels of customer service could suffer. In addition, companies in
the software industry whose employees accept positions with competitors
frequently claim that competitors have engaged in unfair hiring practices. We
could incur substantial costs in defending ourselves against any of these
claims, regardless of the merits of such claims.
We must successfully establish strategic relationships to help us expand market
acceptance of our Web based interactive audio products and services
We must successfully establish relationships that can enable us to expand
market acceptance of our interactive audio products and services. Specifically,
we must establish and expand relationships with major record labels and music
libraries to provide compelling music and sound content, with original
equipment manufacturers, or OEMs, to incorporate our interactive audio
technology into tools for creative professionals, as well as personal
computers, television set top boxes, cell phones, personal digital assistants
and other digital devices and with advertising and Web design firms and music,
entertainment, ecommerce and other high traffic Web sites to promote the use of
our technology and content for interactive audio on the Web. If we fail to
maintain, establish or successfully implement these relationships, our ability
to achieve market acceptance of Web based interactive audio will suffer and our
business and operating results will be harmed.
Our failure to expand third party distribution channels would impede our
revenue growth
To increase our revenue, we must increase the number of our marketing and
distribution partners, including OEMs and resellers for our software products.
For example, we rely on original equipment manufacturer partners to bundle,
market and sell our Beatnik Audio Engine and Mixman software with their
products. Our existing or future marketing and distribution partners may choose
to devote greater resources to marketing and supporting the products of
competitors, which could harm us. In addition, our original equipment
manufacturer partners may not continue to offer our products. If we do not
maintain and build our original equipment manufacturer relationships, our
business, operating results and financial condition may suffer.
We also rely on our independent distributors and resellers to sell our
consumer software products. Our agreements with distributors and resellers are
not exclusive; many of our distributors and resellers offer competitive
products and are not required to give our products priority. Each of our
distributors and resellers can cease marketing our products with limited notice
and with little or no penalty. We may not be able to replace any of our
independent distributors or resellers. If our distributors or resellers reduce
or cease their marketing and sales efforts on our behalf, our business and
operating results would suffer.
Failure to expand and upgrade our infrastructure to meet customer requirements
would harm our business
We will need to expand and upgrade our Web infrastructure to support
increases in the volume of traffic on our Web site. The expansion and operation
of our Web infrastructure will require substantial financial, operational and
management resources. In addition, as we expand and upgrade our Web
infrastructure, we may encounter software or equipment failures. We may be
unable to expand and upgrade our Web infrastructure to meet additional demand
or adapt to our customers' changing requirements in a timely manner or at all.
As a result, interest in and demand for our products and services could
decrease and our business and operating results would be harmed.
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Unknown software defects could disrupt our products and services, which could
harm our business and reputation
Our interactive products and services depend on complex software, both
internally developed and licensed from third parties. Complex software often
contains defects, particularly when first introduced or when new versions are
released. Although we conduct testing during product development, we have at
times been forced to delay commercial release of software until problems were
corrected and, in some cases, have provided enhancements to correct errors in
released software. If we do detect any errors before we ship a product, we
might have to limit product shipment for an extended period of time while we
address the problem. We may not discover software defects that affect our new
or current services or enhancements until after they are deployed. For example,
in 1998, a defect was discovered in a production run of the Mixman software
which led to the return of the entire production run. It is possible that,
despite testing by us, defects may occur in the software. These defects could
result in:
. damage to our reputation;
. lost sales;
. delays in commercial release;
. product liability claims;
. delays in or loss of market acceptance of our products;
. product returns; and
. unexpected expenses and diversion of resources to remedy errors.
We may face liability associated with our management of sensitive customer
information
Our applications manage sensitive customer information, including payment
and credit card information, and we may be subject to claims associated with
invasion of privacy or inappropriate disclosure, use or loss of this
information. Any imposition of liability, particularly liability that is not
covered by insurance or is in excess of insurance coverage, could harm our
reputation and our business and operating results.
If our system security is breached, our business and reputation could suffer
A fundamental requirement for online communications and transactions is the
secure transmission of confidential information over public networks. Third
parties may attempt to breach our security or that of our customers. We may be
liable to our customers for any breach in our security and any breach could
harm our business and our reputation. Although we have implemented network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach.
Due to the lengthy sales cycles of some of our products, the timing of our
sales are difficult to predict and may cause us to miss our revenue
expectations
Our sales cycle for our technology licensing and OEM software can be as
long as 12 months or more and may vary substantially from customer to customer.
While our customers are evaluating our products and services, we may incur
substantial sales and marketing expenses and spend significant management
effort. Consequently, if revenue forecasted from a specific customer for a
particular quarter is not realized in that quarter, we may incur significant
expenses that are not offset by corresponding sales.
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If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer
We intend to expand into international markets. If our revenue from
international operations does not exceed the expense associated with
establishing and maintaining our international operations, our business will
suffer. We have limited experience in international operations and may not be
able to compete effectively in international markets. Some risks we face in
conducting business internationally include:
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international
operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection
periods;
. political and economic instability;
. fluctuations in currency exchange rates;
. imposition of currency exchange controls;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights in foreign
countries.
Unplanned system interruptions and capacity constraints could harm our business
and our reputation
Since our data warehousing, Web server and network facilities are all
located in California, an earthquake or other natural disaster could affect all
of our facilities simultaneously. An unexpected event such as a power or
telecommunications failure, fire, flood or earthquake at our data warehousing
facility or our Internet service provider's facilities could cause the loss of
critical data and prevent us from offering our products and services. Business
interruption insurance may not adequately compensate us for losses that may
occur. In addition, we rely on third parties to securely store our archived
data, house our Web server and network systems, and connect us to the Internet.
A failure by any of these third parties to provide these services
satisfactorily would impair our ability to access archives and operate our Web
site.
Problems arising from use of our products with other vendors' products could
cause us to incur significant costs, divert attention from our product
development efforts and cause customer relations problems
Our customers may use our products together with products from other
companies. For example, our Beatnik Audio Engine technology is incorporated
into a variety of devices such as set top boxes, browsers and cell phones. As a
result, a problem may not be discovered until our products are integrated for
use. In addition, when problems occur, it may be difficult to identify the
source of the problem. Even when these problems are not caused by our products,
they may cause us to incur significant warranty costs, divert the attention of
our engineering personnel from our product development efforts and cause
significant customer relations problems.
We may be unable to protect our intellectual property and proprietary rights
which could harm our business
Our success depends in part upon our rights in proprietary software
technology, some of which is patented. We rely on a combination of copyright,
trade secret, trademark and contractual protection to establish and protect our
proprietary rights that are not protected by patent, and we enter into
confidentiality agreements with those of our current employees and consultants
involved in product development. Despite our efforts to protect our proprietary
rights through confidentiality and license agreements, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology. Our
precautions may not prevent misappropriation or infringement of our
intellectual property and do not prevent independent third party development of
competitive products.
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In addition, the status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and Trademark
Office grants additional patents. We have five patents in the general areas of
software and synthesis, streaming transmission of compressed music and the
synchronization and simultaneous playing of music. We currently have one patent
application pending in the United States, and we may seek additional patents in
the future. We do not know if our patent application or any future patent
application will result in a patent being issued with the scope of the claims
we seek, if at all, or whether any patents we have or may receive will be
challenged or invalidated. It is difficult to monitor unauthorized use of
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States, and our competitors
may independently develop technology similar to ours.
We may face intellectual property infringement claims that could be costly to
defend
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Our products may infringe issued patents that may relate to
our products. In addition, because the contents of patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software products. We may
be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. For
example, on March 15, 2000, we received a cease and desist letter concerning
our use of the GrooveGram name. We are currently investigating this allegation.
Intellectual property litigation is expensive and time consuming and could
divert management's attention away from running our business. This litigation
could also require us to develop non infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all, in the event of
a successful claim of infringement. Our failure or inability to develop non
infringing technology or license the proprietary rights on a timely basis would
harm our business.
We might have liability for the music and sound content that we provide
Because we provide music and sound content to third parties, we might be
sued for negligence, copyright or trademark infringement or other reasons.
These types of claims have been brought, sometimes successfully, against
providers of online products and services in the past. Others could also sue us
for the content that is accessible from our Web site through links to other Web
sites. These claims might include, among others, claims that by hosting,
directly or indirectly, the Web sites of third parties, we are liable for
copyright or trademark infringement or other wrongful actions by these third
parties through these Web sites. Our insurance may not adequately protect us
against these types of claims and, even if these claims do not result in
liability, we could incur significant costs in investigating and defending
against these claims.
Risks Related to our Industry
We must compete successfully in the Web based interactive audio market
The market for the online promotion and distribution of Web based
interactive audio technology, software and content is new and rapidly evolving.
Barriers to entry in this market are low and established or new entities may
enter this market at any time.
We face competitive pressures from numerous actual and potential
competitors, including Apple Computers, Inc., MacroMedia, Microsoft Corporation
and RealNetworks, Inc., many of who have:
. longer operating histories;
. greater brand recognition;
. larger audiences;
. larger technical, production and editorial staffs;
. a more established Internet presence; and
. significantly greater financial, technical and marketing resources than
us.
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Although we do not compete against any one entity with respect to all
aspects of our interactive audio platform, we do face competition from content
providers, audio engine companies and software companies. Specifically, we
compete with business to business music licensing portals to provide music and
sound content on the Web and companies who provide audio engines for digital
applications. In addition, in the retail software market, our Mixman line of
software products competes with music creation software products from companies
such as Sonic Foundry, Inc., Magix Entertainment Corp. and Cakewalk. We may not
be able to compete successfully against current and potential competitors,
which in turn could harm our business.
We will only be able to execute our business plan if Internet usage continues
to grow
Given the largely Web based nature of our business, without the continued
development and maintenance of the Internet infrastructure, our plan to
generate revenue by selling the means to provide interactive audio products and
services on the Web, and our offering of interactive audio content on the Web,
may not succeed. This continued development of the Internet would include
maintenance of a reliable network with the necessary speed, data capacity and
security, as well as timely development of complementary products, including
high speed modems, for providing reliable Internet access and services. Because
global commerce on the Internet and the online exchange of information is new
and evolving, we cannot predict whether the Internet will prove to be a viable
commercial marketplace in the long term. The success of our business will rely
on the continued improvement of the Internet as a convenient means of consumer
interaction and commerce, as well as an efficient medium for the delivery and
distribution of audio.
As the Internet continues to experience increased numbers of users,
increased frequency of use and increased bandwidth requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
increased users or bandwidth requirements may harm the performance of the
Internet. The infrastructure and complementary products or services necessary
to make the Internet a viable commercial marketplace for the long term may not
be developed successfully or in a timely manner. Even if these products or
services are developed, the Internet may not become a viable commercial
marketplace for the products or services that we offer.
Because we provide interactive audio on the Web, our business could suffer if
efficient transmission of data over the Internet is interrupted
The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. Because we provide Web based interactive audio applications,
interruptions or delays in Internet transmissions will harm our customers'
ability to use our products. Therefore, our market depends on improvements
being made to the entire Internet infrastructure to alleviate overloading and
congestion.
Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our products or increase our cost of doing
business
The laws and regulations that govern our business change rapidly. Although
our operations are currently based in California, the United States government
and the governments of other states and foreign countries have attempted to
regulate activities on the Internet and the manufacture of computer software
and distribution. Although there are currently few laws and regulations
directly applicable to the Internet and the use of the Internet as a commercial
medium, a number of laws have been proposed involving the Internet. These
proposed laws include laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Evolving areas of law that are relevant to our business include
privacy law, proposed encryption laws, content regulation and sales and use tax
laws and regulations. Because of this rapidly evolving and uncertain regulatory
environment, we cannot predict how these laws and regulations might affect our
business. Any new laws and regulations could harm us by subjecting us to
liability or forcing us to
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change how we do business. For example, in 1998, Congress passed the Internet
Freedom Act, which imposes a three year moratorium on state and local taxes on
Internet based transactions. We cannot assure you that this moratorium will be
extended. Failure to renew this moratorium would allow various states to impose
taxes on ecommerce, which might harm our business.
Risks Related to our Offering
Our stock price may be volatile, and you may not be able to sell your shares at
or above the offering price
Prior to this offering, our common stock has not been publicly traded, and
an active trading market may not develop or be sustained after this offering.
You may not be able to sell your shares at or above the offering price. The
price at which our common stock will trade after this offering is likely to be
highly volatile and may fluctuate substantially due to factors such as the
following:
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
We may become involved in securities class action litigation, which could
divert management's attention and harm our business
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of technology companies, particularly Internet companies. These broad market
fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.
After this offering, our directors, executive officers and principal
stockholders will continue to have substantial control over matters requiring
stockholder approval and may not vote in the same manner as our other
stockholders
After this offering, our directors, executive officers and stockholders who
currently own over 5% of our common stock will collectively beneficially own
approximately % of our outstanding common stock. These stockholders, if they
vote together, will be able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
delay or prevent a change in control of Beatnik.
We may need additional capital and raising additional capital may dilute
existing stockholders
We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may choose to, or be
required to, raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. This financing may not be
available in sufficient amounts or on terms acceptable to us and may be
dilutive to
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existing stockholders. If adequate funds are not available or are not available
on acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities, develop or enhance services or products or
otherwise respond to competitive pressures would be significantly limited.
Future sales of our common stock may depress our stock price
Sales of a substantial number of shares of common stock in the public
market after this offering or after the expiration of lockup and holding
periods could cause the market price of our common stock to decline. After this
offering, we will have approximately 40,877,442 shares of common stock
outstanding. All the shares sold in this offering will be freely tradable. The
remaining shares of common stock outstanding after this offering are
subject to lockup agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Any or all of these shares may be released
prior to expiration of the 180 day lockup period at the discretion of
FleetBoston Robertson Stephens Inc. Immediately after the 180 day lockup
period, shares which will be outstanding after the offering will
become available for sale. The remaining shares of our common stock will become
available at various times thereafter upon the expiration of one year holding
periods. In addition, we entered into a promotions agreement with Yahoo! in
August 1999 for a term of one year. The agreement is automatically renewed at
the end of the one year term unless either party gives the other notice that it
does not want to renew the agreement. If the agreement is renewed, Yahoo! Inc.
will receive an additional warrant for shares equal to one percent of our
outstanding capital stock exercisable at the then fair market value of the
stock.
Purchasers of our common stock will suffer immediate and substantial dilution
Purchasers of our common stock in this offering will experience immediate
dilution of $ in the pro forma net tangible book value per share of common
stock, based on an assumed initial public offering price of $ per share.
Purchasers will also experience additional dilution upon the exercise of
outstanding stock options and warrants. The initial public offering price is
expected to be substantially higher than the book value per share of our common
stock. Some elements of our market value do not originate from measurable
transactions. Therefore, there is not a corresponding rise in book, or
historical accounting, value for our rise in market value, if any. Examples of
these elements include the perceived value associated with our strategic
relationships, perceived growth prospects of our market and our perceived
competitive position within that market.
Our certificate of incorporation, bylaws and Delaware corporate law contain
provisions which could delay or prevent a change in control even if the change
in control would be beneficial to our stockholders
Delaware law as well as our certificate of incorporation and bylaws contain
provisions that could delay or prevent a change in control of Beatnik, even if
it were beneficial to the stockholders to do so. These provisions could limit
the price that investors might be willing to pay in the future for shares of
our common stock. These provisions:
. authorize the issuance of preferred stock that can be created and
issued by the board of directors without prior stockholder approval to
increase the number of outstanding shares and deter or prevent a
takeover attempt;
. prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
. prohibit cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limit the ability of stockholders to call special meetings of
stockholders; and
. establish advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon
by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Beatnik.
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We do not have current specific plans for the net proceeds from this offering,
and if we do not use the proceeds in a manner which increases our operating
results or market value, our business could suffer
We have no current specific plans for the net proceeds from this offering.
As a result, our management will have significant flexibility in applying the
net proceeds of this offering. The net proceeds could be applied in ways that
do not increase our operating results or market share. We intend generally to
use the net proceeds from this offering for working capital and general
corporate purposes. We have not yet determined the actual expected expenditures
and thus cannot estimate the amounts to be used for each specified purpose. The
actual amounts and timing of these expenditures will vary significantly
depending on a number of factors, including, but not limited to, the amount of
cash used in or generated by our operations and the market response to the
introduction of any new product and service offerings. Depending on future
developments and circumstances, we may use some of the proceeds for uses other
than those described above. You will not have the opportunity, as part of your
investment decision, to assess whether proceeds are being used appropriately.
21
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expect," "anticipate," "intend," "plan," "will" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include,
those discussed in "Risk Factors," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common
stock offered by us are estimated to be $ ($ if the
underwriters' over allotment option is exercised in full) after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us based on the initial public offering price of $ per
share.
The principal purposes of this offering are:
. to obtain additional capital;
. to create a public market for our common stock;
. to increase our visibility and credibility; and
. to facilitate future access to the public equity markets.
We intend to use the net proceeds of this offering for working capital and
other general corporate purposes. We have not yet determined the expected
expenditures and thus cannot estimate the amounts to be used for each specified
purpose. The actual amounts and timing of these expenditures will vary
significantly depending on a number of factors, including, but not limited to,
the amount of cash used in or generated by our operations and the market
response to the introduction of any new product and service offerings.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to such
transactions. Accordingly, our management will retain broad discretion as to
the allocation of the net proceeds of this offering. We intend to invest the
net proceeds of this offering in short term, interest bearing investment grade
securities until they are used.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our earnings, if any, for the development of our business.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis; and
. on a pro forma basis after giving effect to:
-- the issuance of 6,750,951 shares of Series E preferred stock in
March 2000;
-- the assumed exercise of outstanding warrants to purchase an
aggregate of 575,530 shares of common stock; and
-- the conversion of all outstanding shares of preferred stock into
common stock and changes to our authorized capital stock upon
completion of this offering; and
. on the same pro forma basis as adjusted to give effect to the sale of
shares of common stock by us at an assumed initial public
offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us.
This information should be read together with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- -------------- -----------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Convertible preferred stock............... $22,221 $ -- $
-------- -------- ----
Stockholders' equity:
Common stock: $0.0001 par value;
41,000,000 shares authorized on an
actual basis, 15,564,903 shares
issued and outstanding, actual;
shares outstanding pro forma as
adjusted.............................. 16 41
Additional paid in capital................ 33,753 89,704
Notes receivable from stockholders........ (191) (191)
Deferred stock based compensation......... (9,656) (9,656)
Accumulated deficit....................... (14,273) (14,273)
-------- -------- ----
Total stockholders' equity........... 9,649 65,625
-------- -------- ----
Total capitalization............... $ 31,870 $ 65,625 $
======== ======== ====
</TABLE>
The number of shares of common stock to be outstanding after this offering
assumes no exercise of the underwriters' over-allotment option and excludes:
. 5,566,576 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $0.10 per share;
. 833,888 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.67 per share; and
. additional shares available for future issuance under our stock
plans.
23
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $40.7 million, or $0.99 per share. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the number of shares of common stock
outstanding at that date, assuming the issuance of 25,483,365 shares of common
stock upon the net exercise of warrants that will expire upon completion of
this offering and the conversion of all outstanding shares of preferred stock,
including 6,750,951 shares of Series E preferred stock issued in March 2000.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after completion of this offering. After giving effect to the
sale of the shares of common stock offered by Beatnik in this offering (at
an assumed initial public offering price of $ per share) and after
deducting the underwriting discounts and commissions and our estimated offering
expenses, our pro forma net tangible book value at December 31, 1999 would have
been $ , or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to the existing stockholders
and an immediate dilution of $ per share to new investors purchasing shares
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share as of December
31, 1999................................................. $0.99
Increase per share attributable to this offering...........
-----
Pro forma net tangible book value per share after this
offering...................................................
------
Pro forma dilution per share to new investors................ $
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors, (based upon an assumed initial public
offering price of $ per share and before deducting the underwriting
discounts and commissions and our estimated offering expenses):
<TABLE>
<CAPTION>
Total Average
Shares Purchased Consideration Price
------------------ ------------------ Per
Number Percent Amount Percent Share
---------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 41,048,268 % 74,454,350 % $
New investors....................
---------- --- ---------- ---
Total.......................... 100% 100%
========== === ========== ===
</TABLE>
The foregoing table includes:
.6,750,951 shares of common stock issuable upon conversion of our Series E
preferred stock;
. 575,530 shares issuable upon exercise of warrants that will expire upon
completion of this offering; and
. conversion of all outstanding shares of preferred stock into common
stock.
The foregoing table assumes no exercise of the underwriters' over allotment
option and excludes:
. 5,566,576 shares issuable upon exercise of options outstanding at
December 31, 1999 at a weighted average exercise price of $0.10 per
share;
. 833,888 shares issuable upon exercise of warrants outstanding as of
December 31, 1999; and
. additional shares available for future issuance under our stock
plans.
To the extent any of these warrants or options are exercised, there will be
further dilution to new investors.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999 and the selected consolidated
balance sheet data as of December 31, 1998 and 1999 are derived from our
audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statement of operations data for the period from
May 1, 1996 (inception) to December 31, 1996 and the consolidated balance sheet
data for 1996 and 1997 are derived from our audited consolidated financial
statements for 1996 and 1997 not included in this prospectus. Our historical
results are not necessarily indicative of results to be expected for any future
period. The data have been derived from financial statements that have been
prepared in accordance with generally accepted accounting principles and should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes included elsewhere in this prospectus. See note 2 of the
notes to our consolidated financial statements for an explanation of the
determination of the number of shares used in computing basic and diluted net
loss per share.
<TABLE>
<CAPTION>
May 1, 1996
(inception) Year Ended December 31
to December 31, --------------------------
1996 1997 1998 1999
--------------- ------- ------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Sonification.................... $ 84 $ 194 $ 675 $ 1,239
Interactive audio software...... -- -- -- 253
------ ------- ------- --------
Total revenues............... 84 194 675 1,492
------ ------- ------- --------
Cost of revenue:
Sonification.................... 66 296 294 980
Interactive audio software...... -- -- -- 56
------ ------- ------- --------
Total cost of revenues....... 66 296 294 1,036
------ ------- ------- --------
Gross profit (loss)............... 18 (102) 381 456
------ ------- ------- --------
Operating expenses:
Research and development........ 391 825 1,125 3,625
Sales and marketing............. 14 211 199 1,969
General and administrative...... 288 487 617 1,939
Amortization of purchased
goodwill and intangibles...... -- -- -- 364
Amortization of deferred stock
based compensation............ -- -- -- 2,972
In process research and
development................... -- -- -- 241
------ ------- ------- --------
Total operating expenses..... 693 1,523 1,941 11,110
------ ------- ------- --------
Loss from operations.............. (675) (1,625) (1,560) (10,654)
Interest and other income
(expense), net.................. (1) 98 (36) 181
------ ------- ------- --------
Net loss.......................... $ (676) $(1,527) $(1,596) $(10,473)
====== ======= ======= ========
Basic and diluted net loss per
share........................... $(0.18) $ (0.35) $ (0.35) $ (1.60)
====== ======= ======= ========
Shares used in computing basic and
diluted net loss per share...... 3,837 4,339 4,579 6,566
====== ======= ======= ========
Pro forma basic and diluted net
loss per share.................. $ (0.65)
========
Shares used in computing pro forma
basic and diluted net loss per
share........................... 16,194
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998 1999
---- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $ 15 $ 505 $ 812 $6,191
Working capital (deficit)......................... (310) (67) 96 4,507
Total assets...................................... 331 843 1,136 36,786
Convertible preferred stock....................... 567 2,272 3,390 22,221
Total stockholders' equity (deficit).............. (606) (2,136) (3,076) 9,649
</TABLE>
25
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The pro forma selected combined statement of operations data for the year
ended December 31, 1999 is derived from the unaudited pro forma combined
financial information, which reflects the acquisition of Mixman as if the
acquisition had occurred on January 1, 1999. The pro forma selected combined
statement of operations data is presented for informational purposes only and
may not be indicative of the operating results that would have been achieved
had the transaction been in effect as of the beginning of the period presented
and should not be construed as being representative of future operating
results.
<TABLE>
<CAPTION>
Year Ended December 31,
1999
-----------------------
(in thousands except
per share data)
(unaudited)
<S> <C>
Pro Forma Combined Statement of Operations Data:
Revenue:
Sonification........................................ $ 1,239
Interactive audio software.......................... 2,252
---------
Total revenue.................................... 3,491
---------
Cost of revenue:
Sonification........................................ 980
Interactive audio software.......................... 324
---------
Total cost of revenue............................ 1304
---------
Gross profit.......................................... 2,187
---------
Operating expense:
Research and development............................ 4,464
Sales and marketing................................. 2,768
General and administrative.......................... 2,425
Amortization of purchased goodwill and other
intangibles....................................... 9,311
Amortization of deferred stock based compensation... 2,972
---------
Total operating expense.......................... 21,940
---------
Loss from operations ................................. (19,753)
Interest and other income, net........................ 185
---------
Net loss.............................................. $ (19,568)
=========
Basic and diluted net loss per share.................. $ (1.44)
=========
Weighted average shares used in computing basic and
diluted net loss per share.......................... 13,589
=========
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the consolidated
financial statements and the related notes included elsewhere in this
prospectus.
Overview
Beatnik brings interactive music and sound to the Web through our
combination of technology, content and community. Our solution includes a line
of software technologies, applications and access to production music and sound
content that enables the integration of interactive audio content into the Web
experience, or sonification. We develop, market and sell our interactive audio
solution to a community of creative professionals, potential licensees of our
technology and consumers enabling them to build and interact with music and
sound over the Web, on computers and other digital devices.
Our company was incorporated in May 1996 as Headspace, Inc. We changed our
name to Beatnik, Inc. in April 1999. Since inception, our operating activities
have consisted primarily of planning and developing our interactive audio
products and services to enable users to build and interact with music and
sound on the Web. We began recognizing revenue in May 1996 but did not
recognize a meaningful amount of revenue until 1997. During 1997 and 1998, we
continued to invest in research and development, building sales channels,
expanding marketing activities and developing administrative operations. In
1999, we continued to make significant investments in product development and
technology to enhance our current products and services, develop new products
and services and further advance our offerings. On December 14, 1999, we
acquired Mixman Technologies, Inc. and added its "Mixman Studio" line of
software products to our business.
In connection with the acquisition of Mixman, we issued 1,962,704 shares of
Series D-1 convertible preferred stock, 1,734,695 shares of Series D-2
convertible preferred stock, 7,386,884 shares of common stock, and options and
warrants to acquire 1,276,011 shares of common stock in exchange for all the
outstanding preferred stock, common stock, options and warrants of Mixman. The
acquisition was accounted for as a purchase, and accordingly the results of
operations of Mixman have been included in our consolidated financial
statements since the date of acquisition. We intend to amortize the intangible
assets and goodwill ratably over three years. The fair market value of the
securities issued in the acquisition was approximately $26.4 million at the
time of issuance.
Mixman was incorporated in 1993. Mixman develops, markets and sells
interactive audio software which is downloadable from our Beatnik and Mixman
Web sites and which allows users to create, remix, process and edit music and
publish it to a variety of formats. Mixman also provides professional quality
audio mixing software applications and multiformat audio sample CD ROMs. Mixman
currently produces and sells these products worldwide. Mixman has developed a
community of users on the Internet based upon continually offering branded
music content and software through its Web site. We believe that our
acquisition of Mixman will provide us with greater distribution opportunities
and access to greater audio content and a community of music hobbyists. We plan
to use sales of Mixman products to facilitate adoption of our sonification
tools and increase traffic to our Beatnik portal.
Substantially all of our revenue through December 31, 1999, excluding our
acquisition of Mixman, was attributed to our sonification revenue, which
includes services and technology and content licensing. To a lesser extent, we
also derived a portion of our revenue from the sale of our Beatnik sonification
tools from our Web site. We launched our Beatnik Music site during the first
quarter of 2000. Over the next 12 months, we expect to derive a significant
portion of our revenue from our Beatnik Music site, which provides audio
content and information to media professionals, and from the sale of our
interactive audio applications acquired as a result of our acquisition of
Mixman.
27
<PAGE>
We recognize revenue from sonification services either as the service is
performed or upon completion for services which are furnished over a short
period of time, generally less than 30 days. Where we provide maintenance
services, revenue associated with these services is recognized over the term of
the maintenance agreements.
Revenue from the sale of interactive audio software is recognized upon
shipment of the software product, except for channel sales, which are
recognized at the time payment is received. In the event we grant customers the
right to a specific upgrade, license revenue is deferred until delivery of the
specific upgrade.
In connection with the grant of stock options to employees and consultants,
we have recorded stock based compensation related to stock options granted
below fair market value through December 31, 1999 of approximately $12.6
million. Of this amount, we amortized approximately $3.0 million through
December 31, 1999. This amount represents the difference between the exercise
price of these stock option grants and the deemed fair value of the common
stock at the time of grant. We expect to record additional stock based
compensation in connection with options granted during the first quarter of
2000. The remaining $9.6 million and the additional amount of stock based
compensation from recent grants will be amortized over the remaining vesting
period of the options, generally four years. As a result the amortization of
stock based compensation will impact our reported results of operations through
2003.
In March 2000, we entered into an agreement with MTVN Online, L.P., a
subsidiary of MTV, Inc., pursuant to which MTVN Online will provide advertising
and other promotional services to us in exchange for 800,000 shares of Series E
preferred stock, 400,000 of which are subject to forfeiture, pending the
attainment of eight milestones to be completed during an 18 month period, and
sonification services and audio content. On attainment of each milestone,
50,000 shares will be considered as earned and no longer subject to forfeiture.
The unearned shares underlying the milestones will be remeasured on attainment
of the milestone, or at each subsequent reporting date until each milestone is
achieved. In the event such remeasurement results in increases or decreases
from the initial fair value, which could be substantial, such increases or
decreases will be recognized immediately, in the event the milestone was
achieved during the reporting period, or over the remaining term. We expect to
incur substantial non cash charges associated with the issuance of Series E
preferred stock to MTVN Online. In addition to the initial fair value of $4.0
million, we expect the future changes in the trading price of our common stock
(to which the Series E preferred stock would be converted on completion of an
initial public offering subject to certain terms) at the end of each quarter
and at the date certain milestones, are achieved, will cause additional
substantial changes in the ultimate amount of such charges.
We have sustained losses on a quarterly and annual basis since inception.
As of December 31, 1999, we had an accumulated deficit of $14.3 million. These
losses resulted from significant costs incurred in the planning and development
of our technology and services. We have incurred internally developed software
costs, which we have expensed as incurred. We expect to experience significant
growth in our operating expense, particularly in the areas of research and
development and sales and marketing, as we develop and market new technology
and services.
Recent Events
Series E Preferred Stock
On March 10, 2000, we issued and sold 6,750,951 shares of Series E
preferred stock in a private equity investment with a number of investors for
gross proceeds of approximately $29.8 million in cash and $4.0 million in
services. These investors included MTVN Online, Hikari Tsushin America, Cyber
Lifestyle Limited, Sun Microsystems and Media 100. The Series E preferred stock
contains substantially the same rights and preferences as the Series A, B, C
and D preferred stock. The Series E preferred stock will convert to common
stock at a one to one ratio upon completion of this offering.
28
<PAGE>
Results of Operations
We were incorporated in May 1996 but did not commence significant
operations until January 1997. Data for May 1996 through December 31, 1996 (the
inception period) are not comparable to those for 1997 due to the acceleration
of our activities and related expenses during 1997 and the different duration
of the periods.
The following table sets forth selected items from our consolidated
statement of operations as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenue:
Sonification.................................... 100.0 % 100.0 % 83.0 %
Interactive audio software...................... 0.0 0.0 17.0
------ ------ ------
Total revenue................................ 100.0 100.0 100.0
------ ------ ------
Cost of revenue:
Sonification.................................... 152.6 43.5 65.7
Interactive audio software...................... -- -- 3.7
------ ------ ------
Total cost of revenue........................ 152.6 43.5 69.4
------ ------ ------
Gross profit (loss)............................. (52.6) 56.5 30.6
------ ------ ------
Operating expense:
Research and development........................ 425.2 166.7 243.0
Sales and marketing............................. 108.8 29.5 132.0
General and administrative...................... 251.0 91.4 130.0
Amortization of purchased goodwill and other
intangibles................................... -- 0.0 24.3
Amortization of deferred stock based
compensation.................................. -- 0.0 199.2
In process research and development............. -- 0.0 16.1
------ ------ ------
Total operating expense...................... 785.0 287.6 744.6
------ ------ ------
Loss from operations.............................. (837.6) (231.1) (714.0)
Interest and other income (expense), net.......... 50.5 (5.3) 12.1
------ ------ ------
Net loss.......................................... (787.1) % (236.4) % (701.9)%
====== ====== ======
</TABLE>
Years Ended December 31, 1997, 1998 and 1999
Revenue. Revenue increased 247.9% from $194,000 in 1997 to $675,000 in
1998, and 121.0% to $1.5 million in 1999. The increase from 1997 to 1998 was
primarily due to a significant technology licensing agreement. The increase
from 1998 to 1999 was primarily due to additional technology licensing
agreements.
Cost of revenue. Cost of revenue consists primarily of engineering expenses
associated with developing technology under sonification and technology
contracts, creative production expense and content royalties and Web site
operations. Web site operations costs include Internet connectivity charges,
networking costs and equipment depreciation. Creative production expenses
primarily include labor-related costs and outside contractor expense for
consulting services. Cost of revenue decreased 0.01% from $296,000 in 1997 to
$294,000 in 1998, and increased 252.4% to $1.0 million in 1999. The increase
from 1998 to 1999 was primarily due to the addition of personnel in creative
production.
Operating Expense
Research and development. Research and development expense consists
primarily of employee compensation, associated travel costs and costs
associated with outside engineering and special project work. Research and
development expense increased 36.3% from $825,000 in 1997 to $1.1 million in
1998, and
29
<PAGE>
227.3% to $3.6 million in 1999. The increase from 1997 to 1998 was primarily
due to an increase in the number of engineers and other technical personnel
responsible for developing new technology and products. The increase from 1998
to 1999 was primarily due to additional costs incurred in 1999 related to the
development of our Beatnik Music site. We expect to continue to make
substantial investments in the enhancement and development of our technologies,
products and services and anticipate that research and development expense will
increase in absolute dollars.
Sales and marketing. Sales and marketing expense consists primarily of
employee compensation, associated travel costs and outside costs related to
marketing programs as well as costs for design and production of marketing
materials. Sales and marketing expense decreased 5.7% from $211,000 in 1997 to
$199,000 in 1998, and increased 905.0% to $2.0 million in 1999. The increase
from 1997 to 1998 was primarily due to increased marketing activities and the
introduction of new products. The increase from 1998 to 1999 was primarily due
to the increased staffing in marketing and marketing activities. We expect to
continue to substantially increase our sales and marketing efforts and hire
additional sales and marketing personnel. As a result, we expect sales and
marketing expense to increase in absolute dollars.
General and administrative. General and administrative expense consists
primarily of employee compensation, associated travel costs and contracted
consulting services for business development, finance and human resources as
well as all legal and recruiting fees. General and administrative expense
increased 26.7% from $487,000 in 1997 to $617,000 in 1998, and 208.1% to $1.9
million in 1999. The increase from 1997 to 1998 was primarily due to increased
staffing to support our growth. The increase from 1998 to 1999 was primarily
due to the addition of key executive positions during 1999. We expect general
and administrative expense to increase substantially as we incur additional
costs related to the addition of personnel and infrastructure to support the
anticipated growth of our business and operation as a public company.
Interest and other income (expense), net. Interest and other income
consists primarily of interest earnings on our cash and cash equivalents. In
1997, net other income was $98,000. In 1998, net other expense was $36,000. In
1999, net other income was $181,000. The decrease from 1997 to 1998 was
primarily due to a one time gain on a sale of assets in 1997 and an increase in
interest expense in 1998 of $60,000. The increase in interest expense and
decrease of interest income was a result of decreasing cash balances in 1998
and the use of bridge loans for part of that year. The increase from 1998 to
1999 was primarily due to earnings on funds resulting from the private
placement of our Series C preferred stock.
Income taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through December 31, 1999.
At December 31, 1999, we had approximately $17.4 million of federal and state
operating loss carryforwards available to offset future taxable income. These
carryforwards begin to expire 2012 for federal and 2002 for state. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in some circumstances. For example,
the amount of net operating losses that we may utilize in any one year would be
limited in the presence of a cumulative ownership change of more than 50% over
a three year period. These restrictions may limit, on an annual basis, the
future use of our net operating loss carryforwards.
Liquidity and Capital Resources
Since our inception in May 1996, we have financed our operations primarily
through the private placement of our preferred stock and capital equipment
lease financing. As of March 13, 2000, we had $28.7 million in cash and cash
equivalents. Net cash provided by financing activities was $727,000 in 1998 and
$11.2 million in 1999. In both cases, the cash was primarily attributable to
net proceeds from the issuance of preferred stock. In March 2000, we sold an
aggregate of 6,750,951 shares of our Series E preferred stock for gross
proceeds of $29.8 million in cash and $4.0 million in services.
Net cash used in operating activities was $407,000 in 1998 and $5.0 million
in 1999. Cash used in operating activities was primarily the result of
operating losses (exclusive of non-cash charges) and increases in prepaid
expense and accounts receivable partially offset by increases in accrued
expense and accounts payable.
30
<PAGE>
Net cash used in investing activities was $12,000 in 1998 and $798,000 in
1999. Cash used in investing activities was primarily related to the
acquisition of intangible assets and the purchase of equipment.
As of December 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel. Our actual capital requirements will
depend on numerous factors, including market acceptance of our services, the
resources we allocate to our product and service development, sales, marketing
and customer support services and other factors.
We believe that the net proceeds from the sale of common stock in this
offering, together with our current cash balances and the proceeds from the
sale of our Series E preferred stock, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
In addition, although there are no present understandings, commitments or
agreements with respect to any acquisition of other businesses, products and
technologies, we from time to time evaluate potential acquisitions of other
businesses, products and technologies and may in the future require additional
equity or debt financings to consummate any potential acquisitions. We may also
need to raise additional funds in order to fund more rapid expansion, including
significant increases in personnel and office facilities, to develop new or
enhance existing services or products or respond to competitive pressures. In
addition, in order to meet our long term liquidity needs, we may need to raise
additional funds, establish a credit facility or seek other financing
arrangements. Additional funding may not be available on favorable terms, if at
all.
Disclosure About Market Risk
Our exposure to market risk is principally confined to our cash and cash
equivalents, which have short maturities and, therefore, minimal market risk.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for all fiscal quarters for fiscal
years beginning after June 15, 2000 and is not anticipated to have a
significant impact on our operating results or financial condition when
adopted.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the impact of SAB 101 will not have a material effect on our
financial position or results of operations.
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BUSINESS
Company Overview
Beatnik brings interactive music and sound to the Web through our
combination of technology, content and community. The Internet is still
essentially a silent movie. We believe the next step in the evolution of
Internet infrastructure will be the proliferation of rich media content across
the Web, requiring the integration of audio content into Web sites. Our
solution includes a line of software technologies, applications and production
music and sound content that enables the integration of interactive audio
content into the Web experience, known as sonification. Because our interactive
audio solution provides benefits to Web sites, content providers and users, we
believe that our success is closely tied to the rapid growths of audio content
across the Web and to the expansion of audio enabled digital devices.
We are building a community of creative professionals and consumers, and
have begun to drive our sonification solutions across the Web and into other
digital devices through our licensing agreements with companies such as
Liberate, Nokia and Sun; our relationships with Web media sites and software
companies such as Macromedia, Media 100, MTV.com and its affiliated sites and
Yahoo!; our relationships with production music libraries such as FirstCom
Music, Killer Tracks and Network Music; our relationships with leading media,
art and design schools; and our relationships with major record labels such as
BMG, Sony Music and Zomba, which provide us access to Top 40 and other popular
music artists including Lou Bega, David Bowie and Puff Daddy.
The gap between the audio experience of traditional media, such as
television and movies, and the Internet creates substantial opportunities for
our solutions, which enable the integration of interactive audio solutions into
the Web experience. Current audio solutions on the Web have focused on the
distribution of music through streaming and download technologies. Our
interactive audio platform provides a fundamentally different way to use the
Internet, wherein sound is interwoven directly with the text and graphics
contained in a Web page.
Industry Background
The Emergence of the Internet and the Evolution of Traditional Media
The Internet has emerged as an increasingly important and unique medium of
communication, commerce and entertainment. The Internet is also beginning to
provide some of the high quality, visual, graphics and audio, or rich media,
characteristics found in traditional media such as television, film and radio.
Similar to the way cinema was revolutionized by the addition of sound and
broadcast evolved from radio to television, we expect that the Internet will be
transformed by interactive audio and its integration with other media. Although
technologies and solutions are increasingly enabling the Internet to function
as a medium for entertainment and electronic commerce, or ecommerce, the
Internet continues to lack the applications needed to take full advantage of
its potential as an interactive medium of graphics, video and audio, or rich
media, environment.
We believe that the Internet represents the fastest growing form of media
in history and has achieved a greater reach in a shorter amount of time than
cable television, broadcast television and radio. International Data
Corporation estimates that the number of Web users worldwide will increase from
approximately 196 million at the end of 1999 to more than 502 million by the
end of 2003 and that the number of Web pages will increase from approximately
1.6 billion in 1999 to over 13 billion in 2003. We believe that the rapid
growth of the Internet versus traditional media is driven by several important
factors including interactivity, user customized content and targeted
communications. However, compared to traditional media where audio is generally
a significant part of the user experience for both content and advertising, the
Internet has yet to effectively leverage the potential impact of high quality
interactive audio to enrich the end user experience.
We believe the growth of the Internet as a medium for commerce and
communication, as well as the increase in the number of Web users and Web
pages, has led to an increased demand for content. Media
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companies and businesses deploy a significant amount of Web based media
content. We believe that the increasing availability and awareness of Internet
media will drive demand for more interactive content which incorporates high
quality graphics, video and audio. Accordingly, improved interactivity of Web
content should enrich the ecommerce experience through enhanced commercial
applications, branding and entertainment possibilities. This improvement is one
factor driving the growth of ecommerce as International Data Corporation
estimates that the total value of consumer goods and services purchased over
the Internet will increase from $111.3 billion in 1999 to $1.3 trillion in
2003.
Limitations of the Current Web Experience
The Internet is still essentially a silent movie. One reason for the lack
of audio content on Web sites is the lack of existing technology to efficiently
integrate audio content into the Web page to provide an end user experience
that is not constrained by the limitations of current downloading and streaming
technologies. The gap between the audio experience of traditional media and the
Internet creates substantial opportunities for solutions that create enabling
technologies to offer interactive audio content integrated into the Web
experience.
As we move to the next wave of Web development, we believe there will be a
stronger focus on audio in the rich media environment as a way to enhance the
user experience and build brand loyalty. Increasing bandwidth capacity and
enhanced infrastructure technologies should accelerate this trend. We believe a
rich entertainment experience that enhances the Web user experience will become
increasingly important and will ultimately drive ecommerce and branding.
The Commercial Music Industry and the Web
The adoption of download technologies and the emergence of streaming
technologies that enable the real-time delivery and playback of multimedia
content, have provided a foundation for the commercialization of music and
sound on the Internet. To date, the Internet has been used by the music
industry primarily as a promotional distribution mechanism for major recording
artists. For example, digital distribution of music over the Internet has
created an alternative to traditional distribution of music on compact discs
through music stores. However, although some music recording artists recently
have bypassed the major record companies to popularize their music directly
over the Internet, most major record companies, due to piracy and other
concerns, are still reluctant to use the Internet as a distribution method.
More significantly, the retail distribution of music to consumers constitutes
only a part of the overall opportunity for music on the Internet. We believe
there is also a substantial opportunity to address the business to business
application of the music industry as well.
Commercial and broadcast video developers buy music and sound to
synchronize with their visual media productions. The current offline process of
identifying, licensing and distributing music for synchronization with digital
media can be difficult, tedious and frustrating. The typical process requires
the creative producer to rely on a music librarian or independent middleman to
find the appropriate music for a project. In contrast, many independent
producers and Web designers are often unaware of where or how to access music
content and resort to original composition to meet their needs. In addition,
music libraries often supply large customers and middlemen with a subset of
their content rather than incur the expense of reproducing complete libraries
on compact disc.
As more and more Web developers begin to add audio content to their Web
site development projects, we expect the demand for synchronized music to grow
proportionately with the number of Web pages. In addition, as applications of
synchronized music expand beyond traditional film and video to Web sites and
digital devices such as television set top boxes, cell phones and personal
digital assistants, the opportunities for integrating audio content into these
applications increase. Furthermore, although the music industry has focused
most of its attention on the Internet as a retail distribution medium, we
believe that the business to business aspects of the music industry are
currently better suited for distribution over the Internet. This distribution
raises fewer piracy concerns because it is easier to monitor the end use of the
audio content by professionals.
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The Web provides a substantial opportunity to improve the process of
commercial music distribution. By allowing aggregation of multiple sources of
music and sound content in one place and creating the ability to search across
those sources, audition the music in real time, license and digitally download
music and sound content, we believe the Web can accelerate business to business
music commerce. As a result, the Web has the potential to transform the current
process and make existing and new production music libraries accessible to a
much broader audience for integration into Web sites and other digital media.
Challenges Associated with Sonifying the Web
Ebusinesses, media companies and content providers need to create audio
enhanced rich media Web experiences that match the current capabilities of
traditional media and leverage the interactive capabilities of the Internet. To
address this growing need, Internet infrastructure audio solutions providers
must address several key challenges:
. Technology constraints. Technologies must address bandwidth and
delivery constraints associated with downloading large file sizes. Most
audio technologies for the Web such as streaming audio and digital
downloading are not designed to be embedded within the Hypertext Markup
Language, or HTML, code of a Web page to create an interactive
environment. In addition, current file formats are not designed to
leverage the interactive qualities of the Web. As a result, users can
only download and play, rather than hear, respond and manipulate, music
and sound content on the Web page.
. Content availability. Web developers and commercial and broadcast video
producers currently face a slow and inefficient buying process with
limited access in different server of content to obtain music and sound
to synchronize with their Web pages and other digital media
productions. In addition, most currently available audio content was
not designed to enable the level of interactivity needed for Web and
other interactive digital applications. Online solutions must allow
organized access to large amounts of content from various sources. In
addition, online solutions must reduce costs and transaction time in
the professional market for audio content, increase formatting
capabilities and address piracy concerns of music and sound content
providers.
. Creative community commitment. Although there is a developed base of
audio design talent and expertise to take full advantage of the
entertainment and commercial opportunities presented by traditional
media, the Internet, as a comparatively new medium, lacks a similar
community of knowledge, tools and expertise. New interactive audio
solutions must provide creative producers and consumers with new and
unique Web based applications and tools that proliferate the
sonification of the Web and foster a community to provide education and
collaboration opportunities to leverage the potential impact of high
quality interactive audio on the Internet.
The Beatnik Solution
Beatnik brings interactive music and sound to the Web through our
combination of technology, content and community. Through our Beatnik portal,
we aggregate a community of creative professionals, musicians and consumers and
provide them with content and software that enable them to build and interact
with music and sound over the Web and on their personal computers. We also
license our technology to companies who integrate our solution into interactive
applications and digital devices. Our solution provides the following benefits:
Leading Interactive Audio Enabling Technology
Our proprietary Rich Music Format, or RMF, and Beatnik Audio Engine
technology enable high quality music to be easily integrated into Web sites and
played in real time over an Internet connection without the need to download a
large music file. The Rich Music Format is designed to provide consistent music
quality across platforms through high quality, multitrack music with file sizes
that are small compared to download or
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streaming media files, limited to use only on a specific Web site, encrypted,
copyright protected and compatible with a wide variety of standard file
formats. In addition, because only small samples of music files, rather than
the entire music file, are downloaded from the Web page, piracy concerns are
further reduced. Downloadable through our Beatnik portal, our Beatnik Editor
and Converter applications enable musicians to create in and transform music to
the Rich Music Format.
Enhanced Web Site Interactivity
Through our technology, customers can build audio content into the HTML
code of a Web page to create an interactive soundtrack as the user moves the
cursor across the Web page. We believe this creates a more compelling user
experience and encourages users to frequent the Web site more often as well as
spend more time on the Web site, creating what is commonly known as stickness.
By increasing the frequency and duration of user visits, Web sites enhance
their opportunity to market to these potential customers and conduct ecommerce.
In addition, while the Web has traditionally relied on visual content to
promote brand awareness, our solutions allow our customers to integrate their
own audio branding into their Web sites.
Online Access to a Broad Range of High Quality Production Music and Sound
Content
We have recently launched our Beatnik Music site, which can be accessed
through our Beatnik portal, targeted at Web developers and video producers to
provide audio content and information. Our Beatnik Music site is designed to
enable creative professionals to browse, audition, license and download
professional music and sound content, through an intuitive interface, for
synchronization into Web pages, digital applications and video. We have
established relationships with music libraries such as FirstCom Music, Killer
Tracks, Network Music and Headspace, a library of our own RMF audio content, to
secure rights to a broad range of digital music content. We believe that this
ecommerce initiative is the first Web based solution aggregating a wide array
of production music and audio content targeted at serving the needs of the Web
developer and video producer community.
Community for Sonification
Through our Beatnik portal, we provide a forum for a Web-based community
where professionals can acquire the tools, content and information to sonify
Web sites and Web based programming. Through our Beatnik Leaders Program, we
work with Web site creators such as Agency.com, iXL, Organic Online and others
to teach them sonification skills and to incorporate our products in their
offerings. In addition, we have integrated our sonification tools into leading
rich media development software, including Adobe's GoLive, Macromedia's
Dreamweaver and Director and NetObject's Fusion, to enable interactive audio
features using our Rich Music Format integrated directly into a creative
professional's workflow. We also encourage the incorporation of sonification
skills into university curricula through our Education Leaders Program and have
worked with media, art and design schools such as the Arts College of Design in
Pasadena, California, the NYU Interactive Communications Program in New York
and the Ex'pression Digital Media School in Emeryville, California. We also
provide sonification services through our consulting organization.
Interactive Music Experience for Consumers
Our Beatnik portal is the aggregation point for a community of consumers,
where we offer the technology, content and applications to build and interact
with music and sound over the Web and on their personal computers. The Beatnik
Player, which incorporates the Beatnik Audio Engine, enables users to hear and
interact with music and sound on Web pages. Our GrooveGrams application enables
users to create on the Web their own mixes of their favorite artists' songs and
then forward these creations to others via email. Our EZ Sonifier templates
enable users to add music and sound to their personal Web sites. In addition,
our Mixman music creation software enables consumers to create, remix, process,
edit and publish music. To aid in the development of these applications, we
also have relationships with major record labels, which provide us access to
Top 40 and other popular music artists such as Lou Bega, David Bowie and Puff
Daddy. We believe
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that the reputation of our founder, Thomas Dolby Robertson, as a respected
music celebrity, facilitates our access to these major record labels.
The Beatnik Strategy
Our objective is to build on our platform of technology, content and
community to become the leading provider of interactive audio solutions that
sonify the Web, digital content and devices. We plan to drive creative
professionals, consumers and potential licensees of our technology to our
Beatnik portal where they will be exposed to all of our interactive audio
solutions. Initially, we plan to focus our efforts in three areas to establish
our Beatnik portal as the leading interactive audio platform:
. Beatnik Music site--Content for professional Web developers and other
media professionals
. Professional sonification--tools and information to sonify the Web and
other digital devices
. Consumer community--Interactive audio applications
By establishing our Beatnik portal as the ultimate source for interactive
audio technology, content, applications and information, we believe we can
create a Web destination that will meet the interactive audio needs of creative
professionals, music enthusiasts and hobbyists, while providing music
publishers and record companies with a new revenue source on the Internet. To
achieve this strategy, we intend to:
Establish Beatnik as the Interactive Audio Solution of Choice for Creative
Professionals
We plan to increase and encourage the broad adoption of sonification on the
Web and other digital devices through our Beatnik portal and programs that
enable Web developers to enhance their sites through the use of music and
sound. In addition, we plan to establish the Beatnik Music site as a
comprehensive source for audio content and sound for Web developers, video
producers and other media professionals. We intend to launch a major marketing
campaign to create awareness of and drive professionals to our Beatnik Music
site. As technology professionals experience our sonification solutions at
different Web sites, they will be directed to our Beatnik portal to acquire the
tools, content and information necessary to extend sonification beyond the Web
to other digital devices. In addition, we plan to expand our Beatnik Leaders
Program, which trains and supports Web site creators and others to teach
sonification skills and incorporate them into their offerings, and our
Education Leaders Program, which encourages the incorporation of sonification
skills into university curricula. Furthermore, we plan to continue to partner
with Web and media production companies similar to our current relationships
with Macromedia and Media 100, to comarket our solutions and drive users to the
Beatnik portal. In addition, we plan to expand our corporate services and
consulting organization to assist customers with the integration of interactive
audio into Web sites.
Target Top Web Sites
We plan to target the top, most highly trafficked Web sites especially
focusing on top music group and entertainment sites. Within these sites, we
plan to provide our interactive audio solutions incorporating the content that
is most in demand and most searched. For example, we plan to continue working
with MTV.com and its affiliated sites to provide our sonification solutions for
popular music groups throughout these sites, including Lucy Pearl and
Smashmouth. By integrating our sonification solutions into these popular and
frequently changing areas, we plan to extend our sonification solution and
become the standard interactive audio platform for the Web. In addition, we
plan to expose individuals who experience a Beatnik sonified Web site to other
Beatnik technology, content and applications by directing them to our Beatnik
portal. For example, consumers who experience our GrooveGrams application
anywhere on the Web will have opportunities to purchase our Mixman remixing
software and content, as well as access any of our other sonification products
and services located at our Beatnik portal or throughout the Web.
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Expand Strategic Relationships with Leading Music and Sound Content Providers
We plan to strengthen our strategic relationships with major record labels
and music libraries to increase both the quantity and quality of the music and
sound content we provide. We plan to achieve this in part by continuing to
leverage the reputation of our founder, Thomas Dolby Robertson. Through our
relationships with major record labels and professional music and sound content
providers, we believe that we can provide a wide range of high quality, popular
and professional music and sound content for developing new Web based
applications, and synchronization into Web sites, digital devices and video. We
also plan to expand Beatnik owned content through expansion of our Headspace
library.
Expand Adoption and Promote Brand Awareness of the Beatnik Interactive Audio
Platform
We plan to encourage the sonification of the Web through encouraging
downloads of the Beatnik Player and promotional offerings. We have established
strategic relationships with Web sites such as listen.com, MTV.com and its
affiliated sites, Shockwave.com and Yahoo! and intend to establish additional
relationships with music, entertainment, ecommerce and other highly trafficked
Web sites to offer compelling content to encourage downloads of our Beatnik
Player. We plan to further develop relationships with Web sites and content
providers outside of the United States to establish and extend our interactive
audio solution into new emerging foreign markets. We also intend to comarket
our Beatnik interactive audio platform both on the Web and through traditional
media channels. We plan to continue to expand Beatnik Player distribution into
a broad range of products and introduce new or enhanced interactive audio
solutions beyond the personal computers to television set top boxes, cell
phones, personal digital assistants and other digital devices.
Enhance and Expand Interactive Music Applications
We intend to enhance and expand our current platform of interactive audio
applications such as GrooveGrams, EZ Sonifier and our Mixman application.
Specifically, we intend to develop additional interactive applications and
provide the tools and content to applications developers to integrate our
technology and content with their products or develop their own interactive
audio applications. We plan to provide new and enhanced interactive audio
applications to consumers both through our Web site and through syndication to
music, entertainment, ecommerce and other highly trafficked Web sites.
Products and Services
Our interactive audio platform allows professionals and consumers to build
and experience music and sound interactivity through our applications, content
and technologies. Specifically, creative professionals can create interactive
music content and add interactive sound and music to Web pages, and consumers
can experience sonified Web sites, enabled by our Beatnik Audio Engine, and
take advantage of our products to create and interact with digital audio
content. Our platform includes professional applications, audio content and
services and consumer software products.
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Professional Applications and Content
The following table summarizes the sonification products we offer to
professionals, how we make these products available and the targeted end user
for these products:
<TABLE>
<CAPTION>
Product/Service Description Distribution End User
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beatnik Music site Ecommerce service to Downloadable from Web developers,
enable creative Beatnik portal multimedia developers
professionals to and video producers
access audio content
from leading music
libraries Web,
including FirstCom,
Network Music, Killer
Tracks and Headspace
- ---------------------------------------------------------------------------------------
Beatnik Leaders Training and support Direct sales Web developers, web
Program services for sites
implementing
interactive music and
sound into Web sites
- ---------------------------------------------------------------------------------------
Beatnik Productions Consulting service Direct sales Web sites
for sonifying Web
sites
- ---------------------------------------------------------------------------------------
Xtra for Director/ Software tools to Downloadable from Web designers
ActionSets enable Beatnik Beatnik portal
interactive audio
features; works with
Adobe's GoLive,
Macromedia
Dreamweaver and
Director and
NetObjects' Fusion
- ---------------------------------------------------------------------------------------
Beatnik Software to enable Downloadable from Musicians
Editor/Beatnik Beatnik musicians to Beatnik portal
Converter create music in
Beatnik's Rich Music
Format
</TABLE>
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Consumer Applications and Content
The following table summarizes the sonification products we offer to
consumers, how we make these products available and the targeted end user for
these products:
<TABLE>
<CAPTION>
Product/Service Description Distribution End-User
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Beatnik Player Software to enable Downloadable from Internet users
users to hear music Beatnik portal and
and sound on Web other Web sites
pages
- ----------------------------------------------------------------------------------
EZ Sonifier Software to enable Downloadable from Consumer Web site
consumers to bring Beatnik portal and developers
music and sound to partner sites
their Web site
- ----------------------------------------------------------------------------------
GrooveGrams Online application to Downloadable from Internet users
enable users to Beatnik portal and
create and email other music and
their own version of entertainment Web
an artist's song on sites
the Web
- ----------------------------------------------------------------------------------
Mixman Studio 3.0/ Software to enable Mixman Studio Consumers
Studio Pro 3.0 (PC consumers to create, downloadable from music hobbyists
and Mac) remix, process and Beatnik portal;
edit music and export Mixman Studio 3.0
it to a variety of or Mixman Studio
formats Pro 3.0 purchased
through retail
channels, online
and reseller
channels
- ----------------------------------------------------------------------------------
Mixman D*Plates Music samples D*Plates Consumers
and Soundiscs available on sample downloadable from music hobbyists
CDs and remixable Beatnik portal;
songs that can be Soundiscs and
used with Mixman D*Plates purchased
remixing software through retail
channels.
</TABLE>
Technology Licensing
We license our Beatnik Audio engine to original equipment manufacturers for
integration into their products. The Beatnik Audio Engine functions as a
synthesizer and mixer and can be incorporated into personal computers,
television set top boxes, cell phones and other digital devices to enable these
devices to play high quality music and sound. We license the Beatnik Audio
Engine to hardware and software manufacturers for integration into their
products. For example, the Beatnik Audio Engine technology is currently
incorporated into Sun Microsystem's Java Sound, a playback engine designed to
be an audio subsystem for the Web, WebTV set top boxes, the Netscape
Communicator 4.5 browser, the Be operating system and the Liberate set top box
operating system.
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Customers
We market and sell our products and services to both the creative
professional and the consumer who is a music hobbyist. In 1999, Nokia accounted
for 33.0%, and Sun Microsystems for 30.0%, of our total revenue, on a Beatnik
stand alone basis. The following is a representative list of our customers who
purchased more than $15,000 of Beatnik or Mixman products or services in 1999:
<TABLE>
<CAPTION>
Interactive Audio Software Resellers Technology Licensing
------------------------------------ --------------------
<S> <C>
ESS Be, Inc.
Sony Electronics Intel
Creative Labs Liberate
Intel Nokia
Sun Microsystems
</TABLE>
In addition, we sell consumer interactive audio software through
traditional retail channels, including CompUSA and Virgin Records. One of these
customers, Ingram Micro represented 36.8% of Mixman's total revenue for 1999 on
a stand alone basis.
Furthermore, we provide interactive audio services to major record labels.
We also license content from our currently launched Beatnik music site to
corporate marketing Web sites, Web site developers and broadcast video
producers.
The following customer case studies illustrate how our customers integrate
our technology and content into their products:
Nokia
In November 1999, we entered into a licensing agreement with Nokia, a
leading provider of mobile phones, pursuant to which Nokia will license and
integrate the Beatnik Audio Engine and Soundbank for use in a variety of mobile
devices. We believe this agreement will enable us to further our strategy of
promoting the adoption and brand awareness of Beatnik as a leading interactive
audio platform by integrating our interactive audio technology into a broad
range of digital devices.
Intel
In early 1999, Intel sonified its Pentium III processor Showcase Website
using Beatnik applications as well as featured content that utilized this
technology. In addition, Intel made the Beatnik Player available to owners of
Pentium III processor-based personal computers via the Intel Web Outfitter
Service Toolkit CD that is available to members of the Intel Web Outfitter
service. Intel also made the Radio Mixman application, Mixman Studio FX
software and promotional D*Plates available on the Intel Web Outfitter Service
Toolkit CD and Web site. We believe these programs help further brand awareness
of Beatnik as a leading interactive audio platform.
Zomba
In December 1999, we entered into an agreement with FirstCom Music, Inc., a
wholly owned subsidiary of Zomba Enterprises, Inc. pursuant to which FirstCom
Music will provide production music library content for both linear and Rich
Music Format for licensing from our Beatnik Music site. In addition, we have
entered into an agreement with Zomba Recording Corporation pursuant to which we
will develop, over a two year period, 20 GrooveGrams for artists represented by
Zomba, and place them on high traffic Web sites. To date, we have developed
GrooveGrams for music from artists such as Britney Spears and Weird Al Yankovic
which are available on the Yahoo! Web site.
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Strategic Relationships
We seek to expand and establish strategic relationships that provide us
with opportunities to expand market acceptance of our interactive audio
products and services. We intend to continue to develop strategic relationships
in the following areas:
Content Relationships
Through our relationships with leading music libraries, we seek to provide
creative producers of Web sites and traditional media access to compelling
content for use in their projects. To date, we have established relationships
with music libraries such as FirstCom Music, Killer Tracks and Network Music
who provide their professional music and sound content on our Web site in
exchange for royalty payments. We also have relationships with record labels
such as BMG, Sony Music and Zomba which provide us with Top 40 and other
popular music content.
Applications Partners
We intend to expand and establish relationships with software applications
providers to offer Web developers convenient access to Beatnik applications and
content from within their own software workflow environment, thus making it
easier for developers to sonify their sites. For example, we have established
relationships with Macromedia and NetObjects to incorporate our professional
sonification tools into their Web development software products. This enables
their customers to add high quality interactive music and sound to their Web
development projects. In addition, we have established a relationship with
Media 100 to enable their video production users to select, audition and
license music and sound from our Web site.
Community Partners
We seek to further expand relationships to promote the widespread adoption
of Web site sonification and the use of Beatnik applications and content to
achieve that sonification. Through the Beatnik Leaders Program, we seek to
train and support Web design firms such as iXL and Organic Online, and audio
production companies to implement interactive music and sound into customer Web
sites and, in the future, to provide a resale channel for Beatnik applications
and content. We have established relationships with music, entertainment,
ecommerce and other highly trafficked Web sites such as listen.com, MTV.com and
its affiliated sites, Shockwave.com and Yahoo! to promote downloads of the
Beatnik Player and provide access to our interactive audio applications and
content through applications such as GrooveGrams and MTV's online, interactive
jukebox.
The following case studies illustrate how our strategic partners enable us
to promote the rapid and widespread adoption of our interactive audio platform:
Yahoo!
In August 1999, we entered into an agreement with Yahoo!, a global Internet
media company, pursuant to which Yahoo! licenses Beatnik interactive audio
technologies and content. For example, visitors to a Yahoo! Web site can
download the Beatnik Player and listen to audio content provided by Beatnik,
including sound files which play when visitors roll over logos and other
graphic elements on the page. Through a promotion on certain Yahoo! properties,
visitors may also interact directly with their favorite songs through Beatnik's
GrooveGrams technology which also enables users to create and email their own
mixes of their favorite music. These promotional mixes are judged by some of
the participating artists. We believe this agreement further our strategy to
promote rapid and widespread adoption of our interactive audio platform through
relationships with high traffic Web sites.
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MTVN Online
In March 2000, we entered into an agreement with MTV.com, a top music and
entertainment Web site, pursuant to which MTV.com licenses both Beatnik
technologies and content to energize the web sites with interactive music of
MTV.com and it's affiliates, including but not limited to, vh1.com and
sonicnet.com. In the same way MTV's television offering built a following
through innovative new video music programming, the MTV sites plan to use
Beatnik's Web sonification applications to build a leading community of
musically active, loyal, and contributing members for the MTV sites. In our
first endeavor, MTV showcased a Beatnik GrooveGram featuring Lucy Pearl with a
finish the album contest where fans submit a remix online and the winner's
track is published on the band's debut album. In addition, Mixman products will
be purchased (software download) from the MTV sites. We believe that this
agreement will enable us to further our strategy of promoting interactive music
and sound as a critical component of developing online music communities where
users can interact with music and download Beatnik and Mixman technologies that
ultimately allows fans to remix and publish their own music.
Technology
Our core technology includes our Beatnik Audio Engine and our Rich Music
Format, or RMF. The Beatnik Audio Engine allows Web pages to have a soundtrack
consisting of audio and sound effects. In contrast to appearing in a separate
window, the Beatnik Audio Engine, through the Beatnik Player, allows the
embedding of sound files into the Web page design itself. Users merely interact
with the page as they normally would, and the Beatnik Audio Engine, through the
Beatnik Player provides a high quality, real time soundtrack as it responds to
a user's mouse movements by playing music and sound as the user navigates the
Web page.
Our proprietary Rich Music Format files are small, secure, multitrack
interactive audio files which give instructions to the Beatnik Audio Engine to
play music samples. The Rich Music File Format provides several advantages over
download and streaming technologies, including reduced bandwidth constraints,
interactive audio features, consistent audio quality across platforms and
enhanced security. Our Rich Music Format technology reduces bandwidth
constraints because rather than downloading an entire music file, only the
instructions and samples are downloaded. This enables high quality sound to
work within the capacity constraints of the current Web user by integrating the
instructions into the Web pages. The multitrack interactive features of the
Rich Music Format enables the user to hear and interact with high quality music
and sound content in real time. In addition, the Rich Music Format files are
encrypted and provide copyright protection, thereby reducing concerns relating
to piracy.
Our technology is supported by five patents in the general areas of
software and synthesis, streaming transmission of compressed music and the
synchronization and simultaneous playing of music.
Web Site Operations and Customer Support
Our Web site is designed for high availability. Our Web servers and
licensed music are hosted at the Exodus Communications Internet Data Center in
Santa Clara, California. The Internet Data Center provides the physical
environment to keep the servers running 24 hours a day, seven days per week.
The Internet Data Center provides facilities and services, including
temperature control systems, seismically braced racks and several security
measures. In addition, the Internet Data Center provides scalable, high speed
Internet access, network monitoring services and data backup services for all
of our servers. The Internet Data Center is designed to deliver the high levels
of reliability through redundant systems such as fiber optic communication
trunks from multiple sources, a redundant power system on the premises and
multiple backup generators.
Our Web site uses industry standard practices and name brand system
components. We have developed technology to allow our Beatnik Music site, which
we introduced during the first quarter of 2000, to be searchable by several
criteria, including category, genre, mood, tempo or key words. Sun Enterprises
servers hosting the Web site run the Solaris version of UNIX and have been load
balanced for performance as well as
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fault tolerance. Apache and Stronghold Web servers as well as Oracle 8i
database are the technologies used for the current Beatnik site.
We provide two tiers of customer support. Tier 1 support is provided to
respond to customer concerns regarding any aspect of our products and services.
Tier 2 support is provided for questions more technical in nature and advanced
problem solving. Our customer support is phone, email and Web based. We have
implemented the Action Request System by the Remedy Corporation to and in our
Tier 1 and Tier 2 support.
Research and Development
We devote a substantial portion of our resources to developing new
interactive audio products and services, enhancing our current products and
services, improving our core technology and strengthening our technological
expertise. Our research and development efforts are focused on the continued
development and enhancement of our interactive audio technology and
applications and on development of our Web site, including our Beatnik Music
site. During 1997, 1998 and 1999, our research and development expenses were
approximately $825,000, $1.1 million and $3.6 million. We intend to continue to
devote significant resources to research and development for the foreseeable
future. As of February 29, 2000, we had 31 employees in research and
development.
We are actively participating in the MIDI Manufacturer's Association to
promote the use of the RMF concept as a basis for a new industry standard audio
file type for interactive audio applications within Internet devices. We
believe this participation will facilitate the widespread integration of
interactive music and sound content into Web sites.
Sales, Distribution and Marketing
Sales and Distribution
We sell and distribute our products and services through the following
direct and indirect channels:
Online Distribution. We distribute our professional applications, software
and content through our Beatnik portal. In addition, we intend to expand the
downloadable distribution of Mixman software and content products.
Licensing and Retailer. We focus our licensing efforts on increasing the
number of devices that incorporate the Beatnik Audio Engine. Specifically, we
target manufacturers of personal computers, television set top boxes, cell
phones, personal digital assistants and other digital devices to incorporate
the Beatnik Audio Engine into their products for consumer use. We focus our
Mixman software reseller efforts on targeting personal computer, soundcard and
storage device manufacturers to integrate our Mixman technology for
distribution with their products.
Retail. We use traditional retail channels to market and sell our Mixman
software products. Specifically, we distribute our Mixman products and content
through distributors such as Ingram Micro and Navarre. We also rely on
international distributors in the United Kingdom, Germany and Japan.
Sales of Music Promotion Services and Sonification and Syndication
Services. Our music promotion sales force targets major recording companies to
obtain access to compelling content in exchange for promotional opportunities
for artists represented by these recording companies. In addition, we target
major advertising agencies, Web design firms and music, entertainment,
ecommerce and other highly trafficked Web sites to create music and sound on
Web sites. By educating and training customers to incorporate music and sound
into their Web sites, we enable them to in turn resell our interactive audio
applications and content to their clients.
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Marketing
Our marketing efforts are focused on the adoption and brand awareness of
Beatnik as the solution provider for interactive audio on the Web. To this end,
our marketing efforts will focus on developing co-marketing relationships,
online and product marketing and education. We also intend to undertake
traditional public relations and advertising campaigns such as radio and
television advertisements and continue to promote Beatnik products through in
store and concert venue CDs. We intend to provide access to the content on our
Web site in exchange for advertising and promotional opportunities. We also
plan to continue our online marketing campaigns through top Web sites such as
listen.com, MTV.com and its affiliated sites, Shockwave.com and Yahoo! These
campaigns will be conducted together with our partners, which include
distributors, resellers and customers.
Competition
We face competitive pressures from numerous actual and potential
competitors, including Apple Computers, Inc., MacroMedia, Microsoft Corporation
and RealNetworks, Inc., as well as large Internet portals who may acquire
competitive technologies, many of these companies have longer operating
histories, greater brand recognition, larger audiences, larger technical,
production and editorial staffs, a more established Internet presence and
significantly greater financial, technical and marketing resources than us.
Although we do not compete against any one entity with respect to all
aspects of our interactive audio platform, we do face competition from content
providers, audio engine companies and software companies. Specifically, we
compete with business to business music licensing portals to provide music and
sound content on the Web. We also compete with companies who provide audio
engines for digital applications. In addition, in the retail software market,
our Mixman line of software products competes with music creation software
products from companies such as Sonic Foundry, Inc., Magix Entertainment Corp.
and Cakewalk. We may not be able to compete successfully with these or new
emerging interactive audio solutions companies.
We believe that the principal competitive factors affecting our market are:
. product features;
. product performance;
. breadth and quality of audio content; and
. price.
We believe that our products currently compete favorably with respect to these
factors; however, our market is new and rapidly changing and we expect
competition to increase. We may not be able to compete successfully against
current or future competitors.
Intellectual Property
The status of United States patent protection in the Internet industry is
not well defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. We have five patents in the general areas of software and
synthesis, streaming transmission of compressed music and the synchronization
and simultaneous playing of music. We currently have one patent application
pending in the United States, and we may seek additional patents in the future.
We do not know if our patent application or any future patent application will
result in a patent being issued with the scope of the claims we seek, if at
all, or whether any patents we have or may receive will be challenged or
invalidated. It is difficult to monitor unauthorized use of technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States, and our competitors may
independently develop technology similar to ours. We will continue to assess
appropriate occasions for seeking patent and other intellectual property
protections for those aspects of our technology that we believe constitute
innovations providing significant competitive advantages. The pending and any
future applications may or may not result in the issuance of valid patents and
trademarks.
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<PAGE>
Our success depends in part upon our rights in proprietary software
technology, some of which is patented. We rely on a combination of copyright,
trade secret, trademark and contractual protection to establish and protect our
proprietary rights that are not protected by patent, and we enter into
confidentiality agreements with those of our employees and consultants involved
in product development. "Beatnik," "Headspace" and "Mixman" are our registered
trademarks, and D*Plates, Soundiscs and Radio Mixman are our common law
trademarks. We routinely require our employees, customers, and potential
business partners to enter into confidentiality and nondisclosure agreements
before we will disclose any sensitive aspects of our products, technology, or
business plans. In addition, we require employees to agree to surrender to
Beatnik any proprietary information, inventions or other intellectual property
they generate or come to possess while employed by us. Despite our efforts to
protect our proprietary rights through confidentiality and license agreements,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. These precautions may not prevent misappropriation or
infringement of our intellectual property.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because patent applications in the United States are not
publicly disclosed until the patent is issued, applications may have been filed
which relate to our software products. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties. Intellectual property litigation is expensive
and time consuming and could divert management's attention away from running
our business. This litigation could also require us to develop non infringing
technology or enter into royalty or license agreements. These royalty or
license agreements, if required, may not be available on acceptable terms, if
at all, in the event of a successful claim of infringement. Our failure or
inability to develop non infringing technology or license the proprietary
rights on a timely basis would harm our business.
Employees
As of February 29, 2000, we had 102 full time employees, including 43 in
sales and marketing, 31 in research and development and 14 in general and
administrative. None of our employees are covered by collective bargaining
agreements. We believe our relations with our employees are good.
Legal Proceedings
We are not a party to any material legal proceeding. We may be subject to
various claims and legal actions arising in the ordinary course of business.
Facilities
Our corporate headquarters are located in San Mateo, California, where we
occupy approximately 12,000 square feet under a lease expiring in December 2001
and 12,261 square feet under a lease expiring in June 2002. We believe our
facilities will be adequate to meet our requirements for at least the next 12
months.
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MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees and their ages as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Lorraine J. Hariton 45 President, Chief Executive Officer and Director
Thomas Dolby Robertson 41 Chief Beatnik and Director
Patrizia M. Owen 41 Chief Financial Officer
Eric C. Almgren 34 Senior Vice President of Sales and Label Relations and Director
John Jeffrey Martin 34 Senior Vice President of Marketing and Business Development
Joshua G. Gabriel 32 Vice President, Consumer and Online Applications
Susan M. Marsch 43 Vice President, General Counsel and Secretary
M. Richard Asher(1) 67 Director
Allen L. Morgan(1) 46 Director
Joseph Rizzi(1) 57 Director
Brian Roberts(2) 36 Director
A. Thampy Thomas(2) 53 Director
</TABLE>
- --------
(1)Member of compensation committee.
(2)Member of audit committee.
Lorraine J. Hariton has served as the President and Chief Executive Officer
and as a director of Beatnik since January 1999. From September 1993 to January
1999, Ms. Hariton served as Vice President and Senior Vice President for
Network Computing Devices, Inc., a network computer hardware and software
company. Prior to joining Network Computing Devices, Ms. Hariton spent 15 years
in sales and marketing at IBM and Rolm. Ms. Hariton holds a B.S. in
Mathematical Sciences from Stanford University and an M.B.A. from Harvard
University.
Thomas Dolby Robertson, our founder, has served as Chief Beatnik since
January 1999 and as a director of Beatnik since he founded Beatnik in May 1996.
From May 1996 to January 1999, Mr. Robertson served as the President and Chief
Executive Officer of Beatnik. Prior to founding Beatnik, Mr. Robertson was, and
continues to be, an innovator in the area of computer music and software.
Patrizia M. Owen has served as the Chief Financial Officer of Beatnik since
September 1999. From August 1997 to August 1999, Ms. Owen served as the Vice
President of Finance and Corporate Development for Internet Profiles
Corporation, a Web analysis and research company. From November 1993 to August
1997, Ms. Owen served as the Vice President of Corporate Development for
Compression Labs, Inc., a video conferencing company. Ms. Owen holds an M.B.A.
from the University of British Columbia and an H.B.A. from the University of
Western Ontario.
Eric C. Almgren has served as Senior Vice President of Sales and Label
Relations and as a director of Beatnik since December 1999. From March 1995 to
December 1999, Mr. Almgren served as the President, Chief Executive Officer and
Chief Financial Officer of Mixman Technologies, Inc. Mr. Almgren was also a
founder of Silicon Image, Inc. Mr. Almgren holds a BSEE from the University of
California, Santa Barabara and an M.B.A. from the University of Texas, Austin.
John Jeffrey Martin has served as the Senior Vice President of Marketing
and Business Development of Beatnik since May 1999. From May 1993 to May 1999,
Mr. Martin served as Senior Director, Division of Publishing, Entertainment and
New Media at Apple Computers, Inc., a personal computing company.
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<PAGE>
Joshua G. Gabriel has served as Vice President, Consumer and Online
Applications, of Beatnik since December 1999. From January 1995 to December
1999, Mr. Gabriel served as Creative Officer of Mixman. From June 1993 to
December 1994, Mr. Gabriel worked on various major projects, including audio
production projects for Disney, Sega, Philips, Virgin Games and various record
companies. Mr. Gabriel holds a BFA, Production Sound/Music Composition, from
the California Institute of the Arts.
Susan M. Marsch has served as General Counsel and Secretary of Beatnik
since January 2000. From February 1998 to January 2000, Ms. Marsch served as
Vice President and Associate General Counsel of Trust Company of the West, an
investment management firm. From October 1993 to February 1998, Ms. Marsch was
an associate in the corporate department at the law firm of Latham & Watkins in
Los Angeles, California and specialized in corporate finance and mergers and
acquisitions. Ms. Marsch holds a B.B.A. and a J.D. degree from the University
of Michigan.
M. Richard Asher has served as a director of Beatnik since December 1999.
For the past five years, Mr. Asher has been self-employed as a consultant in
the areas of software, music and electronics. Prior to working as consultant,
Mr. Asher served as President and Chief Executive Officer of Polygram Records,
Inc., a record company. From 1994 to 1999, Mr. Asher served as a director of
Mixman Technologies, Inc. From 1984 to the present, Mr. Asher has been a
director of Electronic Arts Inc., a public company. Mr. Asher holds a B.A. from
Tufts University and a J.D. from Cornell University.
Allen L. Morgan has served as a director of Beatnik since May 1999. Since
January 1999, Mr. Morgan has been a general partner of the Mayfield Fund, a
venture capital firm. From May 1997 to December 1998, Mr. Morgan was a partner
at the law firm of Latham & Watkins. From November 1983 to May 1997, Mr. Morgan
was a partner at the law firm of Wilson, Sonsini, Goodrich & Rosati. Mr. Morgan
currently serves on the board of directors of Varsitybooks.com and
Foliotrade.com as well as several private companies. Mr. Morgan holds an O.B.
from Dartmouth College, a B.A. and an M.A. from Oxford University and a J.D.
from the University of Virginia.
Joseph Rizzi has served as a director of Beatnik since May 1996. Since
August 1986, Mr. Rizzi has served as a general partner of Matrix II and III, a
venture capital firm. Mr. Rizzi currently serves on the board of directors of
Micro Linear Corporation and Veritas Software Corp. as well as several private
companies. Mr. Rizzi holds a BSEE and MSEE from the University of New
Hampshire.
Brian Roberts has served as a director of Beatnik since January 1999. Since
October 1995, Mr. Roberts has served as the Senior Vice President of Finance
and Commercial Operations of Zomba Music Publishing. From February 1994 to
October 1995, Mr. Roberts served as the Vice President of Finance and Chief
Financial Officer for Zomba Music Publishing. Mr. Roberts holds a B.Sc. in
Business Administration and is a Certified Public Accountant in the State of
New York.
A. Thampy Thomas has served as a director of Beatnik since May 1996. Mr.
Thomas is a private venture capital investor. Mr. Thomas currently serves on
the board of directors of several private companies. Mr. Thomas holds a BSEE
from Birla Institute of Technology and Science and an MSEE and Ph.D. from
Stanford University.
There are no family relationships among any of our directors or executive
officers.
Board Committees
Our board of directors has a compensation committee and an audit committee.
Our compensation committee is responsible for, among other things,
determining salaries, incentives and other forms of compensation for directors
and executive officers of Beatnik and administering various incentive
compensation and benefit plans. Prior to December 1999, we did not have a
compensation committee.
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<PAGE>
Our board of directors established executive compensation levels for 1999. M.
Richard Asher, Allen L. Morgan and Joseph Rizzi are the current members of the
compensation committee. Lorraine Hariton, our Chief Executive Officer, will
participate in all discussions and decisions regarding salaries and incentive
compensation for all non-executive employees and consultants of Beatnik.
Our audit committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices.
Joseph Rizzi, Brian Roberts and A. Thampy Thomas are the current members of the
audit committee.
Director Compensation
Except for the grant of stock options, we do not currently compensate our
directors for their services as directors. Directors who are employees of
Beatnik are eligible to participate in our 2000 Stock Incentive Plan and our
2000 Employee Stock Purchase Plan. We also reimburse each member of our board
of directors for out-of-pocket expenses incurred in connection with attending
board meetings.
Executive Compensation
The following table provides summary information concerning compensation
earned by or paid to our chief executive officer and to our one other most
highly compensated executive officer whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities to Beatnik during
1999. These individuals are referred to as the "named executive officers."
Other than the salary and bonus described below, Beatnik did not pay any
executive officer named in the Summary Compensation Table any fringe benefits,
perquisites or other compensation in excess of 10% of that executive officer's
salary and bonus during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Name and Principal Position Annual Compensation Compensation Awards
--------------------------- ----------------------------------------
Security Underlying
Salary Bonus Options(#)
----------- ----------------------------
<S> <C> <C> <C>
Lorraine J. Hariton(1)................ $ 168,269 -- 2,400,344
President and Chief Executive Officer
Thomas Dolby Robertson................ $ 133,250 -- 440,000
Chief Beatnik
John Jeffrey Martin(2)................ $ 96,807 $ 7,500 800,000
Senior Vice President of Marketing
and Business Development
</TABLE>
- --------
(1)Ms. Hariton joined Beatnik as its President and Chief Executive Officer in
January 1999.
(2)Mr. Martin joined Beatnik in May 1999.
Option Grants in Last Fiscal Year
The percentage of total options granted is based on an aggregate of
6,831,436 options granted in 1999 (excluding 1,276,011 options assumed on the
acquisition of Mixman). The exercise price on the date of grant was equal to
the fair market value on the date of grant as determined by the board of
directors. Options have a maximum term of 10 years subject to earlier
termination for specified events related to cessation of employment. The 5% and
10%, assumed rates of appreciation are mandated by the rules of the Securities
and Exchange Commission and do not represent Beatnik's estimate or projection
of the future stock price.
The values reflected in the table may never be achieved. The dollar values
have been calculated by determining the difference between the fair market
value of the securities underlying the options at
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<PAGE>
December 31, 1999 and the exercise prices of the options. Solely for purposes
of determining the value of the options at December 31, 1999, we have assumed
that the fair market value of shares of common stock issuable upon exercise of
options was $ per share, the assumed initial public offering price, since
the common stock was not traded in an established market prior to the offering.
These stock options were granted under the 1997 Stock Plan and are
immediately exercisable. We have a right to repurchase at cost any shares which
have been exercised but remain unvested at the time of the officer's cessation
of employment. 1,333,344 of Ms. Hariton's options and 240,000 of Mr.
Robertson's options vest at a rate of 25% upon the first anniversary of the
officer's vesting start date and 1/48th per month thereafter. 1,333,344 of Ms.
Hariton's options provide for accelerated vesting upon a change of control.
1,067,000 of Ms. Hariton's options and 200,000 of Mr. Robertson's options vest
at a rate of 20% upon the first anniversary of the officer's vesting start date
and 1/60th per month thereafter.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term
---------------------------
Percentage of
Total Options Exercise
Granted to or Base
Options Employees in Price Expiration
Name Granted 1999(1) ($/Share) Date 5% 10%
---- --------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorraine J. Hariton..... 1,333,344 19.5% $.10 4/05/09
1,067,000 15.6 $.10 12/15/09
Thomas Dolby Robertson.. 240,000 3.5 $.10 4/6/09
200,000 2.9 $.10 12/15/09
John Jeffrey Martin..... 360,000 5.3 $.10 6/03/09
440,000 6.4 $.10 12/15/09
</TABLE>
Option Grants in Last Fiscal Year
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table assumes a per share fair market value equal to
$ , the mid-point of the initial public offering range.
<TABLE>
<CAPTION>
Number of Value of Unexercised In-
Shares Unexercised Options at the-Money Options at
Acquired on Value Fiscal Year-End Fiscal Year-End
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Lorraine J. Hariton(1).. 1,333,344 1,067,000 / --
Thomas Dolby
Robertson(1).......... -- -- 440,000 / --
John Jeffrey Martin..... -- -- 800,000 / --
</TABLE>
- --------
(1) Ms. Hariton, Mr. Robertson and Mr. Martin's option agreements allow for
early exercise subject to repurchase by Beatnik over the vesting period. A
portion of the shares acquired by Ms. Hariton, Mr. Robertson and Mr. Martin
upon exercise of their options remains subject to vesting.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are currently M. Richard Asher,
Allen L. Morgan and Joseph Rizzi. No interlocking relationship exists, or has
existed in the past, between the board of directors or compensation committee
and the board of directors or compensation committee of any other company.
1997 Stock Plan
Our 1997 Stock Plan was adopted by the board of directors in February 1997
and will be amended and restated effective upon completion of this offering.
Our 1997 Stock Plan provides for the grant of incentive stock options as
defined in Section 422 of the Internal Revenue Code to employees and the grant
of nonstatutory stock
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<PAGE>
options and stock purchase rights to employees, non-employee directors and
consultants. A total of 7,861,153 shares of common stock have been reserved for
issuance under our 1997 Stock Plan as of December 31, 1999.
Our compensation committee and our non-insider option committee administer
our 1997 Stock Plan. Our compensation committee consists of at least two
directors who are "non-employee directors," as defined in Rule 16b-3. The board
of directors may amend our 1997 Stock Plan as desired without further action by
Beatnik's stockholders except as required by applicable law. Our 1997 Stock
Plan will continue in effect until terminated by the board or for a term of 10
years from its amendment and restatement date, whichever is earlier.
The consideration for each award under our 1997 Stock Plan will be
established by the compensation committee, but in no event will the option
price for incentive stock options be less than 100% of the fair market value of
the stock on the date of grant. Awards will have such terms and be exercisable
in such manner and at such times as the compensation committee may determine.
However, each incentive stock option must expire within a period of not more
than 10 years from the date of grant.
Generally, options granted under the 1997 Stock Plan vest over four years,
and are nontransferable other than by will or the laws of descent and
distribution. In the event of specified changes in control of Beatnik, the
acquiring or successor corporation may assume or substitute for options
outstanding under the 1997 Stock Plan, or these options will terminate. Some
options granted to our executive officers provide for partial acceleration upon
a change in control of Beatnik. As of December 31, 1999,
. 3,131,788 shares of common stock have been issued upon the exercise of
options; and
. 438,800 shares were available for future awards.
Mixman 1995 Equity Incentive Plan
Upon the closing of our acquisition of Mixman on December 14, 1999, we
assumed outstanding options to purchase shares of common stock of Mixman that
became exercisable for 1,276,011 shares of Beatnik common stock subject to
vesting restrictions. As of December 31, 1999, options to purchase 1,276,011
shares of common stock were outstanding under the Mixman Stock Plan.
2000 Stock Incentive Plan
The 2000 Stock Incentive Plan was adopted by our board of directors on
March 10, 2000 and will be submitted for approval by our stockholders prior to
the completion of this offering. The 2000 Stock Incentive Plan will be
administered by our compensation committee. The 2000 Stock Incentive Plan
provides for the direct award or sale of shares of common stock and for the
grant of options to purchase shares of common stock. The 2000 Stock Incentive
Plan provides for the grant of incentive stock options as defined in Section
422 of the Internal Revenue Code and the grant of nonstatutory stock options
and stock purchase rights to employees, non-employee directors, advisors and
consultants.
shares of common stock have been authorized for issuance under the 2000
Stock Incentive Plan. However, in no event may one participant in the 2000
Stock Incentive Plan receive option grants or direct stock issuances for more
than shares in the aggregate in any one fiscal year. The number of
shares reserved for issuance under the 2000 Stock Incentive Plan will be
increased on the first day of each of our fiscal years from 2000 through 2009
by the lesser of:
. shares;
. 5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
The 2000 Stock Incentive Plan will have the following program features:
. Qualified employees will be eligible for the grant of incentive stock
options to purchase shares of common stock;
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. Qualified non-employee directors will be eligible to receive automatic
option grants, to be made at periodic intervals, to purchase shares of
common stock at an exercise price equal to 100% of the fair market
value of those shares on the date of grant;
. The compensation committee will determine the exercise price of options
or the purchase price of stock purchase rights, but in no event will
the option price for incentive stock options be less than 100% of the
fair market value of the stock on the date of grant;
. The exercise price or purchase price may, at the discretion of the
compensation committee, be paid in, among other things, cash, cash
equivalents, full-recourse promissory notes, past services or future
services.
The 2000 Stock Incentive Plan will include change in control provisions
that may result in the accelerated vesting of outstanding option grants and
stock issuances. The committee may grant options or stock purchase rights in
which all or some of the shares shall become vested in the event of a change in
control of the company. Change in control is defined under the 2000 Stock
Incentive Plan as:
. a change in the composition of the board of directors, as a result of
which fewer than one-half of the incumbent directors are directors who
either:
-- had been directors of the company 24 months prior to the change; or
-- were elected, or nominated for election, to the board with the
affirmative votes of at least a majority of the directors who had
been directors 24 months prior to the change and who were still in
office at the time of the election or nomination; or
. an acquisition or aggregation of securities by a person, as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, as a result of which the person becomes the beneficial owner
of twenty percent or more of the voting power of Beatnik's outstanding
securities.
The board of directors will be able to amend or modify the 2000 Stock
Incentive Plan at any time, subject to any required stockholder approval. The
2000 Stock Incentive Plan will terminate no later than .
2000 Employee Stock Purchase Plan
The board of directors adopted our 2000 Employee Stock Purchase Plan in
March 2000, to be effective upon completion of this offering. We will be
submitting it for approval by our stockholders prior to the completion of this
offering. A total of shares of common stock have been reserved for
issuance under our employee stock purchase plan. The number of shares reserved
for issuance under the 2000 Employee Stock Purchase Plan will be increased on
the first day of each of our fiscal years from 2000 through 2009 by the lesser
of:
. shares;
. 1% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, is administered by the board of
directors or by a committee appointed by the board. Employees (including
officers and employee directors of Beatnik but excluding 5% or greater
stockholders) are eligible to participate if they are customarily employed for
more than 20 hours per week and for at least five months in any calendar year.
Our 2000 Employee Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation.
The 2000 Employee Stock Purchase Plan will be implemented by a series of
overlapping offering periods of 24 months' duration, with new offering periods,
other than the first offering period, commencing on and
of each year. The board of directors will establish participation periods for
our 2000 Employee Stock Purchase Plan, none of which will exceed six months.
During each participation period,
51
<PAGE>
payroll deductions will accumulate, without interest. On the purchase dates set
by the board of directors for each participation period, accumulated payroll
deductions will be used to purchase common stock. The initial offering period
is expected to commence on the date of this offering and end on
, 200 . The initial purchase period is expected to begin
on the date of this offering and end on , 200 .
The purchase price will be equal to 85% of the fair market value per share
of common stock on either the first day of the participation period or on the
purchase date, whichever is less. Employees may withdraw their accumulated
payroll deductions at any time. Participation in our 2000 Employee Stock
Purchase Plan ends automatically on termination of employment with Beatnik.
Immediately prior to the effective time of a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 2000 Employee
Stock Purchase Plan is assumed by the surviving corporation or its parent
corporation pursuant to the plan of merger or consolidation.
401(k) Plan
In December 1999, we established a tax-qualified employee savings and
retirement plan for which Beatnik's employees will generally be eligible.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation and have the amount of such reduction contributed to the 401(k)
Plan. To date, Beatnik has made no matching contributions. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by Beatnik, if any, will be deductible by
Beatnik when made.
Employment Agreements and Change in Control Arrangements
We do not have formal employment agreements with any of our named executive
officers.
1,333,344 of the shares of common stock issued to Lorraine Hariton vest
over a period of time, which vesting is accelerated in the event of a change of
control of Beatnik. In addition, all of the options granted to Patrizia Owen
are subject to vesting which is accelerated upon a change of control of
Beatnik.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify its other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
We are entering into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
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<PAGE>
CERTAIN TRANSACTIONS
Since our inception, there has not been any transaction or series of
transactions to which we were or are a party in which the amount involved
exceeded or exceeds $60,000 and in which any director, executive officer,
holder of more than 5% of any class of our voting securities or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.
We sold 950,000 shares of Series A preferred stock in July and August 1996
at a price of $0.60 per share, 1,999,971 shares of Series A preferred stock in
March and April 1997 at a price of $0.60 per share and 760,000 shares of Series
A preferred stock in December 1997 and October 1998 at a price of $0.84 per
share. Between November 1998 and May 1999, we sold and issued 1,309,523 shares
of Series B preferred stock at a price of $0.84 per share. Between May 1999 and
September 1999, we sold and issued 9,439,991 shares of Series C preferred stock
at a price of $1.1647316 per share. In connection with our acquisition of
Mixman on December 14, 1999, we issued and sold 3,697,399 shares of Series D
preferred stock and 7,386,884 shares of common stock. In addition, in March
2000 we sold 6,750,951 shares of Series E preferred stock at a price of $5.00
per share. Upon completion of this offering, each share of Series A, Series B,
Series C, Series D and Series E preferred stock will convert into one share of
common stock.
Transactions with Management and Others
The following table summarizes purchases, valued in excess of $60,000, of
shares of our capital stock by our directors, executive officers and our 5%
stockholders:
<TABLE>
<CAPTION>
Shares
-------------------------------------------------------
Series Series
Common A Series B Series C D Series E
--------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Lorraine Hariton........ 1,333,344 -- -- -- -- --
Thomas Dolby Robertson.. 2,237,800 -- -- -- -- --
Eric C. Almgren......... 2,313,424 -- -- -- -- --
M. Richard Asher........ 135,613 -- -- -- 3,071 10,000
Joseph Rizzi (1)........ 300,000 319,750 47,619 95,987 -- 40,000
A. Thampy Thomas (2).... 300,000 319,751 47,619 95,987 -- 40,000
Allen L. Morgan......... -- -- -- -- -- 30,000
5% Stockholders:
Entities affiliated with
Mayfield (3).......... -- -- -- 4,807,973 -- 1,241,075
Entities affiliated with
Zomba (4)............. 1,476,191 -- 1,190,476 1,091,979 -- --
Entertainment Media
Ventures, LLC......... -- -- -- 1,931,775 -- 327,887
Joshua G. Gabriel....... 2,313,424 -- -- -- -- --
</TABLE>
- --------
(1) Includes shares held in trust for the benefit of Mr. Rizzi's family and
shares held by members of his family.
(2) Includes shares held in trust for the benefit of Mr. Thomas' children,
Suneil Thomas and Ahin Thomas.
(3) Allen L. Morgan, one of our directors, is a general partner with Mayfield
Fund, a venture capital firm, and its related entities.
(4) Common share number includes warrants to purchase 1,000,000 shares. Brian
Roberts, one of our directors, is the Senior Vice President of Finance and
Commercial Operations of Zomba Music Publishing which is affiliated with
Zomba.
These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financings. Ms. Hariton, Mr. Dolby, Mr. Thomas and Mr. Rizzi were
affiliates of Beatnik at the time they purchased the above securities.
Entertainment Media and the Mayfield entities became affiliates of Beatnik in
connection with the Series C preferred stock financing. Mr. Asher and Mr.
Almgren became affiliates of Beatnik at the time of our acquisition of Mixman.
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<PAGE>
Business Relationships
In December 1999, we entered into an agreement with FirstCom Music, a
wholly owned subsidiary of Zomba Enterprises, pursuant to which FirstCom Music
will provide production music content for both linear and Rich Music Format for
licensing from our Beatnik Music site. In addition, we have entered into an
agreement with Zomba Recording Corporation pursuant to which we will develop,
over a two year period, 20 GrooveGrams for artists represented by Zomba.
The agreements above were negotiated with the unaffiliated directors of
Beatnik and approved by the disinterested directors of the Registrant and
Beatnik believes that these agreements were on terms no less favorable to
Beatnik than would have been obtained from unaffiliated third parties.
Indebtedness of Management
It is our current policy that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested directors,
are on terms no less favorable to us than could be obtained from unaffiliated
parties and are reasonably expected to benefit us.
In July 1999, Beatnik loaned Lorraine Hariton, our Chief Executive Officer,
$100,000 pursuant to a five year promissory note bearing interest at the rate
of 5.74% (the applicable federal rate) per annum in connection with Ms.
Hariton's exercise of options. In January 2000, Beatnik loaned Lorraine
Hariton, the Chief Executive Officer of Beatnik, $106,700 pursuant to a five
year promissory note bearing interest at the rate of 6.11% (the applicable
federal rate) per annum in connection with Ms. Hariton's exercise of options.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of common stock as of December 31, 1999 and includes the 6,750,951 shares of
Series E preferred stock on March 10, 2000, and as adjusted to reflect the sale
of shares of common stock in this offering, by:
. each person or entity known to us to own beneficially more than 5% of
our common stock;
. each of the named executive officers;
. each of our directors; and
. all executive officers and directors as a group.
The following table assumes no exercise of the underwriters' over-allotment
option. Applicable percentage ownership is based on 40,472,738 shares of common
stock outstanding as of December 31, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon the closing of
this offering, and shares outstanding immediately after completion of this
offering.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite that
stockholder's name.
Unless otherwise indicated, the address for the following stockholders is
c/o Beatnik, Inc., 2600 El Camino Real, San Mateo, California 94403.
<TABLE>
<CAPTION>
Total Shares Percentage of Common Stock
Name and Address of Beneficial Beneficially ------------------------------
Owner Owned Before Offering After Offering
- ------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with Mayfield
Fund(1)......................... 6,049,048 15.0%
2800 Sand Hill Road
Suite 250
Menlo Park, CA 94025
Entities affiliated with
Zomba(2)........................ 3,758,646 9.1
138 W. 25th Street
8th Floor
New York, NY 10001
Joshua Gabriel.................... 2,313,424 5.7
Entertainment Media Ventures,
LLC............................. 2,259,662 5.6
828 Moraga Drive
2nd Floor
Los Angeles, CA 90049
Executive Officers and Directors:
Lorraine J. Hariton(3)............ 2,400,344 5.8
Thomas Dolby Robertson(4)......... 2,677,800 6.5
Eric C. Almgren................... 2,313,424 5.7
M. Richard Asher(5)............... 359,290 *
Allen L. Morgan(1)(6)............. 6,079,048 15.0
Joseph Rizzi(7)................... 803,356 1.9
Brian Roberts(2).................. 3,758,646 9.1
A. Thampy Thomas(8)............... 803,357 1.9
John Jeffrey Martin(9)............ 800,000 1.9
All directors and executive
officers as a group (11
persons)(10).................... 20,395,265 46.3%
</TABLE>
55
<PAGE>
- --------
* Less than 1%.
(1) Represents 5,513,846 shares of common stock held by Mayfield IX, 290,202
shares of common stock held by Mayfield Associates Fund IV and 245,000
shares held by Sound Trust. Mr. Morgan disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest in entities
affiliates with Mayfield.
(2) Represents 476,191 shares of common stock held by Zomba Enterprises Inc.,
2,282,455 shares of common stock held by Zomba Entertainment Holdings, B.V.
a warrant to purchase 500,000 shares of common stock held by Zomba
Recording Corporation and a warrant to purchase 500,000 shares of common
stock held by Zomba Enterprises, Inc. Mr. Roberts disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
entities affiliated with Zomba.
(3) Includes 2,067,000 shares of common stock subject to Beatnik's right of
repurchase.
(4) Includes 440,000 shares of common stock issuable under immediately
exercisable options, all of which are subject to Beatnik's right of
repurchase.
(5) Includes 108,897 shares of common stock issuable under immediately
exercisable options.
(6) Includes 30,000 shares of common stock, held by Mr. Morgan.
(7) Includes 399,070 shares of common stock held in trust for the benefit of
Mr. Rizzi's family and held by members of his family.
(8) Includes 105,987 shares of common stock held in trust for the benefit of
Mr. Thomas' children, Suneil Thomas and Ahin Thomas.
(9) Represents 800,000 shares of common stock issuable under immediately
exercisable options, all of which are subject to Beatnik's right of
repurchase.
(10) Includes 1,813,344 shares of common stock subject to Beatnik's right of
repurchase, 2,335,897 shares issuable under immediately exercisable
options, all of which are subject to Beatnik's right of repurchase and
1,000,000 shares issuable upon exercise of warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, and after giving effect to the conversion
of all outstanding preferred stock into common stock and our reincorporation
into the state of Delaware, our authorized capital stock will consist of
100,000,000 shares of common stock, $.0001 par value, and 5,000,000 shares of
preferred stock, $.0001 par value.
Common Stock
As of December 31, 1999, there were 40,472,738 shares of common stock
outstanding held by approximately 172 stockholders of record.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:
Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders, including the election
of directors, and will not have cumulative voting rights unless Beatnik is
subject to Section 2115 of the California Corporations Code.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
Preemptive rights, conversion and redemption. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Liquidation, dissolution and winding-up. Upon liquidation, dissolution or
winding-up of Beatnik, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation of any preferred stock.
Each outstanding share of common stock is, and all shares of common stock
to be outstanding upon completion of this offering will be, upon payment
therefore, duly and validly issued, fully paid and nonassessable.
Preferred Stock
The board of directors is authorized, without action by the stockholders,
to designate and issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the rights, preferences and privileges
of the shares of each series and any qualifications, limitations or
restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock.
The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes could have the effect
of delaying, deferring or preventing a change in control of Beatnik. We have no
current plans to issue any shares of preferred stock.
Warrants
In June 1999, we issued a warrant to purchase 25,530 shares of common stock
at an exercise price of $1.1647316 per share which expires upon the earlier of
June 30, 2002 or the consummation of a qualified
57
<PAGE>
public offering. In August 1999, we issued a warrant to purchase 333,888 shares
of our Series C preferred stock at an exercise price of $1.1647316 per share
which expires on August 20, 2001 or earlier upon breach of the recording and
promotions agreement. On December 1, 1999, we issued a warrant to purchase
50,000 shares of common stock at an exercise price of $6.00 per share which
expires on December 1, 2002 or upon a qualified public offering. On November
16, 1999, we issued a warrant to purchase 500,000 shares of common stock at an
exercise price of $2.00 per share which expires November 15, 2002. On December
31, 1999, we issued a warrant to purchase 500,000 shares of common stock at an
exercise price of $5.00 per share which expires December 31, 2002 or upon a
qualified public offering.
Registration Rights
Upon completion of this offering, the holders of 26,817,253 shares of
common stock issuable upon conversion of the Series A, B, C, D and E preferred
stock and upon the exercise of warrants have the right to cause us to register
these shares under the Securities Act as follows:
. Demand Registration Rights. At the earlier of March 10, 2004 or six
months after this offering, the holders of 50% of the common stock
issued upon conversion of Series A, B, C, D or E preferred stock may
request that we register their shares with respect to at least 30% of
their registrable securities.
. Piggyback Registration Rights. The holders of registrable securities
may request to have their shares registered anytime we file a
registration statement to register any of our securities for our own
account or for the account of others subject to a pro rata cutback to a
minimum of 10% of any offering other than our initial public offering.
. S-3 Registration Rights. The holders of at least thirty percent (30%)
of registrable securities have the right to request registrations on
Form S-3 if we are eligible to use Form S-3 and have not already
effected two such S-3 registrations within the past 12 months and if
the aggregate proceeds are at least $500,000.
Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration. See "Shares Eligible for Future Sale" and "Certain
Transactions." Beatnik will pay all registration expenses, other than
underwriting discounts and commissions in connection with any registration. The
registration rights terminate five years following completion of this offering,
or, with respect to each holder of registrable securities, when the holder can
sell all of the holder's shares in any 90-day period under Rule 144 under the
Securities Act.
Section 2115
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, some provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect some members of the board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:
. enables removal of directors with or without cause with majority
stockholder approval;
. places limitations on the distribution of dividends;
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<PAGE>
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to some exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
. prior to this date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (x) by persons who
are directors and also officers and (y) by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least 66-2/3% of the outstanding voting stock that is not owned by
the interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person who, together with affiliates and associates owns, or within three
years, did own beneficially 15% or more of the outstanding voting stock of the
corporation. Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the
interested stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
and
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
Certificate of Incorporation and Bylaws
Undesignated Preferred Stock. Under our certificate of incorporation, the
board of directors has the power to authorize the issuance of up to 5,000,000
shares of preferred stock and to determine the price, rights,
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<PAGE>
preferences, privileges and restrictions, including voting rights, of those
shares without further vote or action by the stockholders. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, may:
. delay, defer or prevent a change in control of Beatnik;
. discourage bids for the common stock at a premium over the market price
of our common stock;
. adversely affect the voting and other rights of the holders of our
common stock; and
. discourage acquisition proposals or tender offers for our shares and,
as a consequence, inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts.
Advance Notice Provisions. Our bylaws establish advance notice procedures
for stockholder proposals and nominations 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.
Special Meeting Requirements. Our bylaws provide that special meetings of
stockholders be called by the chairman of the board, the chief executive
officer or the board of directors.
Cumulative Voting. Both our certificate of incorporation and our bylaws do
not provide for cumulative voting in the election of directors.
The provisions described above may only be amended by approval of the
holders of at least 66 2/3% of the outstanding common stock and may have the
effect of deterring a hostile takeover or delaying a change in control or
management of Beatnik.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston EquiServe,
L.P.
Listing
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "BTNK."
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale.
Nevertheless, sales of substantial amounts of our common stock in the
public market after the restrictions lapse could cause the market price of our
common stock to decline.
When this offering is completed, we will have a total of shares
of common stock outstanding, assuming no exercise of outstanding options. The
shares offered by this prospectus will be freely tradable
unless they are purchased by our "affiliates," as defined in Rule 144 under the
Securities Act of 1933. The remaining shares are "restricted," which
means they were originally sold in offerings that were not subject to a
registration statement filed with the Securities and Exchange Commission. These
restricted shares may be resold only through registration under the Securities
Act of 1933 or under an available exemption from registration, such as provided
through Rule 144.
Lock-up Agreements
The holders of shares of common stock have agreed to a 180 day
"lockup" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180 day lockup period, these shares may be sold in accordance with
Rule 144.
Rule 144
In general, under Rule 144, a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any holder who is not an affiliate, is
entitled to sell within any three month period a number of our shares of common
stock that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will equal
approximately shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and the availability of current public information about us. Under
Rule 144 and subject to volume limitations, of the restricted shares
will be eligible for sale beginning 180 days after the date of the final
prospectus, and the remaining restricted shares will become salable at various
times thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract may be entitled
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<PAGE>
to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that nonaffiliates
may sell such shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait 90 days after the
date of this prospectus before selling such shares. However, all shares issued
by us pursuant to Rule 701 are subject to lockup provisions and will only
become eligible for sale upon the expiration of 180 days after the date of this
prospectus.
Registration
Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act covering shares of common stock subject to
outstanding options or issued or issuable under our Mixman 1995 Equity
Incentive 1997 Plan, Stock Option Plan, 2000 Stock Incentive Plan and our 2000
Employee Stock Purchase Plan. Based on the number of shares subject to
outstanding options at December 31, 1999, and currently reserved for issuance
under these plans, this registration statement would cover approximately
shares.
This registration statement will automatically become effective upon
filing. Accordingly, shares registered under this registration statement will,
subject to Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the expiration of the
180 day lockup agreements. In addition, holders of 26,227,645 shares of common
stock, including shares issuable upon exercise of outstanding warrants, will be
entitled to registration rights. See "Description of Capital Stock--
Registration Rights."
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp. and U.S. Bancorp
Piper Jaffray Inc. have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
FleetBoston Robertson Stephens Inc...................................
CIBC World Markets Corp. ............................................
U.S. Bancorp Piper Jaffray Inc.......................................
-----
Total..............................................................
=====
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters as stated herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
offered hereby will be determined through negotiations between us and the
representatives. Among the factors considered in such negotiations will be
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, our present state of
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-allotment Option
We have granted to the underwriters an option, exercisable during the 30-
day period after the date of this prospectus, to purchase up to
additional shares of common stock at the same price per share as we will
receive for the shares that the underwriters have agreed to
purchase. To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of these additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered hereby. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, pursuant to the option,
to sell shares to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of the shares of common stock offered hereby. If this option is exercised
in full, the total public offering price, underwriting discounts and
commissions and proceeds to us will be $ , $ and
$ , respectively.
63
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over Over
Share Allotment Allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us................................................
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $ .
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements
Each of our officers, directors and stockholders has agreed, for a period
of 180 days after the date of this prospectus, that, subject to exceptions,
they will not offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter
acquire the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens
Inc. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to the lock-up agreements. Other than an
agreement releasing from the lock-up period the shares acquired by non-
affiliate employees of Beatnik in our directed share program, there are no
agreements between the representatives and any of our stockholders providing
consent by the representatives to the sale of shares prior to the expiration of
the lock-up period.
In addition, we have agreed that until 180 days after the date of this
prospectus, we will not, without the prior written consent of FleetBoston
Robertson Stephens Inc., subject to certain exceptions, consent to the
disposition of any shares held by stockholders prior to the expiration of the
lock-up period or issue, sell, contract to sell or otherwise dispose of any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than (1) the sale of shares in
this offering, (2) the issuance of common stock upon the exercise of
outstanding warrants and options, and (3) the issuance of options under
existing stock option and incentive plans. See "Shares Eligible for Future
Sale."
Listing
We have applied for quotation on the Nasdaq National Market under the
symbol "BTNK."
Stabilization
The representatives have advised us that, pursuant to Regulation M under
the Securities Act, certain persons participating in this offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of
the underwriters to reduce a short position incurred by
64
<PAGE>
the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised us that these
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Directed Share Program
At our request, the underwriters have reserved up to 5% shares of common
stock to be issued by us and offered hereby for sale, at the initial public
offering price, to directors, officers, employees, business associates and
related persons of Beatnik. The number of shares of common stock available for
sale to the general public will be reduced to the extent such individuals
purchase such reserved shares. Any reserved shares that are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered hereby.
Share Purchases
On March 10, 2000, individuals affiliated with FleetBoston Robertson
Stephens, one of the representatives, purchased 23,800 shares of Series E
preferred stock at a price of $5.00 per share, for an aggregate purchase price
of $119,000.
65
<PAGE>
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for Beatnik by Pillsbury
Madison & Sutro LLP, Palo Alto, California. Certain partners of Pillsbury
Madison & Sutro LLP and an investment partnership comprised of partners and
former partners of that firm beneficially own an aggregate of 139,982 shares of
Beatnik common stock. Legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP.
EXPERTS
The consolidated financial statements of Beatnik, Inc. as of December 31,
1998 and December 31, 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Mixman Technologies, Inc. as of December 31,
1997 and December 31, 1998 and for each of the two years in the period ended
December 31, 1998 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For
further information with respect to Beatnik and the common stock offered by
this prospectus, we refer you to the registration statement and the exhibits
and schedules filed as part of the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the Web site of the SEC referred to
above.
66
<PAGE>
BEATNIK, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Beatnik, Inc.
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Mixman Technologies, Inc.
Report of Independent Accountants.......................................... F-21
Balance Sheets............................................................. F-22
Statements of Operations................................................... F-23
Statements of Shareholders' Deficit........................................ F-24
Statements of Cash Flows................................................... F-25
Notes to Financial Statements.............................................. F-26
Unaudited Pro Forma Combined Financial Information......................... F-36
Pro Forma Combined Statement of Operations (unaudited)..................... F-37
Notes to Unaudited Pro Forma Combined Financial Information................ F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Beatnik, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Beatnik, Inc. at December 31, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audits
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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 13, 2000
F-2
<PAGE>
BEATNIK, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31,
----------------- ------------
1998 1999 1999
------- -------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 812 $ 6,191 $ 6,191
Accounts receivable, net..................... -- 582 582
Prepaid expenses and other assets............ 106 1,300 1,300
Inventory.................................... -- 95 95
------- -------- --------
Total current assets...................... 918 8,168 8,168
Property and equipment, net.................... 43 877 877
Intangible assets, net......................... 175 27,741 27,741
------- -------- --------
Total assets.............................. $ 1,136 $ 36,786 $ 36,786
======= ======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 69 $ 776 $ 776
Amounts owed to related parties.............. 192 4 4
Accrued expenses and other payables.......... 22 1,349 1,349
Short-term borrowings........................ -- 21 21
Capital lease obligations.................... -- 109 109
Deferred revenue............................. 539 875 875
Deferred tax................................. -- 527 527
------- -------- --------
Total current liabilities................. 822 3,661 3,661
Capital lease obligations, long term........... -- 222 222
Deferred tax, long-term........................ -- 1,033 1,033
------- -------- --------
Total liabilities......................... 822 4,916 4,916
------- -------- --------
Commitments and contingencies (Note 10)
Convertible preferred stock.................... 3,390 22,221 --
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value, 18,000 and
41,000 shares authorized at December 31,
1998 and 1999 and 5,169 and 15,565 shares
issued and outstanding at December 31,
1998 and 1999, respectively................ 5 16 34
Additional paid-in capital................... 731 33,753 55,956
Notes receivable from stockholders........... (12) (191) (191)
Deferred stock-based compensation............ -- (9,656) (9,656)
Accumulated deficit.......................... (3,800) (14,273) (14,273)
------- -------- --------
Total stockholders' equity (deficit)...... (3,076) 9,649 31,870
------- -------- --------
Total liabilities, convertible preferred
stock and stockholders' equity
(deficit)............................... $ 1,136 $ 36,786 $ 36,786
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BEATNIK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
Sonification.................................... $ 194 $ 675 $ 1,239
Interactive audio software...................... -- -- 253
------- ------- --------
Total revenues............................... 194 675 1,492
------- ------- --------
Cost of revenues:
Sonification.................................... 296 294 980
Interactive audio software...................... -- -- 56
------- ------- --------
Total cost of revenues....................... 296 294 1,036
------- ------- --------
Gross profit (loss)............................... (102) 381 456
------- ------- --------
Operating expenses:
Research and development........................ 825 1,125 3,625
Sales and marketing............................. 211 199 1,969
General and administrative...................... 487 617 1,939
Amortization of purchased goodwill and other
intangibles................................... -- -- 364
Amortization of deferred stock-based
compensation.................................. -- -- 2,972
In-process research and development............. -- -- 241
------- ------- --------
Total operating expenses..................... 1,523 1,941 11,110
------- ------- --------
Loss from operations.............................. (1,625) (1,560) (10,654)
------- ------- --------
Other income and expense:
Interest income................................. 19 8 183
Interest expense................................ (10) (73) (13)
Other income.................................... 89 29 11
------- ------- --------
Total other income and expense............... 98 (36) 181
------- ------- --------
Net loss.......................................... $(1,527) $(1,596) $(10,473)
======= ======= ========
Basic and diluted net loss per share.............. $ (0.35) $ (0.35) $ (1.60)
======= ======= ========
Shares used in computing basic and diluted net
loss per share.................................. 4,339 4,579 6,566
======= ======= ========
Pro forma basic and diluted net loss per share
(Note 2)........................................ $ (0.65)
========
Shares used in computing pro forma basic and
diluted net loss per share...................... 16,194
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BEATNIK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Three Years Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Total
Common Stock Additional Deferred Stockholders'
-------------- Paid-In Notes from Stock-Based Accumulated Equity
Shares Amount Capital Stockholders Compensation Deficit (Deficit)
------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... 4,276 $ 4 $ 76 $ (9) $ -- $ (677) $ (606)
Issuance of common stock.. 60 -- 4 -- -- -- 4
Repurchase of common
stock................... (183) -- (11) -- -- -- (11)
Issuance of common stock
for note................ 160 -- 10 (10) -- -- --
Collection of stockholder
note receivable......... -- -- -- 4 -- -- 4
Net loss.................. -- -- -- -- -- (1,527) (1,527)
------ --- ------- ----- ------- -------- -------
Balance at December 31,
1997..................... 4,313 4 79 (15) -- (2,204) (2,136)
Issuance of common stock.. 214 -- 13 -- -- -- 13
Repurchase of common
stock................... (81) -- (1) -- -- -- (1)
Issuance of common stock
for services............ 486 1 481 -- -- -- 482
Issuance of common stock
for deferral of note
interest................ 90 -- 60 -- -- -- 60
Issuance of common stock
for deferral of
salaries and consulting
fees.................... 147 -- 99 -- -- -- 99
Collection of stockholder
note receivable......... -- -- -- 3 -- -- 3
Net loss.................. -- -- -- -- -- (1,596) (1,596)
------ --- ------- ----- ------- -------- -------
Balance at December 31,
1998..................... 5,169 5 731 (12) -- (3,800) (3,076)
Issuance of common stock.. 424 1 45 -- -- -- 46
Exercise of stock
options................. 500 1 41 -- -- -- 42
Issuance of common stock
for notes receivable.... 1,623 2 161 (163) -- -- --
Issuance of common stock
for services............ 201 -- 65 -- -- -- 65
Issuance of common stock
for charitable
contribution............ 20 -- 64 -- -- -- 64
Issuance of warrants for
services................ -- -- 1,544 -- -- -- 1,544
Issuance of common stock
for conversion of notes
payable................. 240 -- 23 -- -- -- 23
Issuance of common stock
on acquisition of
Mixman.................. 7,388 7 18,451 -- -- -- 18,458
Note receivable assumed on
acquisition of Mixman... -- -- -- (22) -- -- (22)
Collection of stockholder
note receivable......... -- -- -- 10 -- -- 10
Deferred stock-based
compensation............ -- -- 12,628 -- (12,628) -- --
Amortization of unearned
stock-based compensation.. -- -- -- -- 2,972 -- 2,972
Interest receivable from
stockholders............ -- -- -- (4) -- -- (4)
Net loss.................. -- -- -- -- -- (10,473) (10,473)
------ --- ------- ----- ------- -------- -------
Balance at December 31,
1999..................... 15,565 $16 $33,753 $(191) $(9,656) $(14,273) $ 9,649
====== === ======= ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BEATNIK, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,527) $(1,596) $(10,473)
Adjustments to reconcile net loss to net cash used
in operating activities:
Preferred and common stock for salary, services
and other...................................... -- 765 1,079
Amortization of deferred stock-based
compensation................................... -- -- 2,972
Write off of in-process research and
development.................................... -- -- 241
Depreciation and amortization.................... 106 124 594
Gain on sale of short-term investment............ (64) -- --
Allowance for doubtful accounts.................. -- 40 98
Changes in assets and liabilities:
Accounts receivable............................. (89) 93 (539)
Prepaid expenses and other current assets....... (2) 182 (727)
Accounts payable................................ (100) 54 682
Deferred revenue................................ 569 (29) 166
Accrued liabilities............................. (11) (40) 924
------- ------- --------
Net cash used in operating activities......... (1,118) (407) (4,983)
Cash flows from investing activities:
Acquisition of property and equipment............. (39) (12) (724)
Acquisition of intangible assets.................. -- -- (74)
Sale of short-term investments.................... 65 -- --
------- ------- --------
Net cash provided by (used in) investing
activities.................................. 26 (12) (798)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred
stock, net of issuance cost..................... 1,704 582 10,919
Repurchase of common stock........................ (11) (1) --
Proceeds from sale of common stock and exercise of
stock options................................... 4 13 88
Repayment of notes receivable from stockholder.... 4 3 10
Payments on capital lease obligation.............. -- -- (13)
Proceeds from (repayment of) notes payable........ (120) 130 (64)
Cash acquired in business acquisition............. -- -- 220
------- ------- --------
Net cash provided by financing activities..... 1,581 727 11,160
------- ------- --------
Net increase in cash and cash equivalents.......... 489 308 5,379
Cash and cash equivalents at beginning of period... 15 504 812
------- ------- --------
Cash and cash equivalents at end of period......... $ 504 $ 812 $ 6,191
======= ======= ========
Supplemental disclosures of cash flows information:
Cash paid for interest............................ $ 10 $ 12 $ 13
Supplemental disclosures of non-cash investing and
financing activities:
Deferred stock-based compensation................. $ -- $ -- $ 12,628
Warrants issued in connection with services....... $ -- $ -- $ 1,544
Common stock purchased with notes receivable...... $ 10 $ -- $ 163
Common stock issued for conversion of notes
payable......................................... $ -- $ -- $ 23
Common stock issued for deferral of salaries and
fees............................................ $ -- $ 99 $ --
Common stock issued for services.................. $ -- $ 482 $ 65
Common stock issued for deferral of interest on
note............................................ $ -- $ 60 $ --
Preferred stock issued for conversion of notes
payable......................................... $ -- $ -- $ 99
Preferred stock issued for purchase of intangible
asset........................................... $ -- $ 126 $ --
Equipment leased under capital leases............. $ -- $ -- $ 354
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--The Company:
The Company
Beatnik, Inc. (the "Company") was incorporated in California on May 1,
1996. The Company provides interactive music and sound to the Web through a
combination of technology and content. This includes a line of software
technologies, applications and access to production music and content that
enables the integration of interactive audio content into the Web experience or
sonification. The Company develops, markets and sells interactive audio
software to creative professionals, potential licensees of Beatnik technology
and consumers enabling them to build, interact with music and sound over the
Web, on computers or other digital devices.
Note 2--Summary of Significant Accounting Policies:
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
Use of estimates
The preparation of consolidated financial statements in conformity with
general accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash, cash equivalents, accounts receivable and accounts payable
approximate fair value due to their short maturities. Based upon borrowing
rates currently available to the Company for leases with similar terms, the
carrying value of capital lease obligations approximates fair value.
Cash and cash equivalents
Cash and cash equivalents are stated at cost, which approximates fair
value. The Company includes in cash equivalents all highly liquid investments
which mature within three months of their purchase date. Cash equivalents
consist primarily of money market funds and certificates of deposit.
Inventory
Inventory includes music remix software and recorded music in CD format and
is stated at the lower of cost (first in first out method) or market.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed on the straight-line basis over the estimated useful lives of the
assets, generally three to five years.
Intangible assets
Intangible assets consist primarily of goodwill, customer listing, patents
and intellectual property, which are being amortized on a straight line basis
over three years.
F-7
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets. The Company will assess the impairment of long-lived assets when events
or changes in circumstances indicate that the carrying value of an asset may
not be recoverable.
Pro forma stockholders' equity
The pro forma stockholders' equity as of December 31, 1999 reflects the
automatic conversion of all outstanding shares of convertible preferred stock
into an aggregate of 18,157,000 shares of common stock. Each share of
convertible preferred stock automatically converts into shares of common stock
based on at the then effective conversion ratio upon the closing of a public
offering of common stock at a per share price of at least $4 per share with
gross proceeds of at least $10,000,000.
Segment information
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company operates in
one business segment, primarily in the United States.
Revenue recognition
Sonification
Sonification represents services and related licenses which allow Internet
web sites to provide integrated interactive audio content. Revenues from
sonification are recognized either as the services are performed, or upon
completion for services which are furnished within a short period of time
(generally less than 30 days). Where the Company provides maintenance service,
such revenues are recognized over the term of the maintenance agreement.
Interactive audio software
The Company's interactive audio software product was acquired with Mixman
Technologies, Inc. (see note 4). Revenues from sale of such software are
recognized upon shipment of the software product, except for consignment sales
which are recognized at the time payment is received. In the event the Company
grants customers the right to specific upgrades, license revenue is deferred
until delivery of the specific upgrade.
Research and development
Research and development expenditures are charged to expenses as incurred.
Advertising expense
Advertising costs are expensed as incurred. Such costs were $42,000, $6,000
and $47,000 for each of the years in the period ended December 31, 1999.
Stock options
The Company accounts for stock compensation arrangements with employees in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to
F-8
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, stock compensation
is based on the difference, if any, on the date of grant, between the estimated
fair value of the Company's common stock and the exercise price. The Company
accounts for stock issued to non-employees in accordance with the provision of
SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with, Selling Goods or Services."
Net loss per share
Basic and diluted net loss per share is computed by dividing the net loss
available to holders of Common Stock for the period by the weighted average
number of shares of common stock outstanding during the period. The calculation
of diluted net loss per share excludes potential shares of common stock if
their effect is antidilutive. Potential common stock consists of shares of
common stock issuable upon the exercise of stock options and warrants and
shares issuable upon conversion of the Series A, Series B, Series C, Series D1
and Series D2 convertible preferred stock.
The following tables sets forth potential shares of Common Stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the period indicated (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998 1999
----- ----- ------
<S> <C> <C> <C>
Series A Convertible Preferred Stock...................... 3,560 3,710 3,710
Series B Convertible Preferred Stock...................... -- 1,190 1,309
Series C Convertible Preferred Stock...................... -- -- 9,440
Series D1 Convertible Preferred Stock..................... -- -- 1,963
Series D2 Convertible Preferred Stock..................... -- -- 1,735
Convertible preferred stock warrants...................... -- -- 334
Common Stock warrants..................................... -- -- 1,075
Common Stock options...................................... 380 147 5,567
----- ----- ------
3,940 5,047 25,133
===== ===== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of shares of common stock
outstanding, including the pro forma effects of the automatic conversion of the
Company's Series A, B, C, D1 and D2 convertible preferred stock into shares of
the Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1999, or at the
date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute pro forma
basic net loss per share for the year ended December 31, 1999 of 9,628,000
shares. The calculation of pro forma diluted net loss per share excludes
potential shares of common stock as their effect would be antidilutive.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income, ("SFAS No. 130"). This statement requires companies to classify items
of other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. To date the Company has not had any
transactions that are required to be reported as items of other comprehensive
income.
F-9
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent accounting pronouncements
In June 1998, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS No. 133
during its year ending March 31, 2002. To date, the Company has not engaged in
derivative or hedging activities. The Company is currently reviewing the
impact, if any, of adopting SFAS No. 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or results of the operations of the Company.
Note 3--Business Risk and Concentration of Credit Risk
The Company operates in the Internet industry, which is rapidly evolving
and intensely competitive. The Company has a limited operating history and its
prospects are subject to risks and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to develop new or enhanced products
and services in a timely manner, or to provide new products and services that
achieve rapid and broad market acceptance.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts) and accounts receivable. The Company places
its cash, cash equivalents, and short-term investments with major financial
institutions, and such deposits exceed federally insured limits.
The Company does not require collateral, and maintains reserves for
potential credit losses on customer accounts when deemed necessary. For the
year ended December 31, 1998, Customer A accounted for 62% of all revenue
recorded by the Company. For the year ended December 31, 1999, Customer A
accounted for 30% and Customer B accounted for 33% of all revenue recorded by
the Company and Customer A accounted for 12%, Customer C accounted for 10% and
Customer D accounted for 17% of accounts receivable at December 31, 1999.
Note 4--Acquisition of Mixman Technologies Inc.
On December 14, 1999, the Company acquired all of the outstanding common
stock, preferred stock and common stock options of Mixman Technologies, Inc.
("Mixman") for a total purchase price of $26,385,000. Mixman was incorporated
in May 17, 1993. The Company licenses and sells the Mixman Studio line of
software products, which includes consumer and professional quality audio
mixing software applications and multi format sample CD ROM's. The acquisition
was accounted for as a purchase and the results of operations of Mixman have
been included in the financial statements from the date of acquisition.
F-10
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The allocation of the purchase price was based on the estimated fair values
of the net tangible and intangible assets acquired and liabilities assumed at
the date of the acquisition. The excess of the purchase price over the net
tangible and intangible assets acquired and liabilities assumed was allocated
to goodwill. The allocation of the purchase price was as follows (in
thousands):
<TABLE>
<S> <C>
Tangible assets..................................................... $ 430
Liabilities......................................................... (2,196)
Goodwill............................................................ 23,939
Patents and other intangibles....................................... 3,971
In-process research and development................................. 241
-------
$26,385
=======
</TABLE>
The amount allocated to the purchased in-process technology was determined
based on an appraisal completed by an independent third party using established
valuation techniques and was expensed upon acquisition, because technological
feasibility had not been established and no future alternative uses existed.
The product percentage of completion was estimated to be 75%. The value of this
in-process technology was determined by estimating the costs to develop the
purchased in-process technology into a commercially viable product, estimating
the resulting net cash flows from the sale of the product resulting from the
completion of the in-process technology and discounting the net cash flows back
to their present value. Research and development costs to bring in-process
product from Mixman to technological feasibility are not expected to have a
material impact on the Company's future results of operations or cash flows.
The following unaudited pro forma financial information reflects the
results of operations for the year ended December 31, 1999, as if the
acquisition of Mixman had occurred on January 1, 1999. The pro forma results
exclude the $241,000 nonrecurring write-off of in-process research and
development (in thousands).
<TABLE>
<S> <C>
Revenue.......................................................... $ 3,491
Net loss attributable to common stockholders..................... $(19,568)
Net loss per share attributable to common stockholders, basic and
diluted........................................................ $ (1.44)
</TABLE>
F-11
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Accounts receivable:
Accounts receivable-trade.................................... $ 40 $ 968
Allowance for doubtful accounts.............................. (40) (177)
Allowance for sales returns.................................. -- (209)
----- -------
$ -- $ 582
===== =======
Prepaid expenses and other assets:
Prepaid marketing and public relations services.............. $ 78 $ 885
Deposits..................................................... 1 203
Other........................................................ 27 212
----- -------
$ 106 $ 1,300
===== =======
Inventory:
Work in process.............................................. $ -- $ 65
Finished goods............................................... -- 30
----- -------
$ -- $ 95
===== =======
Property and equipment:
Computer equipment and software.............................. $ 111 $ 1,076
Furniture and fixtures....................................... 1 56
----- -------
112 1,132
Less: Accumulated depreciation............................... (69) (255)
----- -------
$ 43 $ 877
===== =======
</TABLE>
Property and equipment includes $354,000 of assets under capital leases at
December 31, 1999. Accumulated depreciation of assets under capital lease
totaled $21,000 at December 31, 1999. There were no assets under capital leases
during 1998.
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Intangible assets:
Goodwill and other purchased intangibles..................... $ -- $27,910
Intellectual property........................................ 237 278
Patents and other intangible assets.......................... 126 219
----- -------
363 28,407
Less: Accumulated amortization............................... (188) (666)
----- -------
$ 175 $27,741
===== =======
Accrued expenses and other payables:
Accrued compensation and benefits............................ $ 12 $ 505
Accrued royalty.............................................. -- 130
Other........................................................ 10 714
----- -------
$ 22 $ 1,349
===== =======
</TABLE>
F-12
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Convertible Preferred Stock:
Convertible preferred stock, $0.001 par value, consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares Issued and
Outstanding December 31, 1998 December 31, 1999
------------------------- -------------------- --------------------
Shares December 31, December 31, Net Liquidation Net Liquidation
Authorized 1998 1999 Proceeds Amount Proceeds Amount
---------- ------------ ------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A................ 3,710 3,710 3,710 $2,393 $2,226 $ 2,393 $ 2,226
Series B................ 1,309 1,190 1,309 997 1,000 1,096 1,100
Series C................ 10,500 -- 9,440 -- -- 10,919 10,998
Series D1............... 2,500 -- 1,963 -- -- 4,152 689
Series D2............... 2,225 -- 1,735 -- -- 3,661 1,527
------ ----- ------ ------ ------ ------- -------
20,244 4,900 18,157 $3,390 $3,226 $22,221 $16,540
====== ===== ====== ====== ====== ======= =======
</TABLE>
The holders of preferred stock have various rights and preferences as
follows:
Voting
Each share of convertible preferred stock has voting rights equal to the
equivalent number of shares of common stock into which it is convertible and
votes together as one class with the common stock.
As long as at least 20% of convertible preferred stock remains outstanding,
the Company must obtain approval from a majority of the holders of convertible
preferred stock in order to alter the Articles of Incorporation as related to
convertible preferred stock, authorize a dividend for any class or series other
than convertible preferred stock, create a new class of stock or effect a
merger, consolidation or sale of assets where the existing shareholders retain
less than 50% of the voting stock of the surviving entity.
Dividends
Holders of Series A, B, C, D1 and D2 convertible preferred stock are
entitled to receive noncumulative dividends at the per annum rate of $0.036,
$0.05, $0.07, $0.02 and $0.06 per share, when and if declared by the Board of
Directors. No dividends on convertible preferred stock or common stock have
been declared by the Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than 51%
of the resulting voting power of the surviving entity, the holders of Series A,
B, C, D1 and D2 convertible preferred stock are entitled to receive an amount
of $0.60, $0.84, $1.165, $0.35 and $0.88 per share, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of common stock. The remaining assets, if any, shall be distributed to
preferred and common stockholders in proportion to common stock equivalents
held. Should the Company's legally available assets be insufficient to satisfy
the liquidation preferences, the funds will be distributed ratably to the
convertible preferred stockholders.
Conversion
Each share of convertible preferred stock is convertible into shares of the
Company's common stock, at the option of the holder, according to a conversion
ratio, subject to adjustment for dilution. Each share of
F-13
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
convertible preferred stock automatically converts into the number of shares of
common stock into which such shares are convertible at the then effective
conversion ratio upon the closing of a public offering of common stock at a per
share price of at least $4 per share with gross proceeds of at least
$10,000,000.
At December 31, 1999, the Company reserved 3,710,000, 1,309,000,
10,500,000, 2,500,000 and 2,225,000 shares of common stock for the conversion
of Series A, B, C, D1 and D2 convertible preferred stock.
On August 20, 1999, in connection with promotional services provided by
Yahoo! Inc., the Company issued warrants to purchase an aggregate of 334,000
shares of Series C preferred stock at an exercise price of $1.165 per share.
The warrants expire on the earlier of August 20, 2001 or breach of the
recording and promotions agreement from the warrant holder or the Company. The
Company valued the warrants using the Black-Scholes model, applying an expected
life of two years, a weighted average risk-free rate of 5.65%, an expected
dividend yield of zero percent, an expected volatility of 70% and an estimated
fair value of common stock of $1.165. The estimated fair value of the warrants
of $160,000 is being amortized over the one year term of the agreement. In
addition, the agreement is automatically renewed at the end of the one year
term unless either party gives the other notice that it does not want to renew
the agreement. If the agreement is renewed, Yahoo! Inc. will receive an
additional warrant for shares equal to one percent of the Company's outstanding
capital stock exercisable at the then fair market value of the stock.
Note 7--Common Stock:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 41,000,000 shares of $0.001 par value common stock.
On June 30, 1999, in connection with a lease, the Company issued an
aggregate of 25,000 common stock warrants at an exercise price of $1.165 per
share. The warrants expire at the earlier of (a) the closing of an authorized
initial public offering or (b) June 30, 2002. The Company valued the warrants
using the Black-Scholes option pricing model, applying an expected life of
three years, a weighted average risk free rate of 5.62%, an expected dividend
yield of zero percent, a volatility of 70% and a deemed fair value of common
stock of $1.165 per share. The fair value of the warrants of $15,000 is being
amortized over the two year lease term.
On December 1, 1999, in connection with an addendum to the property lease,
the Company issued an aggregate of 50,000 common stock warrants at an exercise
price of $6.00 per share. The warrants expire at the earlier of (a) the closing
of an authorized initial public offering or (b) December 1, 2002. The Company
valued the warrants using the Black-Scholes option pricing model, applying an
expected life of three years, a weighted average risk free rate of 6.04%, an
expected dividend yield of zero percent, a volatility of 70% and a deemed fair
value of common stock of $2.85 per share. The fair value of the warrants of
$29,000 is being amortized over the two year lease term.
On November 16, 1999, in connection with a music licensing agreement, the
Company issued an aggregate of 500,000 common stock warrants to Zomba Recording
Corporation at an exercise price of $2.00 per share. The warrants expire on
November 15, 2002. The Company valued the warrants using the Black-Scholes
option pricing model, applying an expected life of three years, a weighted
average risk free rate of 5.78%, an expected dividend yield of zero percent, a
volatility of 70% and a deemed fair value of common stock of $2.44 per share.
The fair value of the warrants of $585,000 is being amortized over the two year
period of the agreement.
On December 31, 1999, in connection with a music licensing agreement, the
Company issued an aggregate of 500,000 common stock warrants to Zomba
Enterprises, Inc. at an exercise price of $5.00 per
F-14
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
share. The warrants expire at the earlier of (a) the closing of an authorized
initial public offering or (b) December 31, 2002. The Company valued the
warrants using the Black-Scholes option pricing model, applying an expected
life of three years, a weighted average risk free rate of 6.29%, an expected
dividend yield of zero percent, a volatility of 70% and a deemed fair value of
common stock of $3.61 per share. The fair value of the warrants of $755,000 has
been expensed in full in 1999.
The Company has reserved shares of common stock for the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
----- ------
<S> <C> <C>
Stock option plan............................................... 4,700 7,861
Common stock warrants........................................... -- 1,075
Convertible preferred stock..................................... 4,900 20,244
Convertible preferred stock warrants............................ -- 334
</TABLE>
Common stock issued to certain employees and stock issued under option
exercises are subject to repurchase. On December 31, 1999, 2,076,000 shares of
common stock were subject to such repurchase.
Note 8--Stock Option Plan:
Under the 1997 Stock Option Plan (the "Plan"), as amended, and the Mixman
plan assumed upon the acquisition of Mixman, the Company may grant stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISO's may be granted only to Company employees and directors.
The Company has reserved 7,861,000 shares of common stock for issuance under
the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 100% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Options generally vest over four years, but may be exercised at
any time. Shares issued pursuant to options exercised prior to vesting are
subject to repurchase during the original vesting period.
F-15
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Company's Plan from
inception through December 31, 1999 (including the Mixman Plan) (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Number of Number of Weighted
Shares Options Average
Available Issued and Exercise
for Grant Outstanding Price
--------- ----------- --------
<S> <C> <C> <C>
Balances, January 1, 1997................... -- -- $ --
Shares reserved............................. 700 -- --
Options granted............................. (622) 622 0.06
Options exercised........................... -- (226) 0.06
Options cancelled........................... 16 (16) 0.06
------ ------ -----
Balances, December 31, 1997................. 94 380 0.06
Shares reserved............................. 4,000 -- --
Options granted............................. (160) 160 0.06
Options exercised........................... -- (218) 0.06
Options cancelled........................... 175 (175) 0.06
------ ------ -----
Balances, December 31, 1998................. 4,109 147 0.06
Shares reduced.............................. (274) -- --
Shares reserved............................. 3,435 -- --
Options granted............................. (6,832) 6,832 0.10
Options assumed in connection with Mixman
acquisition............................... -- 1,276 0.09
Options exercised........................... -- (2,688) 0.10
------ ------ -----
Balances, December 31, 1999................. 438 5,567 $0.10
====== ====== =====
</TABLE>
The options outstanding and exercisable by exercise price at December 31,
1999 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------------------------------- ----------------------------
Weighted Average
Number Remaining Contractual Weighted Average Number Weighted Average
Exercise Price Outstanding Life (Years) Exercise Price Exercisable Exercise Price
-------------- ----------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.06 10 7.7 $0.06 10 $0.06
$ 0.09 1,276 8.7 $0.09 1,276 $0.09
$ 0.10 4,281 9.7 $0.10 4,281 $0.10
----- -----
5,567 5,567
===== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.3% 5.0% 5.62%
Expected life..................................... 4 years 4 years 4 years
</TABLE>
The weighted average per share fair value of common stock options granted
during 1997, 1998 and 1999 were $0.06, $0.06 and $1.85, respectively.
F-16
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the Plan
been determined based on the fair value at grant date for all awards consistent
with the provisions of SFAS No. 123, the impact on the Company's financial
statements would be as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported................................... $(1,527) $(1,596) $(10,473)
Pro forma..................................... $(1,527) $(1,596) $(10,524)
Basic and diluted net loss per share:
As reported................................... $ (0.35) $ (0.35) $ (1.60)
Pro forma..................................... $ (0.35) $ (0.35) $ (1.61)
</TABLE>
In connection with certain options granted to employees in 1999 the Company
has determined that the deemed fair market value of the underlying common stock
was in excess of the option exercise price at the date of grant. As a result,
during the year ended December 31, 1999, the Company recorded deferred stock-
based compensation of $11,846,000. This amount will be amortized over the
vesting period of the options. In addition, the Company granted options to
consultants which were valued using the Black-Scholes option pricing model with
the following assumptions: expected lives of one to four years; weighted
average risk-free rates between 4.61% and 6.29%; expected dividend yield of
zero percent; expected volatility of 70%. The value of such stock options of
$782,000 has also been recorded as deferred compensation and will be amortized
over the vesting period of the options.
The Company recognized a deferred stock-based compensation expense of
$2,972,000 for the year ended December 31, 1999 as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Cost of revenues................................................. $ 612
Research and development......................................... 988
Sales and marketing.............................................. 915
General and administrative....................................... 457
------
Total deferred stock-based compensation expense................ $2,972
======
</TABLE>
F-17
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9--Income Taxes:
At December 31, 1999, the Company had approximately $8,700,000 of federal
and $8,700,000 of state net operating loss carryforwards available to reduce
future taxable income which will begin to expire in 2012 for federal and 2002
for state tax purposes, respectively.
The Company's ability to utilize its net operation loss carryforwards to
offset future taxable income may be subject to limitations attributable to
equity transactions that result in changes in ownership as defined in the Tax
Reform Act of 1986. These restrictions may limit, on an annual basis, the
Company's future use of its net operating loss carryforwards.
Deferred taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Depreciation and amortization............................. $ 63 $ 101
Net operating loss carryforward........................... 1,251 3,704
Credits................................................... 120 188
Other..................................................... 19 278
Purchased intangibles..................................... -- (1,560)
Valuation allowance....................................... (1,453) (4,271)
------- -------
Deferred tax liability.................................... $ -- $(1,560)
======= =======
</TABLE>
The deferred tax assets valuation allowance at December 31, 1998 and 1999
is attributable to federal and state deferred tax assets. Management believes
that sufficient uncertainty exists with regard to the realizability of these
tax assets such that a full valuation allowance is necessary. These factors
include the lack of a significant history of consistent profits and the lack of
carryback capacity to realize these assets. Based on this absence of objective
evidence, management is unable to assert that it is more likely than not that
the Company will generate sufficient taxable income to realize the Company's
net deferred tax assets.
Reconciliation of the statutory federal income tax to the Company's
effective tax:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Tax at federal statutory rate............................ (34)% (34)%
State, net of federal benefit............................ (6)% (4)%
Cheap stock amortization................................. -- % 10 %
Change in valuation allowance............................ 40 % 27 %
Other -- 1 %
------ ------
Provision for taxes...................................... 0 % 0 %
====== ======
</TABLE>
F-18
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Commitments and Contingencies:
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2003. Net rent expense
for the three years ended December 31, 1999 was $56,000, $49,000 and $199,000,
respectively. Minimum rent commitments for noncancelable leases are as follows
(in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000...................................................... $ 134 $1,135
2001...................................................... 134 1,187
2002...................................................... 106 272
2003...................................................... -- 107
2004...................................................... -- --
----- ------
Total minimum lease payments............................ 374 $2,701
======
Less: Amount representing interest........................ (43)
-----
Present value of payments................................. 331
Less: Current portion..................................... (109)
-----
Long term portion of capital lease obligations............ $ 222
=====
</TABLE>
Contingencies
The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. The Company's management does not expect
that the ultimate costs to resolve these matters will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
Note 11--401(k) Plan:
In December 1999, the Company adopted the Beat Goes On 401(k) Plan (the
"401(k) Plan") covering all eligible employees. Contributions are limited to
20% of each employee's annual compensation on the statutory limits of Code
Sections 401(k), 402(g), 404 and 415. Contributions to the 401(k) Plan by the
Company are discretionary. The Company did not make any contributions for the
years ended December 31, 1997, 1998 and 1999.
Note 12--Related Party Transactions:
In 1998, at the request of the Company, two executive officers deferred a
portion of their salary during seven months of the year. In addition to payment
of the deferred amounts, the executive officers received a total of 37,800 and
42,000 shares of common stock, respectively. Also in 1998, two members of the
Board of Directors made bridge loans of $60,000 each to the Company. Each loan
was interest bearing and was subsequently settled in 1999 by a cash payment of
$10,000 plus interest due and conversion of the remaining debt to 48,000 shares
of Series B preferred and 100,000 shares of common stock.
Note 13--Subsequent Events:
On March 10, 2000, the Company authorized 7,000,000 shares and issued and
sold 6,751,000 shares of Series E convertible preferred stock to strategic
investors for gross cash proceeds of approximately $29,755,000 and $4,000,000
in services. The Series E convertible preferred stock will convert to common
stock on a one-to-one ratio upon completion of an initial public offering
subject to certain terms. Series E convertible preferred stock has rights and
privileges similar to those of Series A, B, C, D1 and D2.
F-19
<PAGE>
BEATNIK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with a promotions and marketing agreement with MTVN Online,
L.P. ("MTVN"), a subsidiary of MTV Inc., MTVN will provide advertising and
other promotional services in exchange for Beatnik sonification services, and
800,000 shares of Series E convertible preferred stock. Of those shares,
400,000 are subject ratably to forfeiture upon failure to attain certain
milestones over an 18 month period. The shares are released from forfeiture as
the milestones are met. The value of the services rendered by MTVN, initially
valued at $4,000,000, will be charged to marketing expense over the terms of
the agreement. This value will be adjusted based on the then fair value of the
stock at the time each milestone is reached.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Mixman Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Mixman Technologies, Inc. at
December 31, 1997 and 1998, and for each of the two years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 7, 2000
F-21
<PAGE>
MIXMAN TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1997 1998 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 692 $ 299 $ 241
Accounts receivable, net..................... 56 248 159
Prepaid expenses and other................... 16 19 27
Inventory.................................... 52 53 178
------- ------- -------
Total current assets...................... 816 619 605
Property and equipment, net.................... 24 30 26
------- ------- -------
Total assets.............................. $ 840 $ 649 $ 631
======= ======= =======
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable............................. $ 90 $ 77 $ 52
Royalty payable.............................. -- 25 --
Accrued expenses............................. 288 230 263
Short-term borrowings........................ -- 25 12
Deferred revenue............................. 98 110 194
------- ------- -------
Total current liabilities................. 476 467 521
Loan payable................................... 10 10 10
------- ------- -------
Total liabilities......................... 486 477 531
------- ------- -------
Commitments and contingencies (Note 9)
Convertible preferred stock.................... 2,237 2,237 2,237
------- ------- -------
Shareholders' deficit:
Common stock, no par value, 10,000 shares
authorized at December 31, 1997, 1998 and
September 30, 1999 (unaudited) and 2,013,
2,019 and 2,023 shares issued and
outstanding at December 31, 1997, 1998;
September 30, 1999 (unaudited),
respectively............................... 125 126 127
Additional paid-in capital................... -- -- 338
Deferred stock-based compensation............ -- -- (191)
Accumulated deficit.......................... (2,008) (2,192) (2,411)
------- ------- -------
Total shareholders' deficit............... (1,883) (2,066) (2,137)
------- ------- -------
Total liabilities, convertible preferred
stock and shareholders' deficit......... $ 840 $ 648 $ 631
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
MIXMAN TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Nine
Years Ended Months Ended
December 31, September 30,
-------------- --------------
1997 1998 1998 1999
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Revenues....................................... $ 452 $1,492 $1,054 $1,373
Cost of revenues............................... 68 205 101 183
------ ------ ------ ------
Gross profit.............................. 384 1,287 953 1,190
------ ------ ------ ------
Operating expenses:
Research and development..................... 412 487 371 407
Sales and marketing.......................... 556 653 456 571
General and administrative................... 370 353 240 289
Amortization of deferred stock-based
compensation............................... -- -- -- 147
------ ------ ------ ------
Total operating expenses.................. 1,338 1,493 1,067 1,414
------ ------ ------ ------
Loss from operations......................... (954) (206) (114) (224)
------ ------ ------ ------
Other income and expenses:
Interest income.............................. 11 20 16 7
Interest expense............................. (1) -- -- (1)
Other income (expense)....................... 8 2 (14) (1)
------ ------ ------ ------
Total other income and expense............ 18 22 2 5
------ ------ ------ ------
Net loss..................................... $ (936) $ (184) $ (112) $ (219)
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
MIXMAN TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the two years ended December 31, 1998 and the nine months ended
September 30, 1999 (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Deferred Total
------------- Paid-in Stock-based Accumulated Shareholders
Shares Amount Capital Compensation Deficit Deficit
------ ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 2,013 $125 $ -- $ -- $(1,072) $ (947)
Net loss.............. -- -- -- -- (936) (936)
----- ---- ---- ----- ------- -------
Balance at December 31,
1997.................. 2,013 125 -- -- (2,008) (1,883)
Issuance of common
stock............... 6 1 -- -- -- 1
Net loss.............. -- -- -- -- (184) (184)
----- ---- ---- ----- ------- -------
Balance at December 31,
1998.................. 2,019 126 -- -- (2,192) (2,066)
Issuance of common
stock (unaudited)... 4 1 -- -- -- 1
Deferred stock-based
compensation expense
in connection with
issuances of stock
options
(unaudited)......... -- -- 338 (338) -- --
Amortization of
deferred stock-based
compensation
(unaudited)......... -- -- -- 147 -- 147
Net loss (unaudited).. -- -- -- -- (219) (219)
----- ---- ---- ----- ------- -------
Balance at September 30,
1999 (unaudited)...... 2,023 $127 $338 $(191) $(2,411) $(2,137)
===== ==== ==== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
MIXMAN TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended For the Nine Months
December 31, Ended September 30,
------------- -------------------
1997 1998 1998 1999
------ ----- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (936) $(184) $ (112) $ (219)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred stock-based
compensation.......................... -- -- -- 147
Amortization and depreciation........... 69 19 15 17
Increase (decrease) in allowance for
doubtful accounts..................... 22 47 2 (40)
Allowance for inventory obsolescence.... -- -- -- 15
Changes in assets and liabilities:
Accounts receivable.................... (20) (239) (35) 129
Prepaid expenses....................... (2) (3) (17) (8)
Inventory.............................. (17) (1) (17) (140)
Accounts payable....................... 38 13 (16) (50)
Deferred revenue....................... (89) 11 (60) 84
Accrued expenses....................... 84 (58) (58) 33
------ ----- --------- ---------
Net cash used in operating
activities......................... (851) (395) (298) (32)
------ ----- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.... (10) (24) (19) (14)
------ ----- --------- ---------
Net cash used in investing
activities......................... (10) (24) (19) (14)
------ ----- --------- ---------
Cash flows from financing activities:
Proceeds from sale of preferred stock.... 1,010 -- -- --
Proceeds from sale of common stock....... -- 1 -- 1
Proceeds from (repayment of) bank
borrowings............................. -- 25 24 (13)
------ ----- --------- ---------
Net cash provided by (used in)
financing activities............... 1,010 26 24 (12)
------ ----- --------- ---------
Net increase (decrease) in cash and
cash equivalents................... 149 (393) (293) (58)
Cash and cash equivalents at beginning of
period.................................. 543 692 692 299
------ ----- --------- ---------
Cash and cash equivalents at end of
period.................................. $ 692 $ 299 $ 399 $ 241
====== ===== ========= =========
Supplemental disclosures of cash flows
information:
Cash paid for interest................... $ (1) $ (1) $ -- $ (1)
Supplemental disclosures of non-cash
investing and financing activities:
Deferred stock-based compensation........ $ -- $ -- $ -- $ 338
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)
Note 1--The Company:
The Company
Mixman Technologies, Inc. (the "Company") was incorporated on May 17, 1993
as a California corporation. The Company licenses and sells the Mixman studio
line of software products, which include professional quality audio-mixing
software applications and multiformat sample CD-ROMs.
Note 2--Summary of Significant Accounting Policies:
Use of estimates
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim financial statements (unaudited)
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 are unaudited and should be read in
conjunction with the Company's annual financial statements for the year ended
December 31, 1998. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations for the full year.
Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable,
approximate fair value due to their short maturities.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit accounts which, at times, may exceed federally insured
limits.
Inventory
Inventory includes music remix software and recorded music in CD format and
is stated at the lower of cost (first in first out method) or market.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed on the straight-line basis over the estimated useful lives of the
assets, generally over three to five years.
F-26
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
Impairment of long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets. The Company will assess the impairment of long-lived assets when events
or changes in circumstances indicate that the carrying value of an asset may
not be recoverable.
Segment information
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company operates in
one business segment, primarily in the United States and Europe.
Revenue recognition
The Company recognizes software sales upon shipment of the software
product, except for consignment sales which are recognized at the time payment
is received. In the event the Company grants customers the right to specific
upgrades, license revenue is deferred until delivery of the specific upgrade.
In cases where sales are made by third party original equipment manufacturers
("OEM"), revenue is recognized as sales are reported by the OEM or over the
term of the arrangement where the Company receives minimum upfront fees.
Research and development
Research and development expenditures are charged to expense as incurred.
Advertising expense
Advertising costs are expensed as incurred. Such amounts were $49,000,
$52,000 and $74,000 for each of the years ended December 31, 1998 and the nine
months ended September 30, 1999, respectively.
Stock options
The Company accounts for stock compensation arrangements in accordance with
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
stock compensation is based on the difference, if any, on the date of grant,
between the estimated fair value of the Company's common stock and the exercise
price. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No.
96-18, "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services."
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income, ("SFAS No. 130"). This statement requires companies to classify items
of other comprehensive income by
F-27
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
their nature in the financial statements and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. To
date the Company has not had any transactions that are required to be reported
as items of other comprehensive income.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS No. 133
during its year ending March 31, 2002. To date, the Company has not engaged in
derivative or hedging activities. The Company is currently reviewing the
impact, if any, of adopting SFAS No. 133.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or results of the operations of the Company.
Note 3--Business Risk and Concentration of Credit Risk
The Company operates in the Internet industry, which is rapidly evolving
and intensely competitive. The Company has a limited operating history and its
prospects are subject to risks and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to develop new or enhanced products
and services in a timely manner or to provide new products and services that
achieve rapid and broad market acceptance.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts) and accounts receivable. The Company places
its cash, cash equivalents, and short-term investments with major financial
institutions and such deposits exceed federally insured limits.
The Company does not require collateral, and maintains reserves for
potential credit losses on customer accounts when deemed necessary. For the
year ended December 31, 1997, Customer A accounted for 41% and Customer B
accounted for 14%, of all revenue recorded by the Company and Customer C
accounted for 32% and Customer D accounted for 22% of accounts receivable at
December 31, 1997. For the year ended December 31, 1998, Customer E accounted
for 28% and Customer F accounted for 20% of all revenue recorded by the Company
and Customer F accounted for 19%, Customer C accounted for 17% and Customer G
accounted for 16% of accounts receivable at December 31, 1998. For the period
ended September 30, 1999, Customer F accounted for 24% and Customer E accounted
for 9% of all revenue recorded by the Company and Customer H accounted for 28%,
Customer I accounted for 20% and Customer J accounted for 13% of accounts
receivable at September 30, 1999 (unaudited).
F-28
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
Note 4--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December
31, September 30,
---------- -------------
1997 1998 1999
---- ---- -------------
(unaudited)
<S> <C> <C> <C>
Accounts receivable:
Account receivable-trade......................... $ 78 $317 $189
Allowance for doubtful accounts.................. (22) (69) (30)
---- ---- ----
$ 56 $248 $159
==== ==== ====
Inventory:
Work in progress................................. $ -- $ 15 $118
Finished goods................................... 52 38 60
---- ---- ----
$ 52 $ 53 $178
==== ==== ====
Property and equipment:
Computer hardware................................ $ 42 $ 61 $ 75
Furniture and fixtures........................... 3 3 3
Computer software................................ 11 16 16
Audio equipment.................................. 2 2 2
---- ---- ----
58 82 96
Less: Accumulated depreciation................ (34) (52) (70)
---- ---- ----
$ 24 $ 30 $ 26
==== ==== ====
Accrued expenses:
Employee benefit and compensation accrual........ $218 $226 $234
Other accrued expenses........................... 70 4 29
---- ---- ----
$288 $230 $263
==== ==== ====
</TABLE>
F-29
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
Note 5--Convertible Preferred Stock:
Convertible preferred stock at December 31, 1997 and 1998 and September 30,
1999 consists of the following (in thousands):
<TABLE>
<CAPTION>
Shares Issued and Outstanding
---------------------------------------
Shares December 31, December 31, September 30,
Authorized 1997 1998 1999
---------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A................ 580 580 580 580
Series B................ 175 175 175 175
Series C................ 417 337 337 337
------ ------ ------ ------
1,172 1,092 1,092 1,092
====== ====== ====== ======
<CAPTION>
December 31, 1997 December 31, 1998 September 30, 1999
----------------------- -------------------------- --------------------
Net Liquidation Net Liquidation Net Liquidation
Proceeds Amount Proceeds Amount Proceeds Amount
---------- ------------ ------------ ------------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A................ $ 702 $ 702 $ 702 $ 702 $ 702 $ 702
Series B................ 525 525 525 525 525 525
Series C................ 1,010 1,010 1,010 1,010 1,010 1,010
------ ------ ------ ------ ------ ------
$2,237 $2,237 $2,237 $2,237 $2,237 $2,237
====== ====== ====== ====== ====== ======
</TABLE>
The holders of preferred stock have various rights and preferences as
follows:
Voting
Each share of convertible preferred stock has voting rights equal to an
equivalent number of shares of common stock into which it is convertible and
votes together as one class with the common stock.
As long as any of convertible preferred stock remain outstanding, the
Company must obtain approval from a majority of the holders of convertible
preferred stock in order to alter the Articles of Incorporation as related to
convertible preferred stock, authorize a dividend for any class or series other
than convertible preferred stock, create a new class of stock or effect a
merger, consolidation or sale of assets where the existing shareholders retain
less than 50% of the voting stock of the surviving entity.
Dividends
Holders of Series A, B and C convertible preferred stock are entitled to
receive noncumulative dividends at the per annum rate of $0.0847, $0.21 and
$0.21 per share, when and if declared by the Board of Directors. No dividends
on convertible preferred stock or common stock have been declared by the Board
from inception through December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible
F-30
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
preferred stock own less than 51% of the resulting voting power of the
surviving entity, the holders of Series A, B and C convertible preferred stock
are entitled to receive an amount per share equal to the Original Issue Price
plus, any declared but unpaid dividends prior to and in preference to any
distribution to the holders of common stock. The remaining assets, if any,
shall be distributed to preferred and common shareholders in proportion to
common stock equivalents held. Should the Company's legally available assets be
insufficient to satisfy the liquidation preferences, the funds will be
distributed ratably to the convertible preferred shareholders.
Conversion
Each share of convertible preferred stock is convertible into shares of the
Company's common stock, at the option of the holder, according to a conversion
ratio, subject to adjustment for dilution. Each share of convertible preferred
stock automatically converts into the number of shares of common stock into
which such shares are convertible at the then effective conversion ratio upon:
(1) the closing of a public offering of common stock at a per share price of at
least $9.00 per share with gross proceeds of at least $7,500,000 or (2) the
consent of 50% of convertible preferred stockholders.
At December 31, 1998, the Company reserved 580,000, 175,000 and 417,000
shares of common stock for the conversion of Series A, B and C convertible
preferred stock.
Note 6--Common Stock:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 10,000,000 shares of no par value common stock.
The Company has reserved shares of common stock for the following (in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Stock option plan................................. 325 525
Stock issued outside the plan..................... 62 62
Convertible preferred stock....................... 1,172 1,172
</TABLE>
Note 7--Stock Option Plan:
Under the 1995 Equity Incentive Plan (the "Plan") the Company may grant
stock options to employees and consultants of the Company. Options granted
under the Plan may be either incentive stock options or nonqualified stock
options. Incentive stock options ("ISO") may be granted only to Company
employees and directors. Nonqualified stock options ("NSO") may be granted to
Company employees and consultants. The Company has reserved 525,000 shares of
common stock for issuance under the Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 100% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively.
F-31
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
The following table summarizes activity under the Company's Plan from
inception through September 30, 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Number of Number of Weighted
Shares Options Average
Available Issued and Exercise
for Grant Outstanding Price
--------- ----------- --------
<S> <C> <C> <C>
Balances, January 1, 1997.................... 124 75 $0.25
Shares reserved............................ 125 -- --
Options granted............................ (184) 184 0.30
---- --- -----
Balances, December 31, 1997.................. 65 259 0.29
Options exercised.......................... -- (6) 0.27
Options cancelled.......................... 13 (12) 0.29
---- --- -----
Balances, December 31, 1998.................. 78 241 0.29
Shares reserved (unaudited)................ 200 -- --
Options granted (unaudited)................ (105) 104 0.30
Options exercised (unaudited).............. -- (4) 0.30
Options cancelled (unaudited).............. 29 (29) 0.29
---- --- -----
Balances, September 30, 1999 (unaudited)..... 202 312 $0.29
==== === =====
</TABLE>
The options outstanding and exercisable by exercise price at December 31,
1998 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.25 68 7.1 $0.25 54 $0.25
$0.30 173 8.7 $0.30 56 $0.30
--- ---
241 110
=== ===
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, September 30,
------------------ -------------
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Risk-free interest rate.................... 6.3% 5.0% 5.5%
Expected life.............................. 4 years 4 years 4 years
Expected dividends......................... $ -- $ -- $ --
</TABLE>
The weighted average per share fair value of common stock options granted
during 1997, 1998 and the nine months ended September 30, 1999 were $0.30,
$0.30 and $3.27, respectively.
F-32
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the Plan
been determined based on the fair value at grant date for all awards consistent
with the provisions of SFAS No. 123, the impact on the Company's financial
statements would be as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, September 30,
-------------- -------------
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Net loss:
As reported................................. $(936) $(184) $(219)
Pro forma................................... $(936) $(184) $(221)
</TABLE>
In connection with certain options granted to employees in 1999 the Company
has determined that the deemed fair market value of the underlying common stock
was in excess of the option exercise price at the date of grant. As a result,
during the nine months to September 30, 1999, the Company recorded deferred
stock-based compensation of $252,000. This amount will be amortized over the
vesting period of the options. In addition, the Company granted options to
consultants which were valued using the Black-Scholes option pricing model with
the following assumptions: expected lives of four years; weighted average risk-
free rates between 5.02% and 5.79%; expected dividend yield of zero percent;
expected volatility of 70%. The value of such stock options of $85,000 has also
been recorded as deferred stock-based compensation and will be amortized over
the vesting period of the options.
The Company recognized deferred compensation expense of $147,000 for the
nine months ended September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
For the
Nine Months
Ended
September 30,
1999
-------------
<S> <C>
Research and development........................................ $ 67
Sales and marketing............................................. 53
General and administration...................................... 27
----
Total deferred stock-based compensation expense............... $147
====
</TABLE>
Note 8--Income Taxes:
At of December 31, 1998, the Company had approximately $2,000,000 of
federal and $2,000,000 of state net operating loss carryforwards available to
reduce future taxable income which will begin to expire in 2012 for federal and
2002 for state tax purposes, respectively.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income may be subject to limitations attributable to
equity transactions that result in changes in ownership as defined in the Tax
Reform Act of 1986. These restrictions may limit, on an annual basis, the
Company's future use of its net operating loss carryforwards.
F-33
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
Deferred tax assets comprise the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Net operating loss carryforward............................. $ -- $ 2
Depreciation and amortization............................... 698 770
Reserves and accruals....................................... 45 38
------ ------
Gross deferred tax asset.................................... 743 810
Valuation allowance......................................... (743) (810)
------ ------
Net deferred tax assets................................... $ -- $ --
====== ======
</TABLE>
The deferred tax assets valuation allowance at December 31, 1997 and 1998
is attributable to federal and state deferred tax assets. Management believes
that sufficient uncertainty exists with regard to the realizability of these
tax assets such that a full valuation allowance is necessary. These factors
include the lack of a significant history of consistent profits and the lack of
carryback capacity to realize these assets. Based on this absence of objective
evidence, management is unable to assert that it is more likely than not that
the Company will generate sufficient taxable income to realize the Company's
net deferred tax assets.
Reconciliation of the statutory federal income tax to the Company's
effective tax:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Tax at federal statutory rate............................ (34%) (34%)
Change in valuation allowance............................ 34% 36%
Other.................................................... 0% (2%)
------ ------
Provision for taxes...................................... 0% 0%
====== ======
</TABLE>
Note 9--Commitments and Contingencies:
Leases
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 2003. Net rent expense for the two
years ended December 31, 1998 was $22,000 and $35,000, respectively (in
thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999.............................................................. $ 50
2000.............................................................. 135
2001.............................................................. 127
2002.............................................................. 79
2003.............................................................. 1
----
Total minimum lease payments.................................... $392
====
</TABLE>
F-34
<PAGE>
MIXMAN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the Nine Months Ended
September 30, 1998 and 1999 are Unaudited)--(Continued)
Contingencies
The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. The Company's management does not expect
that the ultimate costs to resolve these matters will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
Note 10--Subsequent Events:
On December 14, 1999, the Company was acquired by Beatnik, Inc. in a
purchase transaction, wherein all the outstanding common stock, options to
acquire common stock and preferred stock were acquired for a total purchase
price of $26,385,000.
F-35
<PAGE>
BEATNIK, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
In December 1999, the Company acquired Mixman Technologies, Inc. ("Mixman")
in a transaction accounted for as a purchase. Mixman specializes in audio-
mixing software applications and multiformat sample CD-ROMs. The purchase price
has been allocated to the tangible and intangible assets acquired on the basis
of their respective fair values on the acquisition date.
The total purchase price of approximately $26.4 million consisted of 3.7
million shares of Preferred Stock, 7.4 million shares of Common Stock, options
to purchase approximately 1.3 million shares of Common Stock and other
acquisition related expenses, consisting primarily of payments for legal and
other professional fees. Of the total purchase price, approximately $1,766,000
was allocated to net identifiable liabilities assumed, and the remainder was
allocated to goodwill and other intangible assets. The goodwill and other
intangible assets will be amortized over their estimated useful lives of three
years.
The unaudited pro forma combined statement of operations gives effect to
this acquisition as if it had occurred on January 1, 1999, by consolidating the
results of operations of Mixman for the period from January 1, 1999 to December
14, 1999 (date on which the purchase transaction took place) with the results
of operations of Beatnik, Inc. for the year ended December 31, 1999 (which
include two weeks of operating results of Mixman).
The unaudited pro forma combined statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the periods presented and
should not be construed as being representative of future operating results.
The historical financial statements of the Company and Mixman are included
elsewhere in this Prospectus and the unaudited pro forma combined financial
information presented herein should be read in conjunction with those financial
statements and related notes.
F-36
<PAGE>
BEATNIK, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------
Beatnik Mixman Adjustments Pro Forma
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sonification....................... $ 1,239 $ -- $ -- $ 1,239
Interactive audio software......... 253 1,999 -- 2,252
-------- ------ ------- --------
Total revenues.................. 1,492 1,999 -- 3,491
-------- ------ ------- --------
Cost of revenues:
Sonification....................... 980 -- -- 980
Interactive audio software......... 56 268 -- 324
-------- ------ ------- --------
Total cost of revenues.......... 1,036 268 -- 1,304
-------- ------ ------- --------
Gross profit.................... 456 1,731 -- 2,187
-------- ------ ------- --------
Operating expenses:
Research and development........... 3,625 839 -- 4,464
Sales and marketing................ 1,969 799 -- 2,768
General and administrative......... 1,939 486 -- 2,425
Amortization of purchased goodwill
and other intangibles............ 364 -- 8,947 (A) 9,311
Amortization of deferred stock-
based compensation............... 2,972 147 (147)(B) 2,972
In-process research and
development...................... 241 -- (241)(C) --
-------- ------ ------- --------
Total operating expenses........ 11,110 2,271 8,559 21,940
-------- ------ ------- --------
Loss from operations............... (10,654) (540) (8,559) (19,753)
Interest income.................... 183 5 -- 188
Interest expense................... (13) -- -- (13)
Other income....................... 11 (1) -- 10
-------- ------ ------- --------
Net loss........................ $(10,473) $ (536) $(8,559) $(19,568)
======== ====== ======= ========
Basic and diluted net loss per
share.............................. $ (1.44)
========
Weighted average shares used in
computing pro forma basic and
diluted net loss per share......... 13,589
========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-37
<PAGE>
BEATNIK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1--Basis of Presentation:
Effective December 14, 1999, the Company acquired Mixman ("the
transaction"), a privately held company specializing in audio-mixing software
applications and multiformat sample CD-ROMS.
The unaudited combined pro forma information presented is not necessarily
indicative of the future consolidated results of operations of the Company or
the consolidated results of operations that would have resulted had the
acquisition taken place on January 1, 1999.
Note 2--Purchase Price Allocation:
The unaudited pro forma combined financial statements reflect a total
purchase price of $26.4 million from 7.4 million shares of common stock, 2.0
million shares of Series D1 convertible preferred stock, 1.7 million shares of
Series D2 convertible preferred stock, stock options to purchase 1.3 million
shares of common stock and acquisition related expenses, consisting primarily
of legal and other professional fees. The company valued the options using the
Black-Scholes option pricing model, applying an average expected life of two
years, a weighted average risk free rate of 6.12%, an expected dividend yield
of zero percent, a volatility of 70% and a deemed fair value of common stock
of $2.11.
The Company's allocation of aggregate purchase price to the tangible and
identifiable assets acquired in connection with this acquisition has been
based on a preliminary analysis by the Company. The goodwill and other
intangibles are being amortized over a useful life of three years. The
allocation is summarized below (in thousands):
<TABLE>
<S> <C>
Goodwill and other intangibles.................................. $27,910
In-process research and development ............................ 241
Net liabilities assumed......................................... (1,766)
-------
Total purchase price.......................................... $26,385
=======
</TABLE>
The amounts allocated to in-process research and development will be
charged to the statement of operations in the period the acquisition is
consummated.
Note 3--Unaudited Pro Forma Combined Net Loss Per Share:
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1999 are based upon the Beatnik historical
weighted average common shares outstanding together with the shares issued in
the transaction as if such shares were issued January 1, 1999. Common stock
issuable upon the exercise of Beatnik stock options and warrants has been
excluded as the effect would be anti-dilutive.
Note 4--Pro Forma Adjustments:
The following adjustments were applied to the pro forma combined financial
information:
(A) To record amortization of goodwill and other intangibles.
(B) To eliminate historical deferred stock-based compensation of Mixman.
(C) To eliminate the amount allocated to in-process research and
development, as it is nonrecurring.
F-38
<PAGE>
Outside Back Cover
[Beatnik logo appears here]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.
<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee............................................. $16,698
National Association of Securities Dealers, Inc. filing fee...... 6,825
Nasdaq National Market Listing Fee............................... 95,000
Accounting fees and expenses..................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Blue Sky fees and expenses....................................... 3,000
Registrar and Transfer Agent's fees.............................. *
Miscellaneous fees and expenses ................................. *
-------
Total.......................................................... *
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article XI of the Registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.3 hereto) and
Article VI of the Registrant's Amended and Restated Bylaws (Exhibit 3.4 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent not prohibited by law. The Underwriting Agreement (Exhibit 1.1)
provides for indemnification by the Underwriters of the Registrant, its
directors and officers, and by the Registrant of the Underwriters, for certain
liabilities, including liabilities arising under the Act, and affords certain
rights of contribution with respect thereto.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourselves, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Act, and
affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities
1. From May 1996 to December 31, 1999, the Registrant issued and sold
15,564,903 shares of common stock to employees, directors and consultants at
prices ranging from $.01 to $.10 per share.
2. From July 1996 to October 1998, the Registrant issued and sold 3,709,971
shares of Series A preferred stock to a total of 42 investors for an aggregate
purchase price of $2,408,382.60.
3. From November 1998 to May 1999, the Registrant issued and sold 1,309,523
shares of Series B preferred stock to a total of 4 investors for an aggregate
purchase price of $1,099,999.32.
II-1
<PAGE>
4. From May 1999 to September 1999, the Registrant issued and sold
9,439,991 shares of Series C preferred stock to a total of 42 investors for an
aggregate purchase price of $10,995,055.82.
5. From June 1999 until December 1999, the Registrant issued warrants to
purchase 333,888 shares of Series C preferred stock and 1,075,530 shares of
common stock with exercise prices ranging from $1.1647316 to $6.00 per share.
6. On December 14, 1999, the Registrant issued 3,697,399 shares of Series D
preferred stock and 7,386,884 shares of common stock to a total of 34 investors
for an aggregate fair market value of $ 26.2 million in connection with its
acquisition of Mixman Technologies, Inc.
7. On March 10, 2000, the Registrant issued and sold 6,750,591 shares of
Series E preferred stock to a total of 68 investors for an aggregate
consideration of $29,754,755 in cash and $4,000,000 in services.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each of these transactions represented their
intention to acquire the securities for investment only and not with view to or
for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationship
with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b)Financial Statement Schedules
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 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
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s)
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on the 17th day of March, 2000.
BEATNIK, INC.
/s/ Lorraine J. Hariton
By:
----------------------------------
Lorraine J. Hariton
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lorraine Hariton, Patrizia Owen and Susan
Marsch, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lorraine J. Hariton President, Chief Executive March 17, 2000
____________________________________ Officer and Director
Lorraine J. Hariton (Principal Executive Officer)
/s/ Patrizia M. Owen Chief Financial Officer March 17, 2000
____________________________________ (Principal Financial Officer
Patrizia M. Owen and Principal Accounting
Officer)
/s/ Eric C. Almgren Director March 17, 2000
____________________________________
Eric C. Almgren
/s/ M. Richard Asher Director March 17, 2000
____________________________________
M. Richard Asher
/s/ Allen Morgan Director March 17, 2000
____________________________________
Allen Morgan
/s/ Joseph Rizzi Director March 17, 2000
____________________________________
Joseph Rizzi
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Brian Roberts Director March 10, 2000
__________________________________
Brian Roberts
/s/ Thomas Dolby Robertson Director March 17, 2000
____________________________________
Thomas Dolby Robertson
/s/ A. Thampy Thomas Director March 17, 2000
____________________________________
A. Thampy Thomas
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization, dated October 8, 1999, by and
among the registrant, Beatnik Acquisition Sub, Inc. and Mixman
Technologies, Inc.
3.1 Amended and Restated Articles of Incorporation.
3.2 Bylaws of Headspace, Inc.
3.3 Amended and Restated Certificate of Incorporation, to be effective
upon consummation of this offering.
3.4 Amended and Restated Bylaws, to be effective upon consummation of
this offering.
4.1* Form of Common Stock Certificate.
4.2 Amended and Restated Investor Rights Agreement, dated March 10,
2000, by and among the registrant and the parties who are
signatories thereto.
4.3 Warrant to Purchase Series C Preferred Stock, dated August 20,
1999, by and between the registrant and Yahoo! Inc.
4.4 Warrant to Purchase Common Stock, dated June 30, 1999, by and
between the registrant and Lambeau Investors LLC.
4.5 Warrant to Purchase Common Stock dated December 1, 1999 by and
between the registrant and Lambeau Investors LLC.
4.6 Warrant to Purchase Common Stock dated November 16, 1999 by and
between the registrant and Zomba Recording Corporation.
4.7 Warrant to Purchase Common Stock dated December 31, 1999 by and
between the registrant and Zomba Enterprises, Inc.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1 Registrant's Amended and Restated 1997 Stock Option Plan.
10.2 Form of Registrant's 2000 Stock Incentive Plan.
10.3 Form of Registrant's 2000 Employee Stock Purchase Plan.
10.4 Form of Directors and Officers' Indemnification Agreement.
10.5 Lease Agreement between the registrant and Lambeau Investors LLC
dated June 17, 1999.
10.6+ OEM Licensing Agreement, dated November 17, 1999, by and between
the registrant and Nokia Mobile Phones LTD.
10.7 Distribution Agreement, dated October 10, 1999, by and between
Ingram Micro, Inc. and Mixman Technologies, Inc.
10.8 Agreement, dated March 10, 2000, by and between MTV Online, L.P.
and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2* Consent of Pillsbury Madison & Sutro LLP (contained in their
opinion filed as Exhibit 5.1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
24.1 Power of Attorney. Reference is made to Page II-4.
27.1 Financial Data Schedule for Beatnik, Inc.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential Treatment Requested.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
by and among
BEATNIK, INC.,
BEATNIK ACQUISITION SUB, INC.
and
MIXMAN TECHNOLOGIES, INC.
Dated as of October 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS..............................................................................1
1.1 Defined Terms...........................................................................1
1.2 Other Defined Terms.....................................................................7
1.3 Interpretation Provisions...............................................................8
ARTICLE 2 THE MERGER; ASSUMPTION OF STOCK OPTIONS..................................................9
2.1 The Merger..............................................................................9
2.2 Effective Time..........................................................................9
2.3 Effect of the Merger....................................................................9
2.4 Articles of Incorporation; Bylaws......................................................10
2.5 Directors and Officers.................................................................10
2.6 Effect on Capital Stock................................................................10
2.7 Delivery of Certificates...............................................................14
2.8 Stock Transfer Book....................................................................14
2.9 No Further Ownership Rights in Shares of Mixman Stock..................................14
2.10 Lost, Stolen or Destroyed Certificates.................................................14
2.11 Escrow of Merger Shares................................................................14
2.12 Tax Consequences.......................................................................15
2.13 Taking of Necessary Action; Further Action.............................................15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF MIXMAN................................................15
3.1 Organization of Mixman.................................................................15
3.2 Capitalization of Mixman...............................................................16
3.3 Authorization..........................................................................16
3.4 Officers and Directors.................................................................17
3.5 Bank Accounts..........................................................................17
3.6 Subsidiaries, Etc......................................................................17
3.7 Title to Assets........................................................................17
3.8 Sufficiency of Assets..................................................................17
3.9 Fixtures and Equipment.................................................................17
3.10 Contracts..............................................................................17
3.11 No Conflict or Violation; Consents.....................................................19
3.12 Financial Statements; Books and Records................................................19
3.13 Absence of Certain Changes or Events...................................................20
3.14 Liabilities............................................................................21
3.15 Litigation.............................................................................21
3.16 Labor Matters..........................................................................21
3.17 Employee Benefit Plans.................................................................22
3.18 Transactions with Related Parties......................................................23
3.19 Compliance with Law....................................................................23
3.20 Intellectual Property..................................................................23
3.21 Tax Matters............................................................................24
3.22 Insurance..............................................................................25
3.23 Accounts Receivable....................................................................26
3.24 Inventory..............................................................................26
3.25 Environmental Matters..................................................................26
3.26 Brokers; Transaction Costs.............................................................26
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.27 "Market Stand-Off" Agreement...........................................................26
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BEATNIK...............................................27
4.1 Organization of Beatnik................................................................27
4.2 Capitalization of Beatnik and Merger Sub...............................................27
4.3 Authorization..........................................................................28
4.4 Officers and Directors.................................................................28
4.5 Subsidiaries, Etc......................................................................28
4.6 Title to Assets........................................................................29
4.7 Sufficiency of Assets..................................................................29
4.8 Contracts..............................................................................29
4.9 No Conflict or Violation; Consents.....................................................30
4.10 Financial Statements; Books and Records................................................31
4.11 Absence of Certain Changes or Events...................................................31
4.12 Liabilities............................................................................32
4.13 Litigation.............................................................................32
4.14 Labor Matters..........................................................................33
4.15 Employee Benefit Plans.................................................................33
4.16 Transactions with Related Parties......................................................34
4.17 Compliance with Law....................................................................34
4.18 Intellectual Property..................................................................34
4.19 Tax Matters............................................................................35
4.20 Insurance..............................................................................36
4.21 Accounts Receivable....................................................................37
4.22 Inventory..............................................................................37
4.23 Environmental Matters..................................................................37
4.24 Brokers; Transaction Costs.............................................................37
4.25 "Market Stand-Off" Agreement...........................................................37
ARTICLE 5 ACTIONS BY MIXMAN, BEATNIK AND MERGER SUB PRIOR TO THE CLOSING; ADDITIONAL AGREEMENTS..38
5.1 Conduct of Mixman's Business...........................................................38
5.2 Conduct of Beatnik's Business..........................................................39
5.3 Investigations.........................................................................41
5.4 Notification of Certain Matters........................................................41
5.5 No Mergers, Consolidations, Sale of Stock, Etc.; No Solicitation.......................41
5.6 Publicity..............................................................................42
5.7 Fairness Hearing; Joint Proxy Statement................................................42
5.8 Board of Directors.....................................................................43
5.9 Option Grants..........................................................................43
5.10 Disclosure Schedule....................................................................43
5.11 Further Assurances.....................................................................43
ARTICLE 6 CONDITIONS TO MIXMAN'S OBLIGATIONS......................................................43
6.1 Representations, Warranties and Covenants..............................................44
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.2 Consents...............................................................................44
6.3 No Actions or Court Orders.............................................................44
6.4 Closing Documents......................................................................44
6.5 Opinion of Counsel.....................................................................44
6.6 Material Adverse Effect................................................................44
6.7 Shareholder Approval; Dissenting Shares................................................44
6.8 Voting Agreement.......................................................................45
6.9 Amended and Restated Investors' Rights Agreement.......................................45
6.10 Eric Almgren...........................................................................45
6.11 Directors..............................................................................45
6.12 Beatnik Restated Articles..............................................................45
ARTICLE 7 CONDITIONS TO BEATNIK'S OBLIGATIONS.....................................................45
7.1 Representations, Warranties and Covenants..............................................45
7.2 Consents...............................................................................45
7.3 Shareholder Approval; Dissenting Shares................................................46
7.4 No Actions or Court Orders.............................................................46
7.5 Closing Documents......................................................................46
7.6 Opinion of Counsel.....................................................................46
7.7 Exemption under Federal and State Securities Laws......................................46
7.8 Escrow of Merger Shares................................................................46
7.9 Material Adverse Effect................................................................46
7.10 Amended and Restated Investors' Rights Agreement.......................................46
7.11 Employment Agreements..................................................................46
7.12 Noncompetition Agreement...............................................................47
7.13 Voting Agreement.......................................................................47
7.14 Amendments to Option Agreements........................................................47
7.15 Option Agreements......................................................................47
7.16 Accounts Receivable....................................................................47
7.17 Contracts Consents.....................................................................47
7.18 Contracts Signed.......................................................................47
7.19 Market Stand-Off.......................................................................47
7.20 Due Diligence..........................................................................47
ARTICLE 8 CLOSING.................................................................................47
8.1 Deliveries by Mixman to Beatnik and Merger Sub.........................................48
8.2 Deliveries by Beatnik and Merger Sub to Mixman.........................................48
ARTICLE 9 INDEMNIFICATION.........................................................................48
9.1 Survival of Representations, Etc.......................................................48
9.2 Indemnification........................................................................49
9.3 No Right of Contribution...............................................................50
9.4 Satisfaction of Claims; Threshold; Limitations on Indemnity............................51
ARTICLE 10 MISCELLANEOUS..........................................................................51
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.1 Termination............................................................................51
10.2 Certain Securities Laws Matters........................................................52
10.3 Assignment.............................................................................53
10.4 Notices................................................................................53
10.5 Choice of Law..........................................................................54
10.6 Arbitration............................................................................54
10.7 Entire Agreement,- Amendments and Waivers..............................................55
10.8 Counterparts...........................................................................55
10.9 Invalidity.............................................................................55
10.10 Expenses...............................................................................56
10.11 No Third Party Beneficiaries...........................................................56
</TABLE>
-iv-
<PAGE>
TABLE OF EXHIBITS AND ANNEXES
Exhibit A - Amended and Restated Investors' Rights Agreement
Exhibit B - Escrow Agreement
Exhibit C - Beatnik Amended and Restated Articles of Incorporation
Exhibit D - Form of Noncompetition Agreement
Exhibit E-1 - Beatnik Capitalization
Exhibit E-2 - Mixman Capitalization
Exhibit F - Voting Agreement
Exhibit G - Outstanding Due Diligence Materials
Annex 1 - Example of Calculation of Conversion Ratio
Annex 2 - Mixman Disclosure Schedule
Annex 3 - Mixman Financial Statements
Annex 4 - Beatnik Disclosure Schedule
Annex 5 - Beatnik Financial Statements
-i-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, dated as of October 8, 1999 (the
"Agreement"), is entered into by and among BEATNIK, INC., a California
corporation ("Beatnik"), BEATNIK ACQUISITION SUB, INC., a California corporation
and a wholly-owned subsidiary of Beatnik ("Merger Sub"), and MIXMAN
TECHNOLOGIES, INC., a California corporation ("Mixman").
RECITALS
--------
A. The Boards of Directors of Beatnik and Mixman have determined that it
is advisable and in the best interests of their respective shareholders for
Beatnik and Mixman to enter into a business combination upon the terms and
subject to the conditions set forth herein.
B. In furtherance of such combination, the Boards of Directors of Beatnik
and Mixman have each approved the merger of Merger Sub with and into Mixman (the
"Merger"), upon the terms and subject to the conditions set forth herein, in
accordance with the provisions of the California Corporations Code (the "CCC").
C. Beatnik and Mixman intend, by approving resolutions authorizing this
Agreement, to adopt this Agreement as a plan of reorganization and that the
Merger qualify as a tax-free reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder.
D. Pursuant to the Merger, each outstanding share of capital stock of
Mixman shall be converted into the right to receive shares of capital stock of
Beatnik, each outstanding option of Mixman shall be converted into an option to
receive shares of capital stock of Beatnik, and the holders of the Mixman
Convertible Debt (as defined in Section 1.1) shall receive shares of capital
stock of Beatnik, all upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings:
"Affiliate" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
-1-
<PAGE>
"Amended and Restated Investors' Rights Agreement" means the Amended and
Restated Investors' Rights Agreement to be entered into among Beatnik and
certain other parties substantially in the form attached hereto as Exhibit A.
"Ancillary Agreements" means the Escrow Agreement, the Amended and Restated
Investors' Rights Agreement and the Noncompetition Agreements between Beatnik
and each of Eric Almgren and Joshua Gabriel substantially in the form of Exhibit
D hereto and other agreements required hereunder to consummate the Closing.
"Assets" means all of a Person's right, title and interest in and to such
Person's properties, assets and rights of any kind, whether tangible or
intangible, real or personal.
"Beatnik Balance Sheet" means the balance sheet of Beatnik as of the
Beatnik Balance Sheet Date.
"Beatnik Balance Sheet Date" means September 17, 1999.
"Beatnik Common Stock" means the Beatnik Common Stock, par value $0.001,
having the rights, preferences, privileges and restrictions contained in the
Restated Articles.
"Beatnik Financial Statements" means Beatnik's (i) unaudited balance sheets
and related statements of income and cash flow for the 8 1/2-month period ended
September 17, 1999, and (ii) unaudited balance sheets and related statements of
income and cash flow for the 12-month period ended December 31, 1998. The
Beatnik Financial Statements are attached hereto as Annex 5.
"Beatnik Merger Preferred Stock" means the shares of Beatnik Series D-1
Preferred Stock, and Beatnik Series D-2 Preferred Stock issued pursuant to
Article 2 herein.
"Beatnik Options" means options to purchase Beatnik Common Stock issued by
Beatnik pursuant to the Beatnik Option Plan.
"Beatnik Option Plan" means the Beatnik, Inc. 1997 Stock Plan.
"Beatnik Preferred Stock" means the Beatnik Series A Preferred Stock,
Beatnik Series B Preferred Stock and Beatnik Series C Preferred Stock.
"Beatnik Restated Articles" means the Amended and Restated Articles of
Incorporation of Beatnik attached hereto as Exhibit C that sets forth the
preferences, privileges and restrictions of the Beatnik Merger Preferred Stock.
"Beatnik Series A Preferred Stock" means the Beatnik Series A Preferred
Stock, $0.001 par value, having the rights, preferences, privileges and
restrictions contained in the Beatnik Restated Articles.
"Beatnik Series B Preferred Stock" means the Beatnik Series B Preferred
Stock, $0.001 par value, having the rights, preferences, privileges and
restrictions contained in the Beatnik Restated Articles.
-2-
<PAGE>
"Beatnik Series C Preferred Stock" means the Beatnik Series C Preferred
Stock, $0.001 par value, having the rights, preferences, privileges and
restrictions contained in the Beatnik Restated Articles.
"Beatnik Series D-1 Preferred Stock" means the Beatnik Series D-1 Preferred
Stock, $0.001 par value, having the rights, preferences, privileges and
restrictions contained in the Beatnik Restated Articles.
"Beatnik Series D-2 Preferred Stock" means the Beatnik Series D-2 Preferred
Stock, $0.001 par value, having the rights, preferences, privileges and
restrictions contained in the Beatnik Restated Articles.
"Beatnik Stock" means the Beatnik Common Stock and the Beatnik Preferred
Stock.
"Beatnik Warrants" means (i) a warrant to purchase 333,888 shares of
Beatnik Series C Preferred Stock and (ii) a warrant to purchase an aggregate of
25,530 shares of Beatnik Common Stock.
"Benefit Plans" means any material pension, profit sharing, deferred
compensation or retirement plan.
"Business" of a Person means the business and operations of such Person.
"Closing Date" means the date of the Closing.
"Confidentiality Agreement" means that certain Mutual Non-Disclosure
Agreement dated as of July 10, 1999 between Beatnik and Mixman.
"Consents" of a Person means any and all Permits and any and all consent,
approvals or waivers from third parties that are (i) required for the
consummation of the transactions contemplated by this Agreement or (ii)
necessary or desirable in order that such Person can conduct its Business after
the Closing Date in the same manner as before the Closing Date.
"Contracts" of a Person means all currently binding agreements, contracts,
leases (whether for real or personal property), purchase orders, undertakings,
covenants not to compete, employment agreements, confidentiality agreements,
licenses, instruments, obligations and commitments to which such Person is a
party or by which such Person or any of its Assets are bound or affected,
whether written or oral.
"Court Order" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign, federal, state or local court or governmental
agency, department or authority that is binding on a Person or its property
under applicable law.
"Default" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
-3-
<PAGE>
"Employees" of a Person means all persons employed by such Person on a full
or part-time basis together with all persons retained as "independent
contractors" as of the relevant date.
"Employee Plan" means any legally enforceable benefit plan, program,
agreement, policy, commitment or other arrangement (whether or not set forth in
a written document) within the following categories or any employee benefit plan
as defined in section 3(3) of ERISA: (i) any employee pension benefit plan, as
defined in section 3(2) of ERISA, including (without limitation) any multi-
employer plan, as defined in section 3(37) of ERISA; (ii) any employee welfare
benefit plan, as defined in section 3(1) of ERISA, (iii) any bonus, deferred
compensation, incentive, restricted stock, stock purchase, stock option, stock
appreciation right, phantom stock, debenture, supplemental pension, profit-
sharing, royalty pool, commission or similar plan or arrangement; (iv) any plan,
program, agreement, policy, commitment or other arrangement relating to
severance or termination pay, whether or not published or generally known, (v)
any plan, program, agreement, policy, commitment or other arrangement relating
to the provision of any benefit described in section 3(1) of ERISA to former
employees or directors or to their survivors, other than procedures intended to
comply with Section 4980B of COBRA or similar state laws; (vi) any group or
material individual plan, program, agreement, policy, commitment or other group
or material individual arrangement relating to paid or unpaid leaves of absence,
education expense or vacation; (vii) any group or material individual plan,
program, agreement, policy, commitment or other arrangement relating to loans or
other extensions of credit, loan guarantees, relocation assistance or similar
benefits; (viii) any employment, consulting or termination agreement; or (ix)
any other material plan, program, agreement, procedure, policy, commitment,
understanding or other arrangement relating to employee benefits, executive
compensation, fringe benefits, severance pay, terms of employment or services as
an independent contractor.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" means the Escrow Agreement to be entered into among
Beatnik, Mixman and the Seller Representatives substantially in the form of
Exhibit B hereof.
"Fixtures and Equipment" of a Person mean all of the furniture, fixtures,
furnishings, machinery, computer hardware, and other tangible personal property
owned by such Person, wherever located and including any such Fixtures and
Equipment in the possession of any of such Person's respective suppliers or
other vendors.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards
-4-
<PAGE>
Board (or agencies with similar functions of comparable stature and authority
within the accounting profession), or in such other statements by such entity as
may be in general use by significant segments of the U.S. accounting profession,
which are applicable to the facts and circumstances on the date of
determination.
"Intellectual Property" means (a) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and the patents, patent applications and patent disclosures together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) trademarks, service marks, trade dress, logos, trade
names, and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, (c) copyright-able works, copyrights and applications, registrations
and renewals in connection therewith, (d) mask works and all applications,
registrations and renewals in connection therewith, (e) trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (f) computer software (including data and related
documentation), (g) other proprietary rights and (h) copies and tangible
embodiments thereof (in whatever form or medium).
"Inventory" means all merchandise owned and intended for resale and all raw
materials, work in process, finished goods, wrapping, supply and packaging items
and similar items, whether or not located on the premises, on consignment to a
third party or in transit or storage.
"Liability" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated, unliquidated, known or unknown.
"Material Adverse Effect" with respect to any Person means any effect or
change which has, or is reasonably likely to have, a material adverse effect on
the condition (financial or other), business, results of operations, assets,
liabilities or operations of such Person and its subsidiaries taken as a whole.
"Merger Shares" means the shares of Beatnik capital stock to be issued
pursuant to the Article 2 hereof.
"Mixman Balance Sheet" means the balance sheet of Mixman as of the Mixman
Balance Sheet Date.
"Mixman Balance Sheet Date" means August 31, 1999.
"Mixman Common Stock" means the Mixman Common Stock, no par value, having
the rights, preferences, privileges and restrictions contained in Mixman's
Articles of Incorporation.
"Mixman Convertible Debt" means that certain Mixman Convertible Promissory
Note dated January 13, 1995 issued to Roger Summit.
-5-
<PAGE>
"Mixman Financial Statements" means Mixman's (i) unaudited balance sheets
and related statements of income and cash flow for the 8-month period ended
August 31, 1999, and (ii) unaudited balance sheets and related statements of
income and cash flow for the 12-month period ended December 31, 1998. The
Mixman Financial Statements are attached hereto as Annex 3.
"Mixman Options" means options to purchase Mixman Common Stock issued by
Mixman pursuant to the Mixman Option Plan.
"Mixman Option Plan(s)" means the Mixman Technologies, Inc. 1995 Equity
Incentive Plan.
"Mixman Preferred Stock" means the Mixman Series A Preferred Stock, Mixman
Series B Preferred Stock, and Mixman Series C Preferred Stock.
"Mixman Series A Preferred Stock" means the Mixman Series A Preferred
Stock, no par value, having the rights, preferences, privileges and restrictions
contained in Mixman's Articles of Incorporation.
"Mixman Series B Preferred Stock" means the Mixman Series B Preferred
Stock, no par value, having the rights, preferences, privileges and restrictions
contained in Mixman's Articles of Incorporation.
"Mixman Series C Preferred Stock" means the Mixman Series C Preferred
Stock, no par value, having the rights, preferences, privileges and restrictions
contained in Mixman's Articles of Incorporation.
"Mixman Stock" means the Mixman Common Stock and the Mixman Preferred
Stock.
"Permits" of a Person means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary or desirable for
the past, present or anticipated conduct or operation of the Business or
ownership of the Assets of such Person.
"Person" means any person or entity, whether an individual, trustee,
corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.
"Proprietary Rights" means rights under any Intellectual Property, whether
owned or licensed.
"Regulations" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, principles of law and
orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation energy, motor
vehicle safety, public utility, zoning, building and health codes, Environmental
Laws, occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
-6-
<PAGE>
"Related Party" to a Person means (i) any of such Person's officers and
directors, and any partners, associates or relatives of such officers and
directors, and (ii) any Person in which such Person has any direct or material
indirect interest.
"Representative" means any officer, director, principal, attorney, agent,
employee or other representative of a Person.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including information
returns, any documents with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
"Taxes" mean any and all taxes, charges, fees, levies or other assessments,
including income, gross receipts, excise, real or personal property, sales,
withholding, social security, retirement, unemployment, occupation, use,
service, license, net worth, payroll, franchise and transfer and recording,
imposed by the Internal Revenue Service or any taxing authority (whether
domestic or foreign, including any federal, state, county, local or foreign
government or any subdivision or taxing agency thereof (including a U.S.
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments.
"To the knowledge" or "knowledge" of a party (or similar phrases) means to
the extent of matters (i) which are actually known by such party or (ii) which,
based on facts of which such party is aware, would be known to a reasonable
Person in similar circumstances.
1.2 Other Defined Terms. The following terms are defined in the Sections
-------------------
indicated:
<TABLE>
<CAPTION>
Term Section
------------------------------- --------------------------------------
<S> <C>
Actions 3.15
Agreement Preamble
Agreement of Merger 2.2
Arbitrator 10.6(a)
Beatnik Preamble
Beatnik Closing Certificate 6.1
Beatnik Disclosure Schedule ARTICLE 4
Beatnik Indemnified Parties 9.2(a)
Beatnik Scheduled Contracts 4.8(a)(xii)
California Permit 5.7(a)
California Statute 5.7(a)
CCC Recitals
Certificates 2.7(a)
Claim Notice 9.2(b)
Closing 2.1(b)
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Term Section
------------------------------- --------------------------------------
<S> <C>
Code Recitals
Common Equivalents 2.6(a)
Outstanding
Commonly Controlled Entity 3.17(a)
Conversion Ratio 2.6(a)
Damage Threshold 9.4(a)
Damages 9.2(a)
Dispute Notice 9.2(c)
Dissenting Shares 2.6(e)
Effective Time 2.2
Escrow Termination Date 9.1
Escrow Shares 2.11
Founders Options 5.9
Fully Diluted Common 2.6(e)
Equivalents Outstanding
Indemnified Party 9.2(b)
Indemnitor 9.2(b)
IRS 3.17(a)
JAMS 10.6(b)
Joint Proxy Statement 5.7
Merger Recitals
Merger Sub Preamble
Mixman Preamble
Mixman Closing Certificate 7.1
Mixman Disclosure Schedule ARTICLE 3
Mixman Indemnified Parties 9.2(a)
Mixman Scheduled Contracts 3.10(a)(xii)
Pension Plans 3.17(a); 4.15(a)
Sellers 9.2(a)
Seller Representative 2.11
Surviving Corporation 2.1(a)
</TABLE>
1.3 Interpretation Provisions.
-------------------------
(a) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement, and article, section, schedule and
Exhibit references are to this Agreement unless otherwise specified. The meaning
of defined terms shall be equally applicable to the singular and plural forms of
the defined terms. The term "or" is disjunctive but not necessarily exclusive.
The terms "include" and "including" are not limiting and mean "including without
limitation."
(b) References to agreements and other documents shall be deemed to
include all subsequent amendments and other modifications thereto.
-8-
<PAGE>
(c) References to statutes shall include all regulations promulgated
thereunder and references to statutes or regulations shall be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation.
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
(e) The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against either party.
(f) The annexes, schedules and exhibits to this Agreement are a material
part hereof and shall be treated as if fully incorporated into the body of the
Agreement.
ARTICLE 2
---------
THE MERGER; ASSUMPTION OF STOCK OPTIONS
---------------------------------------
2.1 The Merger.
----------
(a) Effective Time. At the Effective Time (as defined in Section 2.2
--------------
hereof) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the CCC, Merger Sub shall be merged with and into
Mixman, the separate corporate existence of Merger Sub shall cease and Mixman
shall continue as the surviving corporation and a wholly-owned subsidiary of
Beatnik. Mixman, as the surviving corporation after the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated pursuant to
-------
Section 10.1, and subject to the satisfaction or waiver, if permissible, of the
conditions set forth in Articles 6 and 7, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place (i) at the
offices of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto,
California, as promptly as practicable (and in any event within five business
days) after satisfaction or waiver, if permissible, of the conditions set forth
in Articles 6 and 7 or (ii) at such other time, date or place as Beatnik and
Mixman may mutually agree.
2.2 Effective Time. As promptly as practicable after the satisfaction or
--------------
waiver of the conditions set forth in Articles 6 and 7, Beatnik and Mixman shall
cause the Merger to be consummated by filing the Agreement of Merger as
contemplated by the CCC (the "Agreement of Merger"), together with any required
related documents, in such form as required by, and executed in accordance with
the relevant provisions of, the CCC. The Merger shall be effective at the time
indicated in the Agreement of Merger (the "Effective Time").
2.3 Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the CCC. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all of the property,
rights, privileges, powers and franchise of Merger Sub and Mixman shall vest in
the Surviving Corporation.
-9-
<PAGE>
2.4 Articles of Incorporation; Bylaws.
---------------------------------
(a) Articles of Incorporation. At the Effective Time, the Articles of
-------------------------
Incorporation of Mixman, shall be the Articles of Incorporation of the Surviving
Corporation.
(b) Bylaws. At the Effective Time, the Bylaws of Merger Sub, as in effect
------
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter duly amended in accordance with applicable law, the
Articles of Incorporation of the Surviving Corporation and such Bylaws.
2.5 Directors and Officers. The directors of Merger Sub immediately prior
----------------------
to the Effective Time shall be the initial directors of the Surviving
Corporation at the Effective Time, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation at the Effective Time, in each
case until their respective successors are duly elected or appointed and
qualified in the manner provided in the Articles of Incorporation and Bylaws of
the Surviving Corporation and in accordance with applicable law.
2.6 Effect on Capital Stock.
-----------------------
At the Effective Time, by virtue of the Merger and without any further
action on the part of Beatnik or Mixman:
(a) Conversion of Mixman Common Stock. Each share of Mixman Common Stock
---------------------------------
issued and outstanding immediately prior to the Effective Time (excluding any
Dissenting Shares) shall be converted, subject to Section 2.6(c) and Section
2.6(d), into the right to receive a number of shares of Beatnik Common Stock
equal to the "Conversion Ratio." The "Conversion Ratio" is the quotient of: (1)
the difference between (i) one-half Beatnik's "Fully-Diluted Common Equivalents
Outstanding" (as defined below) as of immediately prior to the Effective Time,
and (ii) 480,000 (such number to be adjusted for any Beatnik stock splits, stock
dividends or other recapitalization events), divided by (2) Mixman's "Common
Equivalents Outstanding" (as defined below) as of immediately prior to the
Effective Time excluding the Founders Options. As used herein, "Common
Equivalents Outstanding" means the sum of (A) shares of common stock outstanding
plus (B) shares of common stock issuable upon conversion of all outstanding
shares of preferred stock, plus (C) shares of common stock issuable upon
exercise or conversion of all outstanding or promised options, warrants and
convertible debt (and upon conversion of any preferred stock issuable upon
exercise or conversion of all outstanding options, warrants and convertible
debt). "Fully Diluted Common Equivalents Outstanding" means the sum of (A)
Common Equivalents Outstanding, plus (B) all shares of common stock (or
securities convertible into or exchangeable for common stock) reserved for
issuance to employees, officers, directors, contractors, consultants or advisors
under any stock option, stock purchase, stock bonus or other equity incentive
plan. An example of the calculation of the Conversion Ratio is set forth in
Annex 1. All such shares of Mixman Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the shares of Beatnik Common Stock into which such Mixman Common Stock
has been converted.
-10-
<PAGE>
Certificates previously representing shares of Mixman Common Stock shall be
exchanged for certificates representing whole shares of Beatnik Common Stock
issued in consideration therefor upon the surrender of such certificates in
accordance with Section 2.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 2.10).
(b) Conversion of Mixman Preferred Stock. Each share of Mixman Preferred
------------------------------------
Stock issued and outstanding immediately prior to the Effective Time (excluding
any Dissenting Shares) shall be converted, subject to Section 2.6(c) and Section
2.6(d), into the right to receive shares of preferred stock of Beatnik, in each
case with the rights, preferences and privileges of the appropriate Series of
Beatnik Merger Preferred Stock as set forth in the Beatnik Restated Articles, as
follows:
(i) Each share of Mixman Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (excluding any
Dissenting Shares) shall be converted, subject to Section 2.6(c) and
Section 2.6(d), into the right to receive a number of shares of Beatnik
Series D-1 Preferred Stock equal to the Conversion Ratio.
(ii) Each share of Mixman Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (excluding any
Dissenting Shares) shall be converted, subject to Section 2.6(c) and
Section 2.6(d), into the right to receive a number of shares of Beatnik
Series D-2 Preferred Stock equal to the Conversion Ratio.
(iii) Each share of Mixman Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (excluding any
Dissenting Shares) shall be converted, subject to Section 2.6(c) and
Section 2.6(d), into the right to receive a number of shares of Beatnik
Series D-2 Preferred Stock equal to the Conversion Ratio.
All of the shares of Mixman Preferred Stock converted into Beatnik Merger
Preferred Stock in accordance with this Article I shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and each
certificate previously representing any such shares of Mixman Preferred Stock
shall thereafter represent the shares of Beatnik Merger Preferred Stock into
which such Mixman Preferred Stock has been converted. Certificates previously
representing shares of Mixman Preferred Stock shall be exchanged for
certificates representing whole shares of corresponding Beatnik Merger Preferred
Stock issued in consideration therefor upon the surrender of such certificates
in accordance with Section 2.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 2.10).
(c) Cancellation. Each share of Mixman Common Stock held in the treasury
------------
of Mixman immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(d) Fractional Shares. No certificates or scrip representing fractional
-----------------
shares of Beatnik shall be issued in connection with the Merger, and such
fractional share interests will be
-11-
<PAGE>
canceled and thereafter will not entitle the owner thereof to vote or to any
rights as a stockholder of Beatnik.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
-----------------
contrary, shares of Mixman capital stock issued and outstanding immediately
prior to the Effective Time and held by a holder who has not voted in favor of
the Merger or consented thereto in writing and who has demanded appraisal for
such shares in accordance with Section 1300 of the CCC, if such Section provides
for appraisal rights for such shares in the Merger ("Dissenting Shares"), shall
not be converted into the right to receive shares of capital stock of Beatnik as
provided herein, unless and until such holder fails to perfect or withdraws or
otherwise loses his right to appraisal and payment under the CCC. If, after the
Effective Time, any such holder fails to perfect or withdraws or loses his right
to appraisal, then such Dissenting Shares shall thereupon be treated as if they
had been converted as of the Effective Time into the right to receive shares of
capital stock of Beatnik, if any, to which such holder is entitled, without
interest or dividends thereon. Mixman shall give Beatnik prompt notice of any
demands received by Mixman for appraisal of shares and, prior to the Effective
Time, Beatnik shall have the right to participate in all negotiations and
proceedings with respect to such demands. Prior to the Effective Time, Mixman
shall not, except with the prior written consent of Beatnik, make any payments
with respect to or settle or offer to settle, any such demands.
(f) Assumption of Mixman Options.
----------------------------
(i) At the Effective Time, each outstanding Mixman Option, whether
vested or unvested, shall be assumed by Beatnik and constitute an option to
acquire, on the same terms and conditions as were applicable under such
Mixman Option prior to the Effective Time, the number (rounded down to the
nearest whole number) of shares of Beatnik Common Stock as the holder of
the assumed Mixman Option would have been entitled to receive pursuant to
the Merger had such holder exercised the assumed Mixman Option in full
immediately prior to the Effective Time (not taking into account whether or
not such Mixman Option was in fact exercisable). Notwithstanding the
foregoing, effective and contingent upon the Closing, the agreement
governing the assumed Mixman Options (other than the Founders Options) held
by each of Eric Almgren and Joshua Gabriel shall be amended so that such
Mixman Options and Mixman Common Stock are 70% vested in the aggregate at
the Effective Time, and the unvested portion of such assumed Mixman Options
and Mixman Common Stock shall vest in three (3) equal installments six,
twelve and eighteen months following the Closing, pursuant to and in
accordance with amendments to the existing option agreements and founders
stock purchase agreements to be entered into between Beatnik and each of
Eric Almgren and Joshua Gabriel. Each assumed Mixman Option shall be
exercisable for shares of Beatnik Common Stock at a price per share equal
to (x) the aggregate exercise price for the Mixman Common Stock purchasable
pursuant to the assumed Mixman Option (not taking into account whether or
not such Mixman Option was in fact exercisable) divided by (y) the number
of shares of Beatnik Common Stock deemed purchasable pursuant to the
assumed Mixman Option (rounded down to the nearest whole cent) determined
in accordance with this Section 2.6(f). At and after the Effective Time,
Beatnik will honor all obligations with respect to the assumed Mixman
Options under the terms of the Stock Option Agreement and the
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Mixman Option Plan governing the assumed Mixman Options as in effect on the
date hereof.
(ii) As soon as practicable after the Effective Time (but in any event
within thirty (30) calendar days) Beatnik shall deliver to each holder of
an outstanding Mixman Option an appropriate notice setting forth such
holder's rights pursuant thereto, and such Mixman Option shall otherwise
continue in effect on the same terms and conditions as were in effect prior
to the Effective Time. The notice shall include Beatnik's undertaking, at
the time of its initial public offering, to register all shares subject to
assumed Mixman Options on the same Form S-8 that Beatnik files for Beatnik
employees generally.
(g) Conversion of Mixman Convertible Debt. At the Effective Time,
-------------------------------------
holders of the Mixman Convertible Debt, if any, shall receive the number
(rounded to the nearest whole number) of shares of Merger Shares as such holders
of the Mixman Convertible Debt would have been entitled to receive pursuant to
the Merger had the Mixman Convertible Debt been converted in full to Mixman
Common Stock immediately prior to the Effective Time.
(h) Capital Stock of Merger Sub. At the Effective Time, each share of
---------------------------
Common Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive one (1) validly
issued, fully paid and nonassessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(i) Adjustments. The number of shares of Beatnik Stock into which shares
-----------
of Mixman Stock are converted shall be subject to adjustment to reflect any
reclassification, exchange, substitution, stock split, stock dividend, or other
significant distribution by either of Beatnik or Mixman such that the Mixman
Stock shall be convertible into the number of shares of Beatnik Stock that would
have been received by the holders of such Mixman Stock if the Mixman Stock had
been converted to Beatnik Stock immediately prior to such event. In addition,
the number of shares of Beatnik Stock into which shares of Mixman Stock are
converted shall be subject to proportionate adjustment to the extent the Beatnik
or Mixman capitalization changes from that set forth on Exhibits E-1 and E-2.
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2.7 Delivery of Certificates. At the Effective Time, Beatnik shall make
------------------------
available, and each holder of Mixman Stock shall be entitled to receive, subject
to Section 2.7(b) below, upon surrender to Beatnik or its representatives of any
certificate or certificates evidencing such Mixman Stock (the "Certificates")
for cancellation together with any reasonable supporting documentation requested
by Beatnik, including a tax identification number, the aggregate Merger Shares
into which such Mixman Stock shall have been converted in the Merger, and upon
such surrender of each Certificate and delivery by Beatnik of the aggregate
number of Merger Shares in exchange therefor, such Certificates shall forthwith
be canceled. Until so surrendered, each Certificate shall be deemed for all
corporate purposes to evidence ownership of the number of shares of Beatnik
Stock into which the Mixman Stock will have been converted.
2.8 Stock Transfer Book. At the Effective Time, the stock transfer books
-------------------
of Mixman shall be closed, and there shall be no further registration of
transfers of Mixman Stock thereafter on the records of Mixman.
2.9 No Further Ownership Rights in Shares of Mixman Stock. The shares of
-----------------------------------------------------
Beatnik Stock delivered upon the surrender for exchange of Mixman Stock in
accordance with the terms hereof, including, without limitation, the shares
delivered into escrow pursuant to Section 2.11 below, shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Mixman Stock, and there shall be no further registration of transfers of shares
of Mixman Stock which were outstanding immediately prior to the Effective Time
on the records of the Surviving Corporation. If, after the Effective Time, the
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article 2.
2.10 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, Beatnik shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Beatnik Stock as
may be required pursuant to Section 2.6; provided, however, that Beatnik may,
-------- -------
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver an indemnity
and hold harmless agreement as indemnity against any claim that may be made
against Beatnik with respect to the Certificates alleged to have been lost,
stolen or destroyed.
2.11 Escrow of Merger Shares. Notwithstanding the provisions of this
-----------------------
Article 2, Beatnik shall place in escrow pursuant to the terms of the Escrow
Agreement that number of Merger Shares equal to 10% of the total Merger Shares
(the "Escrow Shares") allocated on a pro rata basis among all shareholders of
Mixman. In the event that the Merger is approved by the shareholders of Mixman
as provided herein, the shareholders of Mixman shall, without any further act of
any shareholder of Mixman, be deemed to have consented to and approved (i) the
use of the Escrow Shares as collateral for Mixman's indemnification obligations
under Article 9 in the manner set forth in the Escrow Agreement, (ii) the
appointment of Eric Almgren as the initial representative of the Mixman
shareholders (the "Seller Representative") under the Escrow Agreement and as the
attorney-in-fact and agent for and on behalf of each Mixman shareholder (other
than holders of Dissenting Shares), and the taking by the Seller Representative
of any and all actions and the making of any decisions required or permitted to
be taken by him under the
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Escrow Agreement (including, without limitation, the exercise of the powers: to
authorize delivery of Escrow Shares in satisfaction of claims by Beatnik
Indemnified Parties; to agree to, negotiate, enter into settlements and
compromises of and demand arbitration and comply with orders of the courts and
awards of arbitrators with respect to such claims; to resolve any claim made
pursuant to Article 9 hereof; and to take all action necessary in the judgement
of the Seller Representative for the accomplishment of the foregoing), (iii)
reimbursement of the Seller Representative (from the remaining Escrow Property
or by each Seller) for the Seller Representative's reasonable, documented out of
pocket expenses in performing the functions specified in the Escrow Agreement
and in defending third party claims under Article 9 hereof, (iv) indemnification
by the Sellers of the Seller Representative against loss, damage liability and
expense that may be incurred by him arising out of or in connection with the
acceptance or administration of the Seller Representative's duties, except as
caused by his gross negligence or willful misconduct, and (v) to all of the
other terms, conditions and limitations in the Escrow Agreement.
2.12 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
U.S. Treasury Regulations.
2.13 Taking of Necessary Action; Further Action. Each of Beatnik and
------------------------------------------
Mixman will take all such reasonable lawful action as may be necessary or
appropriate in order to effect the Merger in accordance with this Agreement as
promptly as practicable. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest Surviving Corporation with full right, title and
possession to all the property, rights, privileges, power and franchises of
Mixman, the officers and directors of Beatnik and Mixman immediately prior to
the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF MIXMAN
----------------------------------------
Except as set forth on the disclosure letter supplied by Mixman and
attached to this Agreement as Annex 2 (the "Mixman Disclosure Schedule"), Mixman
makes the following representations and warranties to Beatnik and Merger Sub:
3.1 Organization of Mixman. Mixman is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of California.
Mixman has full corporate power and authority to conduct its Business as it is
presently being conducted and to own or lease, as applicable, its Assets. Mixman
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is necessary under
applicable law as a result of the conduct of its Business or the ownership of
its properties and where the failure to be so qualified would have a Material
Adverse Effect on Mixman.
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<PAGE>
3.2 Capitalization of Mixman.
------------------------
(a) There are 10,000,000 shares of Mixman Common Stock authorized under
Mixman's Articles of Incorporation, 2,023,071 of which were issued and
outstanding as of October 5, 1999. There are 580,486 shares of Mixman Series A
Preferred Stock authorized under its Articles of Incorporation, all of which
were issued and outstanding as of October 5, 1999. Each share of Mixman Series A
Preferred Stock is convertible into one share of Mixman Common Stock. There are
175,000 shares of Mixman Series B Preferred Stock authorized under its Articles
of Incorporation, all of which were issued and outstanding as of October 5,
1999. Each share of Mixman Series B Preferred Stock is convertible into one
share of Mixman Common Stock. There are 416,667 shares of Mixman Series C
Preferred Stock authorized under its Articles of Incorporation, 336,662 of which
were issued and outstanding as of October 5, 1999. Each share of Mixman Series C
Preferred Stock is convertible into one share of Mixman Common Stock. Mixman has
no other stock authorized, issued or outstanding.
(b) As of October 5, 1999, 384,183 shares of Mixman Common Stock were
reserved for issuance upon the exercise of outstanding Mixman Options, and
192,686 shares of Mixman Common Stock were available for future grant of options
under the Mixman Option Plans.
(c) Except for the shares of Mixman Preferred Stock and Mixman Options
referred to above and the Mixman Convertible Debt, there are no options,
warrants, convertible securities or rights of any kind to purchase or otherwise
acquire any shares of capital stock or other securities of Mixman outstanding as
of October 5, 1999.
(d) All outstanding shares of Mixman Stock are, and any shares of Mixman
Common Stock issued upon conversion of any shares of Mixman Preferred Stock or
exercise and/or conversion of any Mixman Options or the Mixman Convertible Debt
will be upon conversion or exercise in accordance with the terms of the
applicable instrument, duly authorized, validly issued, fully paid and non-
assessable and not subject to any preemptive rights. All outstanding shares of
Mixman Stock, Mixman Options and the Mixman Convertible Debt have been issued in
compliance with all federal and state corporate and securities laws. Except for
the Mixman Convertible Debt, there are no bonds, debentures, notes or other
indebtedness of Mixman having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of Mixman may vote. Except as set forth above and as provided in
Mixman's Articles of Incorporation, there are no securities, options, warrants,
calls, rights, contracts, commitments, agreements, arrangements, obligations or
undertakings of any kind to which Mixman is a party, or by which Mixman is
bound, obligating Mixman to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Mixman or securities convertible or exchangeable thereafter or obligating
Mixman to issue, grant, extend or enter into any such security, option, warrant,
call, right, contract, commitment, agreement, arrangement, obligation or
undertaking. There are not any outstanding contractual obligations requiring
Mixman to repurchase, redeem or otherwise acquire any shares of capital stock of
Mixman.
3.3 Authorization. Mixman has all necessary corporate power and
-------------
authority to enter into this Agreement and the Ancillary Agreements to which it
is a party and has taken all corporate or other action necessary to consummate
the transactions contemplated hereby and
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thereby and to perform its respective obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by Mixman, and this Agreement is,
and upon execution and delivery of each of the Ancillary Agreements to which
Mixman is a party, will be, a legal, valid and binding obligation of Mixman,
enforceable against Mixman in accordance with its terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors.
3.4 Officers and Directors. Section 3.4 of the Mixman Disclosure
----------------------
Schedule contains a true,. Section 3.4 of the Mixman Disclosure Schedule
contains a true, correct and complete list of all the officers and directors of
Mixman.
3.5 Bank Accounts. Section 3.5 of the Mixman Disclosure Schedule
-------------
contains a list of all of Mixman's bank accounts, safe deposit boxes, and
related powers of attorney, and persons authorized to draw thereon or have
access thereto.
3.6 Subsidiaries, Etc. Mixman does not own or hold any equity interest of
-----------------
any kind in any Person.
3.7 Title to Assets. Except as set forth in Section 3.7 of the Mixman
---------------
Disclosure Schedule, Mixman has good and marketable fee simple title to its
Assets, and none of its Assets are subject to any Encumbrances.
3.8 Sufficiency of Assets. The Assets of Mixman constitute all of the
---------------------
assets, rights and properties, tangible or intangible, real or personal, which
are required for the operation of Mixman's Business as it is presently
conducted.
3.9 Fixtures and Equipment. Section 3.9 of the Mixman Disclosure
----------------------
Schedule contains an accurate list of all Fixtures and Equipment of Mixman where
the value of an individual item exceeds $25,000 or where the value of an
aggregate of similar items exceeds $50,000. All tangible assets and properties
which are part of Mixman's Assets are in good operating condition and repair,
ordinary wear and tear excepted, and are usable in the ordinary course of
business.
3.10 Contracts.
---------
(a) Disclosure. Section 3.10 of the Mixman Disclosure Schedule sets
forth a complete and accurate list of all of Mixman's Contracts of the following
categories:
(i) Contracts not made in the ordinary course of business;
(ii) Manufacturing or joint development agreements;
(iii) License agreements or royalty agreements, whether Mixman is
the licensor or licensee thereunder, other than license agreements pursuant
to which Mixman licenses its intellectual property to third parties in the
ordinary course of its business;
(iv) Confidentiality and non-disclosure agreements (whether Mixman
is the beneficiary or the obligated party thereunder);
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(v) Contracts made with independent contractors pursuant to which
Mixman has retained such contractor to engage in research relating to the
development of products for Mixman's business;
(vi) Contracts or commitments involving future expenditures or
Liabilities, actual or potential, in excess of $50,000 after the date
hereof or otherwise material to Mixman's Business or Assets;
(vii) Contracts or commitments relating to commission arrangements
with others, other than agreements with Mixman personnel entered into by
Mixman in the ordinary course of its business;
(viii) Employment contracts, consulting contracts and severance
agreements, including Contracts (A) to employ or terminate executive
officers or other personnel and other contracts with present or former
officers or directors of Mixman or (B) that will result in the payment or
the creation of any Liability to pay any severance, termination, "golden
parachute," or other similar payments to any present or former personnel
following termination of employment or otherwise as a result of the
consummation of the transactions contemplated by this Agreement;
(ix) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating
to an obligation to pay money, whether Mixman shall be the borrower, lender
or guarantor thereunder (excluding credit provided by Mixman in the
ordinary course of business to purchasers of its products and obligations
to pay vendors in the ordinary course of business and consistent with past
practice);
(x) Contracts containing covenants limiting the freedom of Mixman
or any officer, director, Employee or Affiliate of Mixman, to engage in any
line of business that relates directly or indirectly to Mixman's Business
or compete with any person in a business that relates directly or
indirectly to Mixman's Business;
(xi) Contracts that relate to corporate governance, voting on
transfer of equity securities, registration of securities under the
Securities Act or that grants any redemption or pre-emptive rights; and
(xii) Any other Contract material to Mixman's Business or Assets.
True, correct and complete copies of all of the Contracts listed in Section 3.10
of the Mixman Disclosure Schedule (the "Mixman Scheduled Contracts"), including
all amendments and supplements thereto, have been delivered to Beatnik.
(b) Absence of Defaults. All of the Mixman Scheduled Contracts are valid,
binding and enforceable in accordance with their terms with no existing (or to
the knowledge of Mixman, threatened) Default or dispute. Mixman has fulfilled,
or taken all action necessary to enable it to fulfill when due, all of its
material obligations under each of the Mixman Scheduled Contracts. To the
knowledge of Mixman, all parties to the Mixman Scheduled Contracts have complied
in all material respects with the provisions thereof and no party is in Default
thereunder. No notice
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of any claim of Default with respect to the Mixman Scheduled Contracts has been
given to Mixman. Mixman has no reason to believe that the products or services
called for by any executory Mixman Scheduled Contract cannot be supplied in
accordance with the terms of such Mixman Scheduled Contract, including time
specifications, and no reason to believe that any unfinished Mixman Scheduled
Contract will, upon performance by Mixman, result in a loss to Mixman.
3.11 No Conflict or Violation; Consents. None of the execution, delivery
----------------------------------
or, subject to the approval and adoption of this Agreement and approval of the
Merger by Mixman's shareholders, performance of this Agreement or any Ancillary
Agreement, the consummation of the transactions contemplated hereby or thereby,
nor compliance by Mixman with any of the provisions hereof or thereof, will (a)
violate or conflict with any provision of its governing documents, (b) violate,
conflict with, or result in a breach of or constitute a default (with or without
notice of passage of time) under, or result in the termination of, or accelerate
the performance required by, or result in a right to terminate, accelerate,
modify or cancel under, or require a notice under, or result in the creation of
any Encumbrance upon any of its respective Assets under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other arrangement to which Mixman is a party or by which Mixman is bound or to
which any of its Assets are subject where the occurrence of any of the above-
described events or circumstances, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Mixman; or (c)
violate any applicable Regulation or Court Order. Except for (i) the proper
filing and certification by the proper authorities of the Agreement of Merger,
(ii) notice to and approval of Mixman's shareholders to the adoption of this
Agreement and the Merger as may be required under the CCC and (iii) such filings
as may be required to comply with federal and state securities laws, no notices
to, declaration, filing or registration with, approvals or consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities) are necessary to be made or obtained by Mixman in
connection with the execution, delivery or performance of this Agreement or any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby.
3.12 Financial Statements; Books and Records.
---------------------------------------
(a) The Mixman Financial Statements, which are attached hereto as Annex 3,
are complete and fairly present its assets, liabilities and financial condition
and results of operations indicated thereby in accordance with GAAP consistently
applied throughout the periods covered thereby except, as to the unaudited
financial statements, for ordinary year-end adjustments and the absence of
required footnotes.
(b) Mixman maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed with
management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of Mixman's financial statements in accordance with GAAP and
to maintain accountability for assets, (iii) access to assets is permitted only
in accordance with management's authorization and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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(c) Mixman has not engaged in any transaction, maintained any bank account
or used any corporate funds except for transactions, bank accounts or funds
which have been and are reflected in its normally maintained Books and Records.
3.13 Absence of Certain Changes or Events. Since the Mixman Balance
------------------------------------
Sheet Date there has not been any:
(a) event resulting in a Material Adverse Effect on Mixman;
(b) failure by Mixman to operate its Business in the ordinary course so as
to use its commercially reasonable efforts to preserve its Business intact and
to preserve the continued services of its Employees and the goodwill of
suppliers, customers and others having business relations with Mixman or its
Representatives;
(c) resignation or termination of any officer of Mixman, or any increase
in the rate of compensation payable or to become payable to any officer or
director of Mixman, including the making of any loan to, or the payment, grant
or accrual of any bonus, incentive compensation, service award or other similar
benefit outside the ordinary course of business of Mixman to, any such Person;
(d) sale, transfer or lease of any properties or Assets of Mixman to, or
entrance by Mixman into of any Contract with, any Related Party;
(e) sale, assignment, license, transfer or encumbrance of any of Mixman's
Assets tangible or intangible, where the value of an individual item exceeds
$25,000 or where the value of an aggregate of similar items exceeds $50,000,
other than sales of products and services in the ordinary course of business and
consistent with past practice;
(f) change in accounting methods or practices by Mixman;
(g) revaluation by Mixman of any of its Assets, including writing off
notes or accounts receivable other than for which adequate reserves have been
established;
(h) damage, destruction or loss (whether or not covered by insurance)
which resulted in a Material Adverse Effect on Mixman;
(i) declaration, setting aside or payment of dividends or distributions in
respect of any stock of Mixman or any redemption, purchase or other acquisition
of any of Mixman's equity securities;
(j) cancellation of any indebtedness or waiver of any rights of
substantial value to Mixman, except in the ordinary course of business and
consistent with past practice;
(k) indebtedness incurred by Mixman for borrowed money or any commitment
to borrow money entered into by Mixman, or any loans made or agreed to be made
by Mixman;
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(l) Liability incurred by Mixman except in the ordinary course of business
and consistent with past practice, or any increase or change in any assumptions
underlying or methods of calculating any bad debt, contingency or other
reserves;
(m) payment, discharge or satisfaction of any Liabilities of Mixman other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of Liabilities reflected or reserved against
in the Mixman Financial Statements or incurred in the ordinary course of
business and consistent with past practice since the Mixman Balance Sheet Date;
(n) acquisition of any equity interest in any other Person; or
(o) agreement by Mixman to do any of the foregoing.
3.14 Liabilities. Mixman has no Liabilities or obligations (absolute,
-----------
accrued, contingent or otherwise) except (i) liabilities which are reflected and
properly reserved against in the Mixman Balance Sheet, (ii) liabilities incurred
in the ordinary course of business and consistent with past practice since the
Mixman Balance Sheet Date (all of which liabilities do not exceed $100,000 in
the aggregate) and (iii) liabilities arising under the Contracts (other than
obligations which are required to be reflected on a balance sheet prepared in
accordance with GAAP).
3.15 Litigation. There is no action, order, writ, injunction, judgment
----------
or decree outstanding or claim, suit, litigation, proceeding, investigation or
dispute (collectively, "Actions") pending or, to the knowledge of Mixman,
threatened or anticipated (i) against, relating to or affecting Mixman, any of
its Assets or any of its officers and directors as such, (ii) which seek to
enjoin or obtain damages in respect of the transactions contemplated hereby or
by the Ancillary Agreements or (iii) with respect to which there is a reasonable
likelihood of a determination which would prevent Mixman from consummating the
transactions contemplated hereby. No Action, if adversely determined against
Mixman, its directors or officers, or any other Person could reasonably be
expected to result in a loss to Mixman, individually or in the aggregate, in
excess of $25,000. To the knowledge of Mixman, there is no reasonable basis for
any Action, which if adversely determined against Mixman, its directors or
officers, or any other Person could reasonably be expected to result in a loss
to Mixman, individually or in the aggregate, in excess of $25,000. There are
presently no outstanding judgments, decrees or orders of any court or any
governmental or administrative agency against or affecting Mixman, its Business
or any of its Assets. There are no Court Orders or agreements with, or liens by,
any governmental authority relating to any environmental laws which regulate,
obligate, bind or in any way affect Mixman, its Business or any of its Assets.
3.16 Labor Matters.
-------------
(a) Mixman is not a party to any labor agreement with respect to its
Employees with any labor organization, group or association and has not
experienced any attempt by organized labor or its representatives to make Mixman
conform to demands of organized labor relating to its Employees or to enter into
a binding agreement with organized labor that would cover the Employees of
Mixman. There is no unfair labor practice charge or complaint against Mixman
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pending before the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other federal, state or local governmental agency
arising out of Mixman's activities, and Mixman has no knowledge of any facts or
information which would give rise thereto. To the knowledge of Mixman there is
no labor strike or labor disturbance pending or threatened against Mixman nor is
any grievance currently being asserted against it. Mixman has not experienced a
work stoppage or other labor difficulty. There are no material controversies
pending or, to the knowledge of Mixman, threatened between Mixman and any of its
Employees, and Mixman is not aware of any facts which could reasonably result in
any such controversy.
(b) Mixman is in material compliance with all applicable Regulations
respecting employment practices, terms and conditions of employment, wages and
hours, equal employment opportunity, and the payment of social security and
similar taxes, and is not engaged in any unfair labor practice. Mixman is not
liable for any claims for past due wages or any penalties for failure to comply
with any of the foregoing.
3.17 Employee Benefit Plans.
----------------------
(a) Section 3.17(a) of the Mixman Disclosure Schedule contains a list of
all "employee pension benefit plans" (as defined in Section 3(2) of ERISA)
(sometimes referred to herein as "Pension Plans"), "employee welfare benefit
plans" (as defined in Section 3(l) of ERISA) and all other Benefit Plans
maintained or contributed to by Mixman or any person or entity that, together
with Mixman, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code (a "Commonly Controlled Entity") for the benefit of any current
or former officers, directors or employees of Mixman. Mixman has made available
to Beatnik true, complete and correct copies of (i) each Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (ii) the most
recent annual report on Form 5500 required to be filed with the Internal Revenue
Service (the "IRS") with respect to each Benefit Plan (if any such report was
required), (iii) the most recent summary plan description for each Benefit Plan
for which such summary plan description is required and (iv) each trust
agreement and group annuity contract relating to any Benefit Plan. Each Benefit
Plan has been administered in accordance with its terms, except where the
failure to so administer would not, individually or in the aggregate, have a
Material Adverse Effect on Mixman. Mixman and all the Benefit Plans are all in
compliance with applicable provisions of ERISA and the Code, except for
instances of possible noncompliance that would not, individually or in the
aggregate, have a Material Adverse Effect on Mixman.
(b) Each of the Pension Plans has been the subject of a determination
letter (or its equivalent) from the IRS to the effect that such Pension Plan is
qualified and exempt from United States Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such determination letter
(or its equivalent) has been revoked nor has any event occurred since the date
of its most recent determination letter (or its equivalent) or application
therefor that would adversely affect its qualification or materially increase
its costs.
(c) Neither Mixman nor any Commonly Controlled Entity of Mixman has
maintained, contributed to or been obligated to contribute to any Benefit Plan
that is subject to Title IV of ERISA.
-22-
<PAGE>
(d) Mixman has made available to Beatnik a list of all options to
purchase shares of Mixman Common Stock issued under the Mixman Option Plan
outstanding as of September 17, 1999, indicating for each such option (i) the
number of shares issuable, (ii) the number of vested shares, (iii) the date of
expiration and (iv) the exercise price.
(e) No director, officer or employee of Mixman will be entitled to any
additional compensation or benefits or any acceleration of the time of payment
or vesting of any compensation or benefits under any Benefit Plan as a result of
the transactions contemplated by this Agreement or any benefits under any
Benefits Plan the value of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
3.18 Transactions with Related Parties. To the knowledge of Mixman no
---------------------------------
Related Party has (a) borrowed or loaned money or other property to Mixman,
other than the Mixman Convertible Debt, which has not been repaid or returned,
(b) any contractual or other claims, express or implied, of any kind whatsoever
against Mixman, or (c) has any interest in any property used by Mixman in its
Business.
3.19 Compliance with Law. Mixman has conducted its Business in
-------------------
Mixman has conducted its Business in material compliance with all
applicable Regulations and Court Orders. Mixman has not received any notice to
the effect that, or has otherwise been advised that, Mixman is not in compliance
with any such Regulations or Court Orders, and Mixman does not have any reason
to anticipate that any existing circumstances are likely to result in any
material violation of any of the foregoing.
3.20 Intellectual Property.
---------------------
(a) General. Section 3.20 of the Mixman Disclosure Schedule accurately
-------
sets forth, with respect to Mixman's Intellectual Property: (i) for each patent,
the number, normal expiration date, title and priority information for each
country in which such patent has been issued and, for each patent application,
the application number, date of filing, title and priority information for each
country, (ii) for each trademark, trade name or service mark, whether or not
registered, the date first used, any application serial number or registration
number, the class of goods covered, the nature of the goods or services, the
countries in which the names or mark is used and the expiration date for each
country in which a trademark has been registered, (iii) for each copyright for
which registration has been sought, whether or not registered, the date of
creation and first publication of the work, the number and date of registration
for each country in which a copyright application has been registered, (iv) for
each mask work, whether or not registered, the date of first commercial
exploitation and if registered, the registration number and date of registration
and (v) for all Proprietary Rights in the form of licenses, the same information
for the type of Intellectual Property that is set forth above, plus the name of
the owner, the name of the licensor (if different from the owner) and the date
of the license. A true and correct copy (as amended to date) of each of the
items listed in Section 3.20 of the Mixman Disclosure Schedule (including all
pending applications, application related documents and materials and written
license agreements has been provided to Beatnik.
(b) Adequacy. To its knowledge, Mixman's Proprietary Rights are all
--------
those necessary for the normal conduct of its Business as presently conducted,
including the design, manufacture, sale and use of all products offered by
Mixman.
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<PAGE>
(c) Royalties and Licenses. To its knowledge, Mixman has no obligation
----------------------
to compensate any Person for the use of any of the Proprietary Rights necessary
to conduct its Business as presently conducted nor has Mixman granted to any
Person any license, option or other rights to use in any manner any of its
Intellectual Property, whether requiring the payment of royalties or not, except
for license agreements pursuant to which Mixman licenses its Intellectual
Property to third parties in the ordinary course of its business.
(d) Ownership. To its knowledge, Mixman owns or has a valid rights to
---------
its Intellectual Property (including without limitation, the Intellectual
Property set forth in Section 3.20 of the Mixman Disclosure Schedule). Mixman's
Proprietary Rights will not cease in any manner or become diminished or diluted
by reason of the execution, delivery and performance of this Agreement or the
Ancillary Agreements or the consummation of the transactions contemplated hereby
or thereby. To its knowledge, Mixman's Intellectual Property is free from any
security interest, lien, encumbrance or other restriction and is not subject to
any outstanding injunction, judgement, order decree, ruling or charge.
(e) Absence of Claims. Mixman has not received notice of (A) alleged
-----------------
invalidity with respect to any of Mixman's Proprietary Rights (including a
challenge to the underlying Intellectual Property) or (B) alleged infringement
of any rights of others due to any activity by Mixman. To the knowledge of
Mixman, Mixman's use of its Proprietary Rights in its past, current and planned
products do not and would not infringe upon or otherwise violate the valid
rights of any third party anywhere in the world. No other Person has notified
Mixman that it is claiming any ownership of or right to use any of Mixman's
Proprietary Rights.
(f) Protection of Proprietary Rights. Mixman has taken reasonable steps
--------------------------------
necessary, customary or appropriate (including, entering into appropriate
assignment, confidentiality and nondisclosure agreements with officers,
directors, consultants, contractors, vendors, Employees, licensees and customers
in connection with Mixman's Assets and Business) to safeguard and maintain
Mixman's interest in the Intellectual Property used in Mixman's Business.
3.21 Tax Matters.
-----------
(a) Filing of Tax Returns. Mixman has timely filed with the appropriate
---------------------
taxing authorities all Tax Returns in respect of Taxes required to be filed
prior to the date hereof. The Tax Returns filed are complete and accurate in
all material respects. Mixman has not requested any extension of time within
which to file Tax Returns in respect of any Taxes. Mixman has delivered to
Beatnik complete and accurate copies of its respective federal, state and local
Tax Returns for the years ended December 31, 1997 and 1998.
(b) Payment of Taxes. All Taxes due from Mixman, or for which it could
----------------
be liable, in respect of periods beginning before the Closing Date have been
timely paid or an adequate reserve has been established therefor, and Mixman has
no material Liability for Taxes in excess of the amounts so paid or reserves so
established. All Taxes that Mixman is required by law to withhold or collect
have been duly withheld or collected and have been timely paid over to the
appropriate governmental authorities to the extent due and payable.
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<PAGE>
(c) Audits, Investigations or Claims. There are no pending or, to the
--------------------------------
knowledge of Mixman, threatened audits, assessments or other Actions for or
relating to any Liability in respect of Taxes of Mixman, and there are no
matters under discussion with any governmental authorities, or known to Mixman,
with respect to Taxes that are likely to result in an additional Liability for
Taxes. No extension of a statute of limitations relating to Taxes is in effect
with respect to Mixman.
(d) Lien. There are no Encumbrances for Taxes (other than for current
----
Taxes not yet due and payable) on any of Mixman's Assets.
(e) Prior Affiliated Groups. Mixman has never been a member of an
-----------------------
affiliated group of corporations within the meaning of Section 1504 of the Code.
(f) Tax Sharing Agreements. There are no Tax-sharing agreements or
----------------------
similar arrangements (including indemnity arrangements) with respect to or
involving Mixman, and, after the Closing Date, Mixman shall not be bound by any
such Tax-sharing agreements or similar arrangements (entered into prior to the
Closing) or have any Liability thereunder for amounts due in respect of periods
prior to the Closing Date.
(g) Partnerships. Mixman does not have an interest in and is not subject
------------
to any joint venture, partnership, or other arrangement or contract which is
treated as a partnership for federal income tax purposes.
(h) Foreign Person. For purposes of withholding under Section 1445 of
--------------
the Code, Mixman is not a "foreign person" as defined in Section 1445(f)(3) of
the Code.
(i) U.S. Real Property Holding Corporation. Mixman is not and has never
--------------------------------------
been a United States real property holding corporation as defined in Section
897(c)(2) of the Code.
(j) No Withholding. The transaction contemplated herein is not subject
--------------
to the tax withholding provisions of Section 3406 of the Code, or of Subchapter
A of Chapter 3 of the Code or of any other provision of law.
3.22 Insurance. Section 3.22 of the Mixman Disclosure Schedule contains a
---------
complete and accurate list of all policies or binders of insurance (showing as
to each policy or binder the carrier, policy number, coverage limits, expiration
dates, annual premiums, a general description of the type of coverage provided
and any pending claims thereunder) of which Mixman is the owner, insured or
beneficiary. Such policies are sufficient for (i) compliance with any insurance
requirements imposed by applicable Regulations and any of the Mixman Contracts,
(ii) covering all reasonably foreseeable damage to and liabilities or
contingencies relating to Mixman's conduct of its Business and (iii) providing
replacement cost insurance coverage for all of its material Assets, Fixtures and
Equipment and all material leasehold improvements. Mixman is not in default
under any of such policies or binders, and it has not failed to give any notice
or to present any claim under any such policy or binder in a due and timely
fashion. There are no facts known to Mixman upon which an insurer might
reasonably be justified in reducing or denying coverage or increasing premiums
on existing policies or binders. There are no outstanding unpaid claims under
any such policies or binders. Such policies and binders are in
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<PAGE>
full force and effect on the date hereof and shall be kept in full force and
effect by Mixman through the Closing Date.
3.23 Accounts Receivable. The accounts and notes receivable reflected in
-------------------
the Mixman Balance Sheet, and all accounts or notes receivable arising since the
Mixman Balance Sheet Date, represent bona fide claims against debtors for sales,
services performed or other charges arising on or before the date of recording
thereof, and all the goods delivered and services performed which gave rise to
said accounts were delivered or performed in accordance with the applicable
orders, Contracts or customer requirements. To the knowledge of Mixman, all such
receivables are fully collectible in the ordinary course of business.
3.24 Inventory. The value at which the Inventory is shown on the
---------
Mixman Balance Sheet has been determined in accordance with the normal valuation
policy of Mixman, consistently applied and in accordance with GAAP. The
Inventory of Mixman consists only of items of quality and quantity commercially
usable and salable in the ordinary course of business, except for any items of
obsolete material or material below standard quality, all of which have been
written down to realizable market value, or for which adequate reserves have
been provided, and the present quantity of all Inventory is reasonable in the
present circumstances of Mixman's Business.
3.25 Environmental Matters. To the knowledge of Mixman, Mixman is
---------------------
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to the knowledge of Mixman,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
3.26 Brokers; Transaction Costs. Mixman has not entered into and will
--------------------------
not enter into any contract, agreement, arrangement or understanding with any
Person which will result in the obligation of Beatnik to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
3.27 "Market Stand-Off" Agreement. Each Mixman shareholder, option holder
---------------------------
and warrant holder is bound by an agreement that such shareholder, option holder
or warrant holder will not, to the extent requested by Mixman or any successor
thereof, or an underwriter of securities of Mixman or any successor thereof,
sell or otherwise transfer or dispose of such shareholder's, option holder's or
warrant holder's Mixman shares (or any shares issued in exchange therefore)
(with certain exceptions for transfers to donees or partners of the shareholder
who agree to be similarly bound) for up to one hundred eigthty (180) days
following the effective date of a registration statement filed under the
Securities Act; provided that such agreement shall be applicable only to the
first such registration statement of Mixman or any successor thereof, which
covers securities to be sold on its behalf to the public in an underwritten
offering; and provided further, that all officers and directors of Mixman or any
successor thereof, and all the holders of more than one percent (1%) of the
Common Stock of Mixman or any successor thereof, enter into similar agreements.
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<PAGE>
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF BEATNIK
-----------------------------------------
Except as set forth on the disclosure letter supplied by Beatnik and
attached to this Agreement as Annex 4 (the "Beatnik Disclosure Schedule"),
Beatnik and Merger Sub represent and warrant to Mixman as follows:
4.1 Organization of Beatnik. Each of Beatnik and Merger Sub is a
-----------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Each of Beatnik and Merger Sub has full corporate
power and authority to conduct its Business as it is presently being conducted
and to own or lease, as applicable, its Assets. Each of Beatnik and Merger Sub
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is necessary under
applicable law as a result of the conduct of its Business or the ownership of
its properties and where the failure to be so qualified would have a Material
Adverse Effect on Beatnik and Merger Sub.
4.2 Capitalization of Beatnik and Merger Sub.
----------------------------------------
(a) There are 40,000,000 shares of Beatnik Common Stock authorized under
Beatnik's Restated Articles, 7,065,109 of which were issued and outstanding as
of September 17, 1999, and 25,530 shares of which were reserved for issuance
pursuant to certain of the Beatnik warrants. There are 3,709,971 shares of
Beatnik Series A Preferred Stock authorized under its Restated Articles, all of
which are issued and outstanding. Each share of Beatnik Series A Preferred Stock
is convertible into 1.0 share of Beatnik Common Stock. There are 1,309,523
shares of Beatnik Series B Preferred Stock authorized under its Restated
Articles, all of which are issued and outstanding. Each share of Beatnik Series
B Preferred Stock is convertible into 1.0 share of Beatnik Common Stock. There
are 10,500,000 shares of Beatnik Series C Preferred Stock authorized under its
Restated Articles, 9,439,991 of which were issued and outstanding as of
September 17, 1999, and 333,888 shares of which were reserved for issuance
pursuant to certain of the Beatnik Warrants. Each share of Beatnik Series C
Preferred Stock is convertible into 1.0 share of Beatnik Common Stock. As of the
Closing there will be such number of shares of Beatnik Series D-1 Preferred
Stock and Beatnik Series D-2 Preferred Stock authorized under Beatnik's Restated
Articles as are necessary for the conversion of the Mixman Preferred Stock, none
of which will be issued and outstanding prior to the Closing. There are
additional shares of Beatnik Preferred Stock authorized under its Restated
Articles, none of which are designated, issued and outstanding. Beatnik has no
other stock authorized, issued or outstanding.
(b) As of September 17, 1999, 2,076,688 shares of Beatnik Common Stock
were reserved for issuance upon the exercise of outstanding Beatnik Options, and
59,346 shares of Beatnik Common Stock were available for future grant of options
under the Beatnik Option Plan.
(c) Except for the shares of Beatnik Preferred Stock, Beatnik Warrants
and Beatnik Options referred to above, there are no options, warrants,
convertible securities or rights of any kind to purchase or otherwise acquire
any shares of capital stock or other securities of Beatnik outstanding as of
September 17, 1999.
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<PAGE>
(d) All outstanding shares of Beatnik Stock are, and any shares of
Beatnik Stock issued upon conversion of any shares of Beatnik Preferred Stock or
exercise and/or conversion of any Beatnik Options or Beatnik Warrants will be
upon conversion or exercise in accordance with the terms of the applicable
instrument, duly authorized, validly issued, fully paid and non-assessable and
not subject to any preemptive rights. All outstanding shares of Beatnik Stock,
Beatnik Options and Beatnik Warrants have been issued in compliance with all
federal and state corporate and securities laws. There are no bonds, debentures,
notes or other indebtedness of Beatnik having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which shareholders of Beatnik may vote. Except as set forth above and as
provided in Beatnik's Restated Articles, there are no securities, options,
warrants, calls, rights, contracts, commitments, agreements, arrangements,
obligations or undertakings of any kind to which Beatnik is a party, or by which
Beatnik is bound, obligating Beatnik to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of Beatnik or securities convertible or exchangeable thereafter or
obligating Beatnik to issue, grant, extend or enter into any such security,
option, warrant, call, right, contract, commitment, agreement, arrangement,
obligation or undertaking. There are not any outstanding contractual obligations
requiring Beatnik to repurchase, redeem or otherwise acquire any shares of
capital stock of Beatnik.
(e) There are 1,000 shares of Common Stock authorized under Merger Sub's
Articles of Incorporation, all of which were issued and outstanding as of
September 17, 1999. Except for the shares of Merger Sub Common Stock referred to
above, there are no options, warrants, convertible securities or rights of any
kind to purchase or otherwise acquire any shares of capital stock or other
securities of Merger Sub outstanding as of September 17, 1999. All outstanding
shares of Merger Sub Common Stock are duly authorized, validly issued, fully
paid and non-assessable and not subject to any preemptive rights.
4.3 Authorization. Each of Beatnik and Merger Sub has all necessary
-------------
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party and has taken all corporate or other action
necessary to consummate the transactions contemplated hereby and thereby and to
perform its respective obligations hereunder and thereunder. This Agreement has
been duly executed and delivered by each of Beatnik and Merger Sub, and this
Agreement is, and upon execution and delivery of each of the Ancillary
Agreements to which Beatnik or Merger Sub is a party, will be, a legal, valid
and binding obligation of Beatnik or Merger Sub, as the case may be, enforceable
against Beatnik or Merger Sub in accordance with its terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors.
4.4 Officers and Directors. Section 4.4 of the Beatnik Disclosure
----------------------
Schedule contains a true, correct and complete list of all the officers and
directors of Beatnik and all the officers and directors of Merger Sub.
4.5 Subsidiaries, Etc. Beatnik does not own or hold any equity interest
------------------
of any kind in any Person other than Merger Sub. Merger Sub does not own or hold
any equity interest of any kind in any other Person.
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<PAGE>
4.6 Title to Assets. Except as set forth in Section 4.6 of the Beatnik
---------------
Disclosure Schedule, Beatnik has good and marketable fee simple title to its
Assets, and none of its Assets are subject to any Encumbrances. Merger Sub has
no material assets or liabilities.
4.7 Sufficiency of Assets. The Assets of Beatnik constitute all of the
---------------------
assets, rights and properties, tangible or intangible, real or personal, which
are required for the operation of Beatnik's Business as it is presently
conducted.
4.8 Contracts.
---------
(a) Disclosure. Section 4.8 of the Beatnik Disclosure Schedule sets
forth a complete and accurate list of all of Beatnik's Contracts of the
following categories:
(i) Contracts not made in the ordinary course of business;
(ii) Manufacturing or joint development agreements;
(iii) License agreements or royalty agreements, whether Beatnik is
the licensor or licensee thereunder, other than license
agreements pursuant to which Beatnik licenses its intellectual
property to third parties in the ordinary course of its
business;
(iv) Confidentiality and non-disclosure agreements (whether Beatnik
is the beneficiary or the obligated party thereunder);
(v) Contracts made with independent contractors pursuant to which
Beatnik has retained such contractor to engage in research
relating to the development of products for Beatnik's business;
(vi) Contracts or commitments involving future expenditures or
Liabilities, actual or potential, in excess of $50,000 after
the date hereof or otherwise material to Beatnik's Business or
Assets;
(vii) Contracts or commitments relating to commission arrangements
with others, other than agreements with Beatnik personnel
entered into by Beatnik in the ordinary course of its business;
(viii) Employment contracts, consulting contracts and severance
agreements, including Contracts (A) to employ or terminate
executive officers or other personnel and other contracts with
present or former officers or directors of Beatnik or (B) that
will result in the payment or the creation of any Liability to
pay any severance, termination, "golden parachute," or other
similar payments to any present or former personnel following
termination of employment or otherwise as a result of the
consummation of the transactions contemplated by this
Agreement;
(ix) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other
instruments relating to an obligation to pay money, whether
Beatnik shall be the borrower, lender or guarantor thereunder
(excluding credit provided by Beatnik in the ordinary course of
business to purchasers of
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<PAGE>
its products and obligations to pay vendors in the ordinary course of
business and consistent with past practice);
(x) Contracts containing covenants limiting the freedom of Beatnik
or any officer, director, Employee or Affiliate of Beatnik, to engage in
any line of business that relates directly or indirectly to Beatnik's
Business or compete with any person in a business that relates directly or
indirectly to Beatnik's Business;
(xi) Contracts that relate to corporate governance, voting on
transfer of equity securities, registration of securities under the
Securities Act or that grants any redemption or pre-emptive rights; and
(xii) Any other Contract material to Beatnik's Business or Assets.
True, correct and complete copies of all of the Contracts listed in Section 4.8
of the Beatnik Disclosure Schedule (the "Beatnik Scheduled Contracts"),
including all amendments and supplements thereto, have been delivered to Mixman.
(b) Absence of Defaults. All of the Beatnik Scheduled Contracts are valid,
binding and enforceable in accordance with their terms with no existing (or to
the knowledge of Beatnik, threatened) Default or dispute. Beatnik has fulfilled,
or taken all action necessary to enable it to fulfill when due, all of its
material obligations under each of the Beatnik Scheduled Contracts. To the
knowledge of Beatnik, all parties to the Beatnik Scheduled Contracts have
complied in all material respects with the provisions thereof and no party is in
Default thereunder. No notice of any claim of Default with respect to the
Beatnik Scheduled Contracts has been given to Beatnik. Beatnik has no reason to
believe that the products or services called for by any executory Beatnik
Scheduled Contract cannot be supplied in accordance with the terms of such
Beatnik Scheduled Contract, including time specifications, and no reason to
believe that any unfinished Beatnik Scheduled Contract will, upon performance by
Beatnik, result in a loss to Beatnik.
4.9 No Conflict or Violation; Consents. None of the execution, delivery
----------------------------------
or, subject to the approval and adoption of this Agreement and approval of the
Merger by Beatnik's or Merger Sub's shareholders, performance of this Agreement
or any Ancillary Agreement, the consummation of the transactions contemplated
hereby or thereby, nor compliance by Beatnik or Merger Sub with any of the
provisions hereof or thereof, will (a) violate or conflict with any provision of
their respective governing documents, (b) violate, conflict with, or result in a
breach of or constitute a default (with or without notice of passage of time)
under, or result in the termination of, or accelerate the performance required
by, or result in a right to terminate, accelerate, modify or cancel under, or
require a notice under, or result in the creation of any Encumbrance upon any of
their respective Assets under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, security interest or other arrangement to
which Beatnik or Merger Sub is a party or by which Beatnik or Merger Sub is
bound or to which any of its Assets are subject where the occurrence of any of
the above described events or circumstances, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Beatnik, or
(c) violate any applicable Regulation or Court Order. Except for (i) the proper
filing and certification by the proper authorities of the Agreement of Merger,
(ii) notice to and approval of
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<PAGE>
Beatnik's and Merger Sub's shareholders to the adoption of this Agreement and
the Merger as may be required under the CCC, and (iii) such filings as may be
required to comply with federal and state securities laws, no notices to,
declaration, filing or registration with, approvals or consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities) are necessary to be made or obtained by Beatnik
or Merger Sub in connection with the execution, delivery or performance of this
Agreement or any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.
4.10 Financial Statements; Books and Records.
---------------------------------------
(a) The Beatnik Financial Statements, which are attached hereto as Annex
5, are complete and fairly present its assets, liabilities and financial
condition and results of operations indicated thereby.
(b) Beatnik maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed with
management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of Beatnik's financial statements in accordance with GAAP and
to maintain accountability for assets, (iii) access to assets is permitted only
in accordance with management's authorization and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(c) Beatnik has not engaged in any transaction, maintained any bank
account or used any corporate funds except for transactions, bank accounts or
funds which have been and are reflected in its normally maintained Books and
Records.
4.11 Absence of Certain Changes or Events. Since the Beatnik Balance
------------------------------------
Sheet Date there has not been any:
(a) event resulting in a Material Adverse Effect on Beatnik;
(b) failure by Beatnik to operate its Business in the ordinary course so
as to use its commercially reasonable efforts to preserve its Business intact
and to preserve the continued services of its Employees and the goodwill of
suppliers, customers and others having business relations with Beatnik or its
Representatives;
(c) resignation or termination of any officer of Beatnik, or any increase
in the rate of compensation payable or to become payable to any officer or
director of Beatnik, including the making of any loan to, or the payment, grant
or accrual of any bonus, incentive compensation, service award or other similar
benefit outside the ordinary course of business of Beatnik to, any such Person;
(d) sale, transfer or lease of any properties or Assets of Beatnik to, or
entrance by Beatnik into of any Contract with, any Related Party;
(e) sale, assignment, license, transfer or encumbrance of any of
Beatnik's Assets tangible or intangible, where the value of an individual item
exceeds $25,000 or where the value
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<PAGE>
of an aggregate of similar items exceeds $50,000, other than sales of products
and services in the ordinary course of business and consistent with past
practice;
(f) change in accounting methods or practices by Beatnik;
(g) revaluation by Beatnik of any of its Assets, including writing off
notes or accounts receivable other than for which adequate reserves have been
established;
(h) damage, destruction or loss (whether or not covered by insurance)
which resulted in a Material Adverse Effect on Beatnik;
(i) declaration, setting aside or payment of dividends or distributions
in respect of any stock of Beatnik or any redemption, purchase or other
acquisition of any of Beatnik's equity securities;
(j) cancellation of any indebtedness or waiver of any rights of
substantial value to Beatnik, except in the ordinary course of business and
consistent with past practice;
(k) indebtedness incurred by Beatnik for borrowed money or any commitment
to borrow money entered into by Beatnik, or any loans made or agreed to be made
by Beatnik;
(l) Liability incurred by Beatnik except in the ordinary course of
business and consistent with past practice, or any increase or change in any
assumptions underlying or methods of calculating any bad debt, contingency or
other reserves;
(m) payment, discharge or satisfaction of any Liabilities of Beatnik
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of Liabilities reflected or reserved
against in the Beatnik Financial Statements or incurred in the ordinary course
of business and consistent with past practice since the Beatnik Balance Sheet
Date;
(n) acquisition of any equity interest in any other Person other than
Merger Sub; or
(o) agreement by Beatnik to do any of the foregoing.
4.12 Liabilities. Neither Beatnik nor Merger Sub has any Liabilities or
-----------
obligations (absolute, accrued, contingent or otherwise) except (i) liabilities
which are reflected and properly reserved against in the Beatnik Balance Sheet,
(ii) liabilities incurred in the ordinary course of business and consistent with
past practice since the Beatnik Balance Sheet Date (all of which liabilities do
not exceed $100,000 in the aggregate) and (iii) liabilities arising under the
Contracts (other than obligations which are required to be reflected on a
balance sheet prepared in accordance with GAAP).
4.13 Litigation. There are no Actions pending or, to the knowledge of
----------
of Beatnik, threatened or anticipated (i) against, relating to or affecting
Beatnik or Merger Sub, any of their Assets or any of their officers and
directors as such, (ii) which seek to enjoin or obtain damages in respect of the
transactions contemplated hereby or by the Ancillary Agreements or (iii) with
respect to which there is a reasonable likelihood of a determination which would
prevent Beatnik
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or Merger Sub from consummating the transactions contemplated hereby. No
Action, if adversely determined against Beatnik or Merger Sub, their directors
or officers, or any other Person could reasonably be expected to result in a
loss to Beatnik or Merger Sub, individually or in the aggregate, in excess of
$50,000. To the knowledge of Beatnik or Merger Sub, there is no reasonable basis
for any Action, which if adversely determined against Beatnik or Merger Sub,
their directors or officers, or any other Person could reasonably be expected to
result in a loss to Beatnik or Merger Sub, individually or in the aggregate, in
excess of $50,000. There are presently no outstanding judgments, decrees or
orders of any court or any governmental or administrative agency against or
affecting Beatnik or Merger Sub, their Business or any of their Assets. There
are no Court Orders or agreements with, or liens by, any governmental authority
relating to any environmental laws which regulate, obligate, bind or in any way
affect Beatnik, Merger Sub, their Business or any of their Assets.
4.14 Labor Matters
-------------
(a) Beatnik is not a party to any labor agreement with respect to its
Employees with any labor organization, group or association and has not
experienced any attempt by organized labor or its representatives to make
Beatnik conform to demands of organized labor relating to its Employees or to
enter into a binding agreement with organized labor that would cover the
Employees of Beatnik. There is no unfair labor practice charge or complaint
against Beatnik pending before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other federal, state or local
governmental agency arising out of Beatnik's activities, and Beatnik has no
knowledge of any facts or information which would give rise thereto. To the
knowledge of Beatnik there is no labor strike or labor disturbance pending or
threatened against Beatnik nor is any grievance currently being asserted against
it. Beatnik has not experienced a work stoppage or other labor difficulty. There
are no material controversies pending or, to the knowledge of Beatnik,
threatened between Beatnik and any of its Employees, and Beatnik is not aware of
any facts which could reasonably result in any such controversy.
(b) Beatnik is in material compliance with all applicable Regulations
respecting employment practices, terms and conditions of employment, wages and
hours, equal employment opportunity, and the payment of social security and
similar taxes, and is not engaged in any unfair labor practice. Beatnik is not
liable for any claims for past due wages or any penalties for failure to comply
with any of the foregoing.
4.15 Employee Benefit Plans
----------------------
(a) Section 4.15(a) of the Beatnik Disclosure Schedule contains a list of
a Pension Plans, "employee welfare benefit plans" (as defined in Section 3(l) of
ERISA) and all other Benefit Plans maintained or contributed to by Beatnik or
any person or entity that, together with Beatnik, is treated as a Commonly
Controlled Entity for the benefit of any current or former officers, directors
or employees of Beatnik. Beatnik has made available to Beatnik true, complete
and correct copies of (i) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof), (ii) the most recent annual report on Form
5500 required to be filed with the IRS with respect to each Benefit Plan (if any
such report was required), (iii) the most recent summary plan description for
each Benefit Plan for which such summary plan description is required and (iv)
each trust agreement and group annuity contract relating to any Benefit Plan.
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Each Benefit Plan has been administered in accordance with its terms, except
where the failure to so administer would not, individually or in the aggregate,
have a Material Adverse Effect on Beatnik. Beatnik and all the Benefit Plans are
all in compliance with applicable provisions of ERISA and the Code, except for
instances of possible noncompliance that would not, individually or in the
aggregate, have a Material Adverse Effect on Beatnik.
(b) Each of the Pension Plans has been the subject of a determination
letter (or its equivalent) from the IRS to the effect that such Pension Plan is
qualified and exempt from United States Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such determination letter
(or its equivalent) has been revoked nor has any event occurred since the date
of its most recent determination letter (or its equivalent) or application
therefor that would adversely affect its qualification or materially increase
its costs.
(c) Neither Beatnik nor any Commonly Controlled Entity of Beatnik has
maintained, contributed to or been obligated to contribute to any Benefit Plan
that is subject to Title IV of ERISA.
(d) Beatnik has made available to Mixman a list of all options to
purchase shares of Beatnik Common Stock issued under the Beatnik Option Plan
outstanding as of September 17, 1999, indicating for each such option (i) the
number of shares issuable, (ii) the number of vested shares, (iii) the date of
expiration and (iv) the exercise price.
(e) No director, officer or employee of Beatnik will be entitled to any
additional compensation or benefits or any acceleration of the time of payment
or vesting of any compensation or benefits under any Benefit Plan as a result of
the transactions contemplated by this Agreement or any benefits under any
Benefits Plan the value of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
4.16 Transactions with Related Parties. To the knowledge of Beatnik and
---------------------------------
Merger Sub, no Related Party has (a) borrowed or loaned money or other property
to Beatnik or Merger Sub which has not been repaid or returned, (b) any
contractual or other claims, express or implied, of any kind whatsoever against
Beatnik or Merger Sub or (c) has any interest in any property used by Beatnik or
Merger Sub used in their Businesses.
4.17 Compliance with Law. Beatnik has conducted its Business in material
-------------------
compliance with all applicable Regulations and Court Orders. Beatnik has not
received any notice to the effect that, or has otherwise been advised that,
Beatnik is not in compliance with any such Regulations or Court Orders, and
Beatnik does not have any reason to anticipate that any existing circumstances
are likely to result in any material violation of any of the foregoing.
4.18 Intellectual Property.
---------------------
(a) General. Section 3.20 of the Beatnik Disclosure Schedule sets forth
-------
with respect to Beatnik's Proprietary Rights: (i) for each patent and patent
application, as applicable, the number, normal expiration date, title and
priority information for each country in which such patent has been issued, or,
the application number, date of filing, title and priority information for each
country, (ii) for each trademark, trade name or service mark, whether or not
registered, the date first used, the application serial number or registration
number, the class of goods
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covered, the nature of the goods or services, the countries in which the names
or mark is used and the expiration date for each country in which a trademark
has been registered, (iii) for each copyright for which registration has been
sought, whether or not registered, the date of creation and first publication of
the work, the number and date of registration for each country in which a
copyright application has been registered, (iv) for each mask work, whether or
not registered, the date of first commercial exploitation and if registered, the
registration number and date of registration and (v) all such Proprietary Rights
in the form of licenses. True and correct copies of all Proprietary Rights
(including all pending applications and application related documents and
materials) owned, controlled or used by or on behalf of Beatnik or in which
Beatnik has any interest whatsoever have been provided to Beatnik.
(b) Adequacy. To its knowledge Beatnik's Proprietary Rights are all those
--------
necessary for the normal conduct of its Business as presently conducted and as
presently contemplated, including the design, manufacture and sale of all
products currently under development, planned for development or in production.
(c) Royalties and Licenses. To its knowledge Beatnik has no obligation to
----------------------
compensate any Person for the use of any of its Proprietary Rights necessary to
conduct its Business as presently conducted nor has Beatnik granted to any
Person any license, option or other rights to use in any manner any of its
Proprietary Rights, whether requiring the payment of royalties or not, except
for license arrangements pursuant to which Beatnik licenses its Intellectual
Property to third parties in the ordinary course of its business.
(d) Ownership. To its knowledge Beatnik owns or has a valid right to use
---------
its Proprietary Rights, and such Proprietary Rights will not cease to be valid
rights of Beatnik by reason of the execution, delivery and performance of this
Agreement or the Ancillary Agreements or the consummation of the transactions
contemplated hereby or thereby.
(e) Absence of Claims. Beatnik has not received notice of (A) alleged
-----------------
invalidity with respect to any of Beatnik's Proprietary Rights or (B) alleged
infringement of any rights of others due to any activity by Beatnik. To the
knowledge of Beatnik, Beatnik's use of its Proprietary Rights in its past,
current and planned products do not and would not infringe upon or otherwise
violate the valid rights of any third party anywhere in the world. No other
Person has notified Beatnik that it is claiming any ownership of or right to use
any of Beatnik's Proprietary Rights.
(f) Protection of Proprietary Rights. Beatnik has taken reasonable steps
--------------------------------
necessary or appropriate (including, entering into appropriate confidentiality
and nondisclosure agreements with officers, directors, subcontractors,
Employees, licensees and customers in connection with Beatnik's Assets and
Business) to safeguard and maintain Beatnik's interest in the Intellectual
Property used in Beatnik's Business.
4.19 Tax Matters.
-----------
(a) Filing of Tax Returns. Beatnik has timely filed with the appropriate
---------------------
taxing authorities all Tax Returns in respect of Taxes required to be filed
prior to the date hereof. The Tax Returns filed are complete and accurate in all
material respects. Beatnik has not requested any extension of time within which
to file Tax Returns in respect of any Taxes. Beatnik has
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delivered to Beatnik complete and accurate copies of its respective federal,
state and local Tax Returns for the years ended December 31, 1997 and 1998.
(b) Payment of Taxes. All Taxes due from Beatnik, or for which it could
----------------
be liable, in respect of periods beginning before the Closing Date have been
timely paid or an adequate reserve has been established therefor, and Beatnik
has no material Liability for Taxes in excess of the amounts so paid or reserves
so established. All Taxes that Beatnik is required by law to withhold or collect
have been duly withheld or collected and have been timely paid over to the
appropriate governmental authorities to the extent due and payable.
(c) Audits, Investigations or Claims. There are no pending or, to the
--------------------------------
knowledge of Beatnik, threatened audits, assessments or other Actions for or
relating to any Liability in respect of Taxes of Beatnik, and there are no
matters under discussion with any governmental authorities, or known to Beatnik,
with respect to Taxes that are likely to result in an additional Liability for
Taxes. No extension of a statute of limitations relating to Taxes is in effect
with respect to Beatnik.
(d) Lien. There are no Encumbrances for Taxes (other than for current
----
Taxes not yet due and payable) on any of Beatnik's Assets.
(e) Prior Affiliated Groups. Beatnik has never been a member of an
-----------------------
affiliated group of corporations within the meaning of Section 1504 of the Code.
(f) Tax Sharing Agreements. There are no Tax-sharing agreements or
----------------------
similar arrangements (including indemnity arrangements) with respect to or
involving Beatnik, and, after the Closing Date, Beatnik shall not be bound by
any such Tax-sharing agreements or similar arrangements (entered into prior to
the Closing) or have any Liability thereunder for amounts due in respect of
periods prior to the Closing Date.
(g) Partnerships. Beatnik does not have an interest in and is not subject
------------
to any joint venture, partnership, or other arrangement or contract which is
treated as a partnership for federal income tax purposes.
(h) Foreign Person. For purposes of withholding under Section 1445 of the
--------------
Code, Beatnik is not a "foreign person" as defined in Section 1445(f)(3) of the
Code.
(i) U.S. Real Property Holding Corporation. Beatnik is not and has never
--------------------------------------
been a United States real property holding corporation as defined in Section
897(c)(2) of the Code.
(j) No Withholding. The transaction contemplated herein is not subject to
--------------
the tax withholding provisions of Section 3406 of the Code, or of Subchapter A
of Chapter 3 of the Code or of any other provision of law.
4.20 Insurance. Section 4.20 of the Beatnik Disclosure Schedule contains a
---------
complete and accurate list of all policies or binders of insurance (showing as
to each policy or binder the carrier, policy number, coverage limits, expiration
dates, annual premiums, a general description of the type of coverage provided
and any pending claims thereunder) of which Beatnik is the owner, insured or
beneficiary. Such policies are sufficient for (i) compliance with any insurance
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requirements imposed by applicable Regulations and any of the Beatnik Contracts,
(ii) covering all reasonably foreseeable damage to and liabilities or
contingencies relating to Beatnik's conduct of its Business and (iii) providing
replacement cost insurance coverage for all of its material Assets, Fixtures and
Equipment and all material leasehold improvements. Beatnik is not in default
under any of such policies or binders, and it has not failed to give any notice
or to present any claim under any such policy or binder in a due and timely
fashion. There are no facts known to Beatnik upon which an insurer might
reasonably be justified in reducing or denying coverage or increasing premiums
on existing policies or binders. There are no outstanding unpaid claims under
any such policies or binders. Such policies and binders are in full force and
effect on the date hereof and shall be kept in full force and effect by Beatnik
through the Closing Date.
4.21 Accounts Receivable. The accounts and notes receivable reflected in
-------------------
the Beatnik Balance Sheet, and all accounts or notes receivable arising since
the Beatnik Balance Sheet Date, represent bona fide claims against debtors for
sales, services performed or other charges arising on or before the date of
recording thereof, and all the goods delivered and services performed which gave
rise to said accounts were delivered or performed in accordance with the
applicable orders, Contracts or customer requirements. To the knowledge of
Beatnik, all such receivables are fully collectible in the ordinary course of
business.
4.22 Inventory. The value at which the Inventory is shown on the
---------
Beatnik Balance Sheet has been determined in accordance with the normal
valuation policy of Beatnik consistently applied in accordance with GAAP. The
Inventory consists only of items of quality and quantity commercially usable and
salable in the ordinary course of business, except for any items of obsolete
material or material below standard quality, all of which have been written down
to realizable market value, or for which adequate reserves have been provided,
and the present quantity of all Inventory is reasonable in the present
circumstances of Beatnik's Business.
4.23 Environmental Matters. To the knowledge of Beatnik and Merger Sub,
---------------------
neither Beatnik nor Merger Sub is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
the knowledge of Beatnik and Merger Sub, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
4.24 Brokers; Transaction Costs. Neither Beatnik nor Merger Sub has
--------------------------
entered into and will not enter into any contract, agreement, arrangement or
understanding with any Person which will result in the obligation of Beatnik or
Merger Sub to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
4.25 "Market Stand-Off" Agreement. Each Beatnik shareholder, option holder
----------------------------
and warrant holder is bound by an agreement that such shareholder, option holder
or warrant holder will not, to the extent requested by Beatnik or an underwriter
of securities of Beatnik, sell or otherwise transfer or dispose of such
shareholder's, option holder's or warrant holder's Beatnik shares (or any shares
issued in exchange therefore) (with certain exceptions for transfers to donees
or partners of the shareholder who agree to be similarly bound) for up to one
hundred eighty (180) days following the effective date of a registration
statement filed under the
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<PAGE>
Securities Act; provided that such agreement shall be applicable only to the
first such registration statement of Beatnik which covers securities to be sold
on its behalf to the public in an underwritten offering; and provided further,
that all officers and directors of Beatnik and all the holders of more than one
percent (1%) of the Common Stock of Beatnik enter into similar agreements.
ARTICLE 5
---------
ACTIONS BY MIXMAN, BEATNIK AND MERGER SUB
-----------------------------------------
PRIOR TO THE CLOSING; ADDITIONAL AGREEMENTS
-------------------------------------------
Mixman, Beatnik and Merger Sub covenant as follows for the period from the
date hereof through the Closing Date:
5.1 Conduct of Mixman's Business. From the date hereof through the
----------------------------
Closing, Mixman shall, except as contemplated by this Agreement, or as consented
to by Beatnik in writing, which consent shall not be unreasonably withheld,
operate Mixman's Business in the ordinary course of business and in accordance
with past practice and will not take any action inconsistent with this
Agreement, the Ancillary Agreements or the consummation of the Closing. Without
limiting the generality of the foregoing, Mixman shall not, except as
specifically contemplated by this Agreement or as consented to by Beatnik in
writing:
(a) incur any indebtedness for borrowed money, or assume, guarantee,
endorse (other than endorsements for deposit or collection in the ordinary
course of business), or otherwise become responsible for obligations of any
other Person;
(b) issue (except pursuant to outstanding Mixman Options, Mixman Warrants
or Mixman Convertible Debt) or commit to issue any shares of its capital stock
or any other securities or any securities convertible into shares of its capital
stock or any other securities, including, without limitation, any options to
acquire capital stock, except for options granted to newly hired employees in
the ordinary course of business under existing plans that are reserved for
issuance as of the Mixman Balance Sheet Date;
(c) pay or incur any obligation to pay any dividend on its capital stock
or make or incur any obligation to make any distribution or redemption with
respect to capital stock;
(d) make any change to Mixman's Articles of Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any of Mixman's Assets or
sell, transfer, license or otherwise dispose of any of Mixman's material Assets
except for the sales and licensing of Mixman's products and services in the
ordinary course of business and consistent with past practice;
(f) cancel, release or assign any indebtedness owed to it or any claims
or rights held by it, except in the ordinary course of business and consistent
with past practice;
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(g) make any investment of a capital nature either by purchase of stock
or securities, contributions to capital, property transfer or otherwise, or by
the purchase of any property or assets of any other Person;
(h) terminate any material Contract or make any material change in any
material Contract;
(i) hire any new Employee, enter into or modify any employment Contract,
pay or agree to pay any compensation to or for any Employee, officer or director
other than in the ordinary course of business and consistent with past practice,
pay or agree to pay any bonus, incentive compensation, service award or other
like benefit except for options granted to newly hired employees in the ordinary
course of business under existing plans that are reserved for issuance as of the
Mixman Balance Sheet Date, or enter into or modify any other Employee Plan;
(j) enter into or modify any Contract with a Related Party or enter into
or modify any Contract that is a license agreement (other than standard end user
license agreements), OEM agreement or "bundling" agreement or that is otherwise
material;
(k) make any change in any method of accounting or accounting practice
except as may be required by GAAP;
(l) fail to pursue the development and introduction of new products and
technology advances in connection with its Business on a basis consistent
with past practice;
(m) fail to comply with all Regulations applicable to Mixman's Assets and
Business consistent with past practices;
(n) fail to use its commercially reasonable efforts to (i) maintain
Mixman's Business, (ii) retain the Employees so that such Employees will remain
available to Beatnik on and after the Closing Date, (iii) maintain existing
relationships with suppliers and customers and others having business dealings
with Mixman and (iv) otherwise to preserve the goodwill of its Business so that
such relationships and goodwill will be preserved on and after the Closing Date;
or
(o) do any other act which would cause any representation or warranty of
Mixman in this Agreement to be or become untrue in any material respect or that
is not in the ordinary course of business consistent with past practice.
5.2 Conduct of Beatnik's Business. From the date hereof through the Closing,
-----------------------------
Beatnik shall, except as contemplated by this Agreement or as consented to by
Mixman in writing, which consent shall not be unreasonably withheld, operate
Beatnik's Business in the ordinary course of business and in accordance with
past practice and will not take any action inconsistent with this Agreement, the
Ancillary Agreements or the consummation of the Closing. Without limiting the
generality of the foregoing, Beatnik shall not, except as specifically
contemplated by this Agreement or as consented to by Mixman in writing or, with
respect to clauses (a) and (b), without notifying Mixman in writing:
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(a) incur any indebtedness for borrowed money, or assume, guarantee,
endorse (other than endorsements for deposit or collection in the ordinary
course of business), or otherwise become responsible for obligations of any
other Person, without notifying Mixman except for the credit line currently
under negotiation.
(b) cancel, release or assign any indebtedness owed to it or any claims
or rights held by it, except in the ordinary course of business and consistent
with past practice without notifying Mixman;
(c) issue (except pursuant to outstanding options, warrants or preferred
stock) or commit to issue any shares of its capital stock or any other
securities or any securities convertible into shares of its capital stock or any
other securities, including, without limitation, any options to acquire capital
stock, except for option grants to newly hired employees in the ordinary course
of business under existing plans that are reserved for issuance as of the
Beatnik Balance Sheet Date;
(d) pay or incur any obligation to pay any dividend on its capital stock
or make or incur any obligation to make any distribution or redemption with
respect to capital stock;
(e) make any change to Beatnik's Restated Articles or Bylaws, except as
necessary to permit the creation and issuance of the Merger Shares;
(f) mortgage, pledge or otherwise encumber any of Beatnik's material
Assets or sell, transfer, license or otherwise dispose of any of its material
Assets except for encumbrances of Assets and sales and licenses of products and
services in the ordinary course of business and consistent with past practice
and except for the lease line that Beatnik is currently negotiating;
(g) make any change in any method of accounting or accounting practice
except as may be required by GAAP;
(h) make any investment of a capital nature in excess of $100,000, either
by purchase of stock or securities, contributions to capital, property transfer
or otherwise, or by the purchase of any property or assets of any other Person;
(i) terminate any material Contract or make any material change in any
material Contract;
(j) enter into or modify any employment Contract, pay or agree to pay any
compensation to or for any Employee, officer or director, in each case other
than in the ordinary course of business and consistent with past practice, pay
or agree to pay any bonus, incentive compensation, service award or other like
benefit, except for option grants to newly hired employees in the ordinary
course of business under existing plans, or enter into or modify any other
Employee Plan other than the creation of a 401(k) Plan;
(k) enter into or modify any Contract with a Related Party; or
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<PAGE>
(l) knowingly do any other act which would cause any representation or
warranty of Beatnik in this Agreement to be or become untrue in any material
respect or that is not in the ordinary course of business consistent with past
practice.
5.3 Investigations. Subject to the Confidentiality Agreement, from the
--------------
date hereof through the Closing Date, Mixman shall, and shall cause its
officers, Employees and Representatives to, and Beatnik shall, and shall cause
its officers, Employees, Representatives and Merger Sub to, afford the
Representatives of the other party and its affiliates access upon reasonable
notice and at all reasonable times to its respective Business for the purpose of
inspecting the same, and to its officers, Employees and Representatives,
properties, books and records, Contracts and other Assets, and shall furnish the
other party and its Representatives, upon reasonable notice and in a timely
manner, all financial, operating and other data and information (including with
respect to Intellectual Property) as the other party or its affiliates, through
their respective Representatives, may reasonably request.
5.4 Notification of Certain Matters. Each party shall give prompt notice
-------------------------------
to the other of (i) the occurrence, or failure to occur, of any event which
occurrence or failure to occur would be likely to cause any representation or
warranty of such party contained in this Agreement to be untrue or inaccurate in
any material respect and (ii) any material failure of such party to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Mixman shall promptly notify Beatnik, and Beatnik shall
promptly notify Mixman, of any Default, the threat or commencement of any
Action, or any development that occurs before the Closing that could reasonably
be expected to result in a Material Adverse Effect on Beatnik or Mixman, as the
case may be.
5.5 No Mergers, Consolidations, Sale of Stock, Etc.; No Solicitation.
----------------------------------------------------------------
(a) Between the date hereof and the Effective Time, neither Mixman nor
any Representative thereof, shall directly or indirectly, solicit, initiate,
engage in or encourage any inquiries, offers or proposals, enter into or
continue or otherwise facilitate (by, among other things, affording access to
the properties, books or records of Mixman) any discussions, negotiations or
agreements relating to (i) the acquisition, merger or other business combination
of Mixman with, or the direct or indirect disposition (by sale, license or
otherwise, including the licensing of source code) of a substantial portion of
Mixman's Assets or Business to, any Person other than Beatnik or its Affiliates,
(iii) the licensing of Mixman's Intellectual Property to any Person other than
in the ordinary course of business consistent with past practice or (iv) the
provision of any assistance, cooperation or nonpublic information to any Person
in connection with any such inquiry, proposal or transaction. In the event an
acquisition, merger, other business combination or sale of assets proposal is
received by Mixman, Mixman shall (i) promptly notify any such offeror that
neither it nor its Assets are available for purchase or merger, (ii) shall
promptly notify Beatnik of any such proposal and provide full details, and (iii)
shall promptly provide to Beatnik any written materials relating in any manner
to any such proposal. Nothing in this Section 5.5(a) shall be interpreted or
applied to require Mixman or any representative thereof to violate their
fiduciary duties to the Mixman Shareholders.
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(b) Neither Beatnik, Mixman nor any Representative thereof, shall
directly or indirectly, take any action or permit any shareholder of Beatnik or
Mixman to take any action involving the solicitation for hire or the offering of
inducements or encouragement to any employee of the other party to leave his or
her employment with such party from the date hereof until February 28, 2001.
5.6 Publicity. Except as required by law or on advice of counsel, none
---------
of Mixman, Beatnik or Merger Sub shall issue any press release or make any
public statement regarding the transactions contemplated hereby without the
prior approval of the other party, and the parties hereto shall issue a mutually
acceptable press release as soon as practicable after the Closing Date.
5.7 Fairness Hearing; Joint Proxy Statement.
---------------------------------------
(a) As soon as reasonably practicable following the execution of this
Agreement, Beatnik and Mixman shall prepare the necessary documentation for, and
Beatnik shall apply to obtain, a permit (a "California Permit") from the
Commissioner of Corporations of the State of California (after a hearing before
such Department) pursuant to Section 25121 of the California Corporate
Securities Law of 1968 (the "California Statute"), so that the issuance of
Beatnik Common Stock and Beatnik Merger Preferred Stock and the assumption of
Mixman Options and the conversion of the Mixman Convertible Debt in the Merger
shall be exempt from registration under Section 3(a)(10) of the Securities Act
and the registration requirements of the CCC. Mixman and Beatnik will respond to
any comments from the California Department of Corporations and use their
commercially reasonable efforts to have the California Permit granted as soon as
practical after such filing. If Beatnik fails to obtain the California Permit,
Beatnik and Mixman shall use commercially reasonable efforts to identify and
satisfy an alternative exemption from the registration requirements of the
Securities Act and Beatnik will grant the Mixman shareholders registration
rights in order that the Mixman shareholders might have, as nearly as
practicable, the same opportunity to sell their Beatnik shares as Beatnik
preferred shareholders who invested at similar times or rendered services over a
comparable period. As promptly as practical after the date of this Agreement,
Beatnik and Mixman shall prepare and make such filings as are required under
applicable "blue sky" laws relating to the transactions contemplated by this
Agreement.
(b) Mixman shall take all actions necessary to submit, as promptly as
practicable after the receipt of a California Permit, this Agreement and the
transactions contemplated hereby, including without limitation the Merger, to
its shareholders for approval and adoption, by a vote at a duly called
shareholders meeting or by written consent, as provided by the CCC and Mixman's
Articles of Incorporation and Bylaws. Beatnik shall take all actions necessary
to submit, as promptly as practicable after receipt of a California Permit, this
Agreement to its shareholders for approval, by a vote at a duly called
shareholders meeting or by written consent, as provided by Beatnik's Restated
Articles and Bylaws. In connection therewith, Beatnik and Mixman shall cooperate
to prepare and deliver to their shareholders a proxy statement as required by
law (the "Joint Proxy Statement"). Beatnik, Mixman and their respective counsels
shall be afforded a reasonable opportunity to review and comment upon the
materials to be submitted to the shareholders of Mixman and the shareholders of
Beatnik, which shall include, without limitation, information regarding both
Beatnik and Mixman, the terms of the Merger and
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this Agreement and the recommendation of the Board of Directors of both Beatnik
and Mixman in favor of the Merger, this Agreement and the transactions
contemplated hereby. Mixman and Beatnik shall take all lawful action to solicit,
and use commercially reasonable efforts to obtain, the necessary approvals of
their respective shareholders.
5.8 Board of Directors. Prior to the Effective Time, a sufficient number
------------------
of Sellers (as defined in Section 9.2 hereof) and Beatnik shareholders shall
enter into a Voting Agreement in the form attached hereto as Exhibit F so as to
cause the individuals named in the Voting Agreement to be elected as directors
of Beatnik following the Effective Time as contemplated in such agreement.
5.9 Option Grants. Prior to the Effective Time, Mixman shall grant
-------------
Mixman Options to each of Eric Almgren and Joshua Gabriel (the "Founder
Options"), to purchase a number of shares of Mixman Common Stock equal to the
quotient of (A) 240,000, divided by (B) the Conversion Ratio, which Founder
Options shall vest at the rate of 25% upon the first anniversary of the
Effective Time and thereafter at the rate of 1/48th of the balance per month.
5.10 Disclosure Schedule. Beatnik and Mixman shall provide the other
-------------------
party with any changes to their Disclosure Schedules as such changes arise;
provided any change shall not be deemed to be incorporated in any Disclosure
Schedule without the written consent of the other party.
5.11 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, Beatnik, Merger Sub and Mixman agree, in each case both before
and after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements, (ii) to use their respective best
efforts to cause the acquisition to qualify, and will not take any actions which
to their knowledge could reasonably be expected to prevent the acquisition from
qualifying, as a reorganization under the provisions of Section 368 of the Code,
(iii) to execute any documents, instruments or conveyances of any kind which may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder and (iv) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties agree
to use their respective reasonable efforts (A) to obtain any necessary Consents
(provided, however, that no amendment or modification shall be made to any
Contract to obtain such Consent without Beatnik's consent), (B) to obtain all
necessary Permits, (C) to give all notices to, and make all registrations and
filings with third parties, including submissions of information requested by
governmental authorities and (D) to fulfill all conditions to this Agreement.
ARTICLE 6
---------
CONDITIONS TO MIXMAN'S OBLIGATIONS
----------------------------------
The obligations of Mixman to effect the Merger and complete the related
transactions contemplated by this Agreement are subject, in the discretion of
Mixman, to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
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6.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Beatnik and Merger Sub contained in this Agreement shall be true
and correct at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date except to the extent (i) any
such failure to be so true and correct would not have a Material Adverse Effect
on Beatnik, (ii) for changes contemplated by this Agreement, and (iii) for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct except as does not
constitute a Material Adverse Effect on Beatnik as of such particular date), and
Beatnik shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Effective
Time. For purposes of this Section 6.1, all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or similar
phrases contained in Beatnik's representations and warranties shall be
disregarded. There shall be delivered to Mixman a certificate executed by
Beatnik (i.e., signed by a senior officer of Beatnik on behalf of Beatnik) to
the foregoing effect ("Beatnik Closing Certificate").
6.2 Consents. All Consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit consummation of the Merger as
contemplated hereby and by the Ancillary Agreements (including, without
limitation, the requisite vote or consent of the shareholders of Mixman and of
the shareholders of Beatnik as required by the CCC, and by the parties'
respective charter documents) shall have been obtained, all approvals required
under any Regulations to carry out the transactions contemplated by this
Agreement and the Ancillary Agreements shall have been obtained and the parties
shall have complied with all Regulations applicable to the transactions
contemplated hereby and thereby.
6.3 No Actions or Court Orders. No Action by any court, governmental
--------------------------
authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
by the Ancillary Agreements and which could reasonably be expected to materially
damage the shareholders of Mixman if the transactions contemplated hereby or
thereby are consummated. There shall not be any Regulation or Court Order that
makes the transactions contemplated hereby and by the Ancillary Agreements
illegal or otherwise prohibited or which would have a Material Adverse Effect on
Beatnik.
6.4 Closing Documents. Beatnik shall have delivered to Mixman the
-----------------
documents and other items described in Section 8.2.
6.5 Opinion of Counsel. Mixman shall have received a corporate opinion
------------------
of Pillsbury Madison & Sutro LLP, counsel to Beatnik, dated as of the Closing
Date, in form and substance customary to transactions similar to those
contemplated by this Agreement.
6.6 Material Adverse Effect. There shall not have been any Material
-----------------------
Adverse Effect on Beatnik.
6.7 Shareholder Approval; Dissenting Shares. This Agreement and the
---------------------------------------
Merger shall have been approved and adopted by the requisite vote or consent of
the shareholders of Mixman and of the shareholders of Beatnik and Merger Sub as
required by the CCC, and by the parties' respective charter documents, and the
number of Dissenting Shares shall not exceed five (5%) of
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the number of shares of the capital stock of Beatnik to be outstanding
immediately following the Effective Time.
6.8 Voting Agreement. The requisite number of Sellers and Beatnik
----------------
shareholders shall have signed a Voting Agreement in the form attached hereto at
Exhibit F.
6.9 Amended and Restated Investors' Rights Agreement. The holders of
------------------------------------------------
Mixman Preferred Stock shall have become parties to the Amended and Restated
Investors' Rights Agreement attached hereto as Exhibit A to be delivered
pursuant to Section 7.5.
6.10 Eric Almgren. Eric Almgren's title will be Senior Vice President
------------
and General Manager and he will initially report to Beatnik's Chief Executive
Officer.
6.11 Directors. Eric Almgren and Richard Asher shall have been elected
---------
as directors of Beatnik.
6.12 Beatnik Restated Articles. Beatnik shall have filed the Beatnik
-------------------------
Restated Articles with the California Secretary of State and such Beatnik
Restated Articles shall be effective.
ARTICLE 7
---------
CONDITIONS TO BEATNIK'S OBLIGATIONS
-----------------------------------
The obligations of Beatnik and Merger Sub to effect the Merger and complete
the related transactions contemplated by this Agreement are subject, in the
discretion of Beatnik, to the satisfaction, on or prior to the Closing Date, of
each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Mixman contained in this Agreement shall be true and correct at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date except to the extent (i) any such failure to be so
true and correct would not have a Material Adverse Effect on Mixman, (ii) for
changes contemplated by this Agreement, and (iii) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct except as does not constitute a
Material Adverse Effect on Beatnik as of such particular date), and Mixman shall
have performed in all material respects all agreements and covenants required
hereby to be performed by it prior to or at the Effective Time. For the purposes
of this Section 7.1, all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
Mixman's representations and warranties shall be disregarded. There shall be
delivered to Beatnik a certificate executed by Mixman ("Mixman Closing
Certificate") to the foregoing effect.
7.2 Consents. All Consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit consummation of the Merger as
contemplated hereby and by the Ancillary Agreements and for the operation of
Mixman's Business after the Closing (including all required third party consents
under the Contracts) shall have been obtained. Beatnik shall be satisfied that
all approvals required under any Regulations to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements shall have been
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obtained and that the parties shall have complied with all Regulations
applicable to the transactions contemplated hereby and thereby.
7.3 Shareholder Approval; Dissenting Shares. This Agreement and the
---------------------------------------
Merger shall have been approved and adopted by the requisite vote or consent of
the shareholders of Mixman and of the shareholders of Beatnik and Merger Sub as
required by the CCC, and by the parties' respective charter documents, and the
number of Dissenting Shares shall not exceed five (5%) of the number of shares
of the capital stock of Beatnik to be outstanding immediately following the
Effective Time.
7.4 No Actions or Court Orders. No Action by any court, governmental
--------------------------
authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
by the Ancillary Agreements and which could reasonably be expected to materially
damage Beatnik, Mixman's Assets or Mixman's Business if the transactions
contemplated hereby or thereby are consummated, including any material adverse
effect on the right or ability of Beatnik or Merger Sub to own, operate or
transfer Mixman's Assets after the Closing. There shall not be any Regulation or
Court Order that makes the transactions contemplated hereby and by the Ancillary
Agreements illegal or otherwise prohibited or which would have a Material
Adverse Effect on Mixman.
7.5 Closing Documents. Mixman shall have delivered to Beatnik the
-----------------
documents and other items described in Section 8.1.
7.6 Opinion of Counsel. Beatnik shall have received a corporate opinion
------------------
of Fenwick & West LLP, counsel to Mixman, dated as of the Closing Date, in form
and substance customary to transactions similar to those contemplated by this
Agreement.
7.7 Exemption under Federal and State Securities Laws. The issuance of
-------------------------------------------------
shares of Beatnik Stock in the Merger shall not violate any federal or state
securities laws.
7.8 Escrow of Merger Shares. At or prior to the Effective Time, Mixman
-----------------------
shall have executed and delivered the Escrow Agreement and shall have taken such
other action as is necessary so that 10% of the Merger Shares are placed in
escrow pursuant to the Escrow Agreement. The Merger Shares placed in escrow,
subject to any claims asserted by Beatnik, shall be released from escrow
pursuant to the terms of the Escrow Agreement on the first anniversary of the
Closing Date.
7.9 Material Adverse Effect. There shall not have been a Material
-----------------------
Adverse Effect on Mixman.
7.10 Amended and Restated Investors' Rights Agreement. The holders of
------------------------------------------------
Mixman Preferred Stock shall have become parties to the Amended and Restated
Investors' Rights Agreement attached hereto as Exhibit A to be delivered
pursuant to Section 7.5.
7.11 Employment Agreements. At least a majority of those individuals
---------------------
employed by Mixman on the date hereof, including Eric Almgren and Joshua
Gabriel, shall have (i) accepted offers of employment from Beatnik, (ii)
executed offer letters delivered by Beatnik and returned the same to Beatnik and
(iii) taken no action to rescind such acceptances of employment.
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<PAGE>
Mixman will cooperate with reasonable requests of Beatnik in connection with the
efforts of Beatnik to interview, recruit and hire the shareholders and employees
of Mixman.
7.12 Noncompetition Agreement. Each of Eric Almgren and Joshua Gabriel
------------------------
shall have executed Noncompetition Agreements in the form attached hereto at
Exhibit D.
7.13 Voting Agreement. The requisite number of Sellers and Beatnik
----------------
Shareholders shall have signed a Voting Agreement in the form attached hereto at
Exhibit F.
7.14 Amendments to Option Agreements. The option agreements and founders
-------------------------------
restricted stock purchase agreement for each of Eric Almgren and Joshua Gabriel
shall have been amended and be in form and substance reasonably satisfactory to
Beatnik.
7.15 Option Agreements. Each of Eric Almgren and Joshua Gabriel shall
-----------------
have received option agreements to purchase that number of shares of Mixman
Common Stock that is equal to 240,000 (which represents that number of shares of
Beatnik Common Stock that will be subject to such options when they are assumed
by Beatnik, as adjusted for stock dividends, stock splits and combinations)
divided by the Conversion Ratio, and such option agreements shall be in form and
substance reasonably satisfactory to Beatnik.
7.16 Accounts Receivable. All accounts receivable of Mixman which have
-------------------
been outstanding for more than ninety (90) days shall have been written off on
Mixman's records.
7.17 Contracts Consents. Mixman shall have delivered to Beatnik executed
------------------
consents to the Merger from the parties to the Mixman Contracts marked with an
asterisk on item 3.11 of the Mixman Disclosure Schedule.
7.18 Contracts Signed. Mixman shall have delivered to Beatnik fully
----------------
executed copies of the Mixman Contracts marked with a "+" on item 3.10 of the
Mixman Disclosure Schedule. Such Mixman Contracts shall be in the same form as
the unsigned copies provided to Beatnik prior to the execution of this
Agreement.
7.19 Market Stand-Off. Eric Almgren and Josh Gabriel shall have executed
----------------
Market Stand-Off Agreements substantially similar to the provisions of Section
2.15 of the Amended and Restated Investor's Rights Agreement.
7.20 Due Diligence. Mixman shall have delivered to Beatnik all
-------------
outstanding due diligence materials listed on Exhibit G, (the "Due Diligence
Materials"); provided, however, that Beatnik in its sole and absolute
-------- -------
discretion may waive such requirements for any and all Due Diligence
Materials as it deems fit up until the time of Closing.
ARTICLE 8
---------
CLOSING
-------
On the Closing Date at the Closing Place:
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8.1 Deliveries by Mixman to Beatnik and Merger Sub. Mixman shall deliver
----------------------------------------------
(or cause to be delivered) to Beatnik and Merger Sub:
(a) the Ancillary Agreements to which Mixman, the shareholders of Mixman
or any employees of Mixman are a party;
(b) any Consents required to be obtained by Mixman;
(c) the Mixman Closing Certificate;
(d) and such other documents, certificates and items as Beatnik or Merger
Sub may reasonably require; and
(e) the opinion of counsel to Mixman described in Section 7.6.
8.2 Deliveries by Beatnik and Merger Sub to Mixman. Beatnik and Merger
----------------------------------------------
Sub shall deliver to Mixman, and, as applicable, the shareholders of Mixman:
(a) the Ancillary Agreements to which Beatnik or Merger Sub is a party,
(b) any Consents required to be obtained by Beatnik or Merger Sub;
(c) the Beatnik Closing Certificate;
(d) and such other documents, certificates and items as Mixman may
reasonably require; and
(e) the opinion of counsel to Beatnik described in Section 6.5.
ARTICLE 9
---------
INDEMNIFICATION
---------------
9.1 Survival of Representations, Etc. All statements contained in this
---------------------------------
Agreement, any schedule or in any certificate or instrument of conveyance
delivered by or on behalf of the parties pursuant to this Agreement shall be
deemed to be representations and warranties by such party hereunder. The
representations and warranties contained herein shall survive the Closing Date
until (and claims based upon or arising out of such representations and
warranties, as well as any claims based upon or arising out of any covenants and
agreements herein, may be asserted at any time before the date which shall be)
the sooner of one year after the Closing Date and six months after Beatnik's
initial public offering (the "Escrow Termination Date"). No investigation made
by any of the parties hereto (whether prior to, on or after the Closing Date)
shall in any way limit the representations and warranties of the parties. The
termination of the representations and warranties provided herein shall not
affect the rights of a party in respect of any claim made by such party in a
writing received by the other party prior to the expiration of the applicable
survival period provided herein.
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9.2 Indemnification.
---------------
(a) General. Subsequent to the Closing, every shareholder of Mixman
-------
immediately prior to the Closing (the "Sellers") shall, severally and not
jointly, indemnify Beatnik, its Affiliates, and each of their respective
partners, officers, directors, employees, shareholders and agents ("Beatnik
Indemnified Parties") against, and hold each of the Beatnik Indemnified Parties
harmless from, any damage, claim, loss, cost, liability or expense, including
without limitation, interest, penalties, reasonable attorneys' fees and expenses
of investigation, response action, removal action or remedial action
(collectively "Damages") incurred by such Beatnik Indemnified Party, that are
incident to, arise out of, in connection with, or related to, whether directly
or indirectly, the breach of any warranty, representation, covenant or agreement
of Mixman contained in this Agreement which survives the Closing Date pursuant
to Section 9.1.
Subsequent to the Closing, Beatnik shall indemnify the Sellers, their
Affiliates, and each of their respective partners, officers, directors,
employees, shareholders and agents, as the case may be ("Mixman Indemnified
Parties"), against, and hold each of the Mixman Indemnified Parties harmless
from, any Damages incurred by such Mixman Indemnified Party, that are incident
to, arise out of, in connection with, or related to, whether directly or
indirectly, the breach of any warranty, representation, covenant or agreement of
Beatnik contained in this Agreement which survives the Closing Date pursuant to
Section 9.1.
The term "Damages" as used in this Section 9.2 is not limited to matters
asserted by third parties against Mixman Indemnified Parties or Beatnik
Indemnified Parties, but includes Damages incurred or sustained by such persons
in the absence of third party claims.
(b) Procedure for Claims between Parties. Any Beatnik Indemnified Party
------------------------------------
or Mixman Indemnified Party (the "Indemnified Party") seeking indemnification
hereunder shall, within the relevant limitation period for indemnification
claims provided for in Section 9.1 above, give to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a "Claim
Notice") describing in reasonable detail the facts giving rise to any claims for
indemnification hereunder and shall include in such Claim Notice (if then known)
the amount or the method of computation of the amount of such claim, and a
reference to the provision of this Agreement or any agreement, document or
instrument executed pursuant hereto or in connection herewith upon which such
claim is based provided that failure to give such notice shall not relieve the
Indemnitor of its obligations hereunder except to the extent it shall have been
prejudiced by such failure,
(c) In the event that the indemnitee is a Beatnik Indemnified Party, all
provisions set forth in Sections 9.2(b), 9.2(c) and 9.3 regarding notices to, or
consents of, the Sellers shall be determined by the Seller Representative (as
defined in the Escrow Agreement) and shall be binding upon all Sellers.
The Indemnitor shall have fifteen (15) days after the giving of any Claim
Notice pursuant hereto to (i) agree to the amount or method of determination set
forth in the Claim Notice and to pay such amount to such Indemnified Party or
(ii) to provide such Indemnified Party with notice that it disagrees with the
amount or method of determination set forth in the Claim Notice (the "Dispute
Notice"). Within fifteen (15) days after the giving of the Dispute Notice, a
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representative of Indemnitor and such Indemnified Party shall negotiate in a
bona fide attempt to resolve the matter. In the event that the controversy is
not resolved within thirty (30) days of the giving of the Dispute Notice, the
parties shall proceed to binding arbitration as provided in Section 10.6.
(d) Defense of Third Party Claims. If any lawsuit or enforcement action
-----------------------------
is filed against any Indemnified Party, written notice thereof shall be given to
the other party as promptly as practicable (and in any event within fifteen (15)
calendar days after the service of the citation or summons). The failure of any
Indemnified Party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the other party
demonstrates they were actually prejudiced by such failure. After such notice,
if the other party shall acknowledge in writing to the Indemnified Party that
they shall be obligated under the terms of their indemnity hereunder in
connection with such lawsuit or action, or that they will defend such lawsuit or
action under a reservation of rights, then they shall be entitled, if they so
elect at their own cost, risk and expense, (i) to take control of the defense
and investigation of such lawsuit or action, (ii) to employ and engage attorneys
of their own choice to handle and defend the same unless the named parties to
such action or proceeding include both the other party and the Indemnified Party
and the Indemnified Party has been advised in writing by counsel that there may
be one or more legal defenses available to such Indemnified Party that are
different from or additional to those available to the other party, in which
event the Indemnified Party shall be entitled, at the other party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise or
settle such claim, which compromise or settlement shall be made only with the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld. The Indemnified Party shall cooperate in all reasonable respects with
the other party and their attorneys in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom; provided, however, that
the Indemnified Party may, at its own cost, participate in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom.
The parties shall cooperate with each other in any notifications to insurers. If
the other party fails to assume the defense of such claim within fifteen (15)
calendar days after receipt of the notice of claim, the Indemnified Party
against which such claim has been asserted will (upon delivering notice to such
effect to the other party) have the right to undertake, at the other party's
cost, risk and expense, the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the other party; provided, however,
that such claim shall not be compromised or settled without the written consent
of the other party, which consent shall not be unreasonably withheld. If the
Indemnified Party assumes the defense of the claim, the Indemnified Party will
keep the Seller Representative or Beatnik, as the case may be, reasonably
informed of the progress of any such defense, compromise or settlement. The
other party shall be liable for any settlement of any action effected pursuant
to and in accordance with this Section 9.2 and for any final judgment (subject
to any right of appeal), and the other party agrees to indemnify and hold
harmless an Indemnified Party from and against any Damages by reason of such
settlement or judgment.
9.3 No Right of Contribution. After the Closing, no Seller shall have
------------------------
any right of contribution against the Surviving Corporation for any breach of
any representation, warranty, covenant or agreement of Mixman. The remedies set
forth in this Article 9 shall be the Indemnified Parties' exclusive remedies.
The exclusive remedy of Beatnik shall be to the Merger Shares under the Escrow
Agreement. Notwithstanding anything to the contrary provided
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by this Agreement, including without limitation this Article 9, nothing in this
Agreement shall be construed to restrict or otherwise affect any remedies based
on causes of action for fraud or willful misconduct that may be available to the
Indemnified Parties under this or any other agreement or pursuant to statutory
or common law. Without limiting the generality of the foregoing, the Sellers and
Beatnik shall be entitled to specific performance and injunctive relief, without
posting bond or other security, for the purpose of asserting their respective
rights under this Article 9.
9.4 Satisfaction of Claims; Threshold; Limitations on Indemnity.
-----------------------------------------------------------
(a) The Beatnik Indemnified Parties shall not be entitled to recover for
any Damages until such time as the Damages claimed by the Beatnik Indemnified
Parties in the aggregate exceed $25,000 (the "Damage Threshold"), at which time
the Beatnik Indemnified Parties shall be entitled to be indemnified against and
compensated and reimbursed for all such Damages, and only such Damages, in
excess of the Damage Threshold; provided, however, subject to Section 9.3 of
this Agreement, in no event, other than in cases involving fraud or willful
misconduct, shall such Sellers be liable pursuant to Article 9 to the Beatnik
Indemnified Parties for any Damages in excess of the value of the shares held in
escrow pursuant to Section 2.11.
(b) The Mixman Indemnified Parties shall not be entitled to recover for
any Damages until such time as the Damages claimed by the Mixman Indemnified
Parties in the aggregate exceed the Damage Threshold, at which time the Mixman
Indemnified Parties shall be entitled to be indemnified against and compensated
and reimbursed for all such Damages, and only such Damages, in excess of the
Damage Threshold; provided, however, subject to Section 9.3 of this Agreement,
in no event shall Beatnik be liable pursuant to this Article 9 to the Mixman
Indemnified Parties for any Damages in excess of the value of the shares held in
escrow pursuant to Section 2.11.
The indemnification obligations of Sellers hereunder shall be satisfied by
the distribution to the Beatnik Indemnified Party of Merger Shares held pursuant
to the Escrow Agreement. To the extent an indemnification claim is brought by a
Mixman Indemnified Party, such indemnification obligations shall be satisfied by
either the transfer of shares of capital stock of Beatnik or the payment of cash
to the Mixman Indemnified Party, at the election of the party owing such
obligation. In the event that Beatnik or the Seller Representative elects to
satisfy indemnification obligations by the transfer of shares of capital stock
of Beatnik, such shares shall be valued as described in the Escrow Agreement.
ARTICLE 10
----------
MISCELLANEOUS
-------------
10.1 Termination.
-----------
(a) This Agreement may be terminated at any time prior to Closing:
(i) By mutual written consent of Beatnik, Merger Sub and Mixman,
whether or not the shareholders of Mixman and the shareholders of Beatnik
and Merger Sub have approved and adopted this Agreement and the Merger;
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(ii) By Beatnik or Mixman if the Closing shall not have occurred
on or before November 5, 1999, other than due to a breach of this Agreement
by the party seeking to terminate;
(iii) By Beatnik or Merger Sub if there is a material breach of any
representation or warranty set forth in Article 3 or any covenant or
agreement to be complied with or performed by Mixman under this Agreement
(in either case such that the conditions set forth in Section 7.1 would not
be satisfied as of the time of such breach) and such breach, if capable of
cure, is not cured within fifteen (15) days after notice thereof, so long
as any such breach is not caused by the action or inaction of Beatnik or
Merger Sub; or
(iv) By Mixman if there is a material breach of any representation
or warranty set forth in Article 4 hereof or of any covenant or agreement
to be complied with or performed by Beatnik or Merger Sub pursuant to the
terms of this Agreement (in either case such that the conditions set forth
in Section 6.1 would not be satisfied as of the time of such breach) and
such breach, if capable of cure, is not cured within fifteen (15) days of
notice thereof, so long as any such breach is not caused by the action or
inaction of Mixman.
(b) In the event of termination of this Agreement:
(i) The provisions of the Confidentiality Agreement shall
continue in full force and effect; and
(ii) No party hereto shall have any liability arising under this
Agreement to any other party to this Agreement, except for any willful
breach of, or knowing misrepresentation made in, this Agreement occurring
prior to the proper termination of this Agreement.
10.2 Certain Securities Laws Matters. Mixman acknowledges and agrees that
-------------------------------
(i) Beatnik's issuance of the Merger Shares will not have been registered under
the Securities Act, (ii) such Merger Shares may need to be held indefinitely,
(iii) there may not be a public market for such shares, (iv) when and if such
shares may be disposed of without registration in reliance on Rule 144 and/or
Rule 145 promulgated under the Securities Act, such disposition can be made only
in limited amounts in accordance with the terms and conditions of such Rule, if
the shareholder is an "affiliate" of Beatnik, (v) if the Rule 144 and/or Rule
145 exemption is not available, public sale without registration will require
compliance with an exemption under the Securities Act, (vi) a restrictive legend
in the following form shall be placed on the certificates representing the
Merger Shares held by affiliates of Mixman who become affiliates of Beatnik:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). AS
LONG AS THE HOLDER OF THESE SECURITIES IS AN AFFILIATE OF THE ISSUER, THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT
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<PAGE>
IN EFFECT WITH RESPECT TO THE SALE OF THESE SECURITIES UNDER THE SECURITIES
ACT UNLESS THE OFFERING AND SALE ARE IN COMPLIANCE WITH RULE 144 UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR OTHERWISE
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
(vii) restrictive legend in the following form shall be placed on the
certificates representing the Merger Shares held by affiliates of Mixman who do
not become affiliates of Beatnik:
IF THE HOLDER OF THESE SECURITIES WAS AN AFFILIATE (AS DEFINED IN RULE 145
OF THE SECURITIES ACT) OF MIXMAN TECHNOLOGIES, INC. AT THE TIME THE
TRANSACTION BETWEEN THE ISSUER AND MIXMAN TECHNOLOGIES, INC. WAS SUBMITTED
FOR VOTE OR CONSENT, THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SALE OF THESE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, UNLESS THE OFFERING AND SALE ARE IN COMPLIANCE
WITH RULE 145(d) OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR OTHERWISE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
and (viii) no restrictive legend regarding federal securities laws shall be
placed on the certificates representing the Merger Shares held by persons who
were not affiliates of Mixman.
10.3 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Mixman without the prior written
consent of Beatnik and Merger Sub, or by Beatnik or Merger Sub without the prior
written consent of Mixman.
10.4 Notices. Unless otherwise provided herein, any notice, request,
-------
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, telegraphed, telexed,
sent by facsimile transmission, sent via overnight delivery service or mailed by
registered or certified mail (such notice to be effective upon receipt), as
follows:
If to Mixman:
Mixman Technologies, Inc.
850 Montgomery Street, Suite 350
San Francisco, CA 94133-6120
Fax: (415) 403-1388
Attention: Chief Executive Officer
-53-
<PAGE>
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Fax: (650) 494-1417
Attention: Susan Dunn
If to Beatnik or, if after the Closing, to the Surviving Corporation:
Beatnik, Inc.
2600 El Camino Real
San Mateo, CA 94403
Fax: (650) 295-2333
Attention: Chief Executive Officer
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Fax: (650) 233-4545
Attention: Allison Leopold Tilley
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
10.5 Choice of Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
California except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
10.6 Arbitration. This Section 10.6 and the parties' rights under this
-----------
Section 10.6 shall be governed by and construed in accordance with the Federal
Arbitration Act, 9 U.S.C. (S) 1 et seq. Any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by the
following procedures:
(a) Any party may send another party written notice identifying the
matter in dispute and invoking the procedures of this Section 10.6. Within
fourteen days after such written notice is given, one or more principals of each
party involved in the dispute shall meet at a mutually agreeable location in San
Francisco, California (or such other locations as the parties shall mutually
agree), for the purpose of determining whether they can resolve the dispute
themselves by written agreement and, if not, whether they can agree upon a
third-party impartial arbitrator (the "Arbitrator") to whom to submit the matter
in dispute for final and binding arbitration.
(b) If such parties fail to resolve the dispute by written agreement or
agree on the Arbitrator within said fourteen day period, any such party may make
written application to
-54-
<PAGE>
Judicial Arbitration & Mediation Services, Inc. ("JAMS"), 121 Pine Street, Suite
205, San Francisco, California 94111, for the appointment of a single Arbitrator
to resolve the dispute by arbitration. Such arbitrator shall be qualified to
practice law in at least one jurisdiction in the United States and have
expertise in the interpretation of commercial contracts. At the request of JAMS,
the parties involved in the dispute shall meet with JAMS at its offices within
ten (10) calendar days of such request to discuss the dispute and the
qualifications and experience which each party respectively believes the
Arbitrator should have; provided, however, that the selection of the Arbitrator
shall be the exclusive decision of JAMS and shall be made within thirty (30)
days of the written application to JAMS.
(c) Within thirty days of the selection of the Arbitrator, the parties
involved in the dispute shall meet in San Francisco, California with such
Arbitrator at a place and time designated by the Arbitrator after consultation
with such parties and present their respective positions on the dispute. The
parties shall use their best efforts to cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable,
including but not limited to, providing such documents as the Arbitrator may
request, so that the decision may be reached timely. The Arbitrator shall take
into account the parties' stated goal of expediting proceedings in determining
whether to authorize discovery and, if so, the scope of permissible discovery
and other hearing and pre-hearing procedures. Each party shall have no longer
than one day to present its position, the entire proceedings before the
Arbitrator shall be on no more than three consecutive days, and the award shall
be made in writing no more than thirty days following the end of the proceeding.
The authority of the Arbitrator shall be limited to deciding liability for, and
the proper amount of, a claim, and the Arbitrator shall have no authority to
award punitive damages. Such award shall be a final and binding determination of
the dispute and shall be fully enforceable as an arbitration award in any court
having jurisdiction and venue over such parties. The prevailing party (as
determined by the Arbitrator) shall in addition be awarded by the Arbitrator
such party's own attorneys' fees and expenses in connection with such
proceeding. The non-prevailing party (as determined by the Arbitrator) shall pay
the Arbitrator's fees and expenses.
10.7 Entire Agreement,- Amendments and Waivers. This Agreement, together
-----------------------------------------
with all exhibits and schedules hereto, and the Confidentiality Agreement,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
10.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts and signature pages may be delivered by facsimile, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.9 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be
-55-
<PAGE>
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10.10 Expenses. The parties hereto shall be liable for their expenses
--------
incurred in connection with the negotiation, preparation, execution and
performance of this Agreement; provided, however, that if the Merger is
consummated as contemplated hereby, Beatnik shall assume the expenses (other
than any premiums billed by legal counsel to Mixman) incurred by Mixman in
connection with the negotiation, preparation, execution and performance of this
Agreement.
10.11 No Third Party Beneficiaries. This Agreement shall be binding upon
----------------------------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation.
[THIS SPACE LEFT BLANK INTENTIONALLY]
-56-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.
BEATNIK, INC.
By /s/ Lorraine Hariton
--------------------------------------
Lorraine Hariton
President and Chief Executive Officer
BEATNIK ACQUISITION SUB, INC.
By /s/ Lorraine Hariton
--------------------------------------
Lorraine Hariton
President and Chief Executive Officer
MIXMAN TECHNOLOGIES, INC.,
By /s/ Eric Almgren
--------------------------------------
Eric Almgren
Chief Executive Officer
-S-1-
<PAGE>
AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION, dated as of
November 5, 1999 (the "Agreement"), is entered into by and between BEATNIK,
INC., a California corporation ("Beatnik"), BEATNIK ACQUISITION SUB, INC., a
California corporation and a wholly-owned subsidiary of Beatnik ("Merger Sub"),
and MIXMAN TECHNOLOGIES, INC., a California corporation ("Mixman").
WHEREAS Beatnik, Merger Sub and Mixman have entered into that Agreement and
Plan of Reorganization dated as of October 8, 1999 (the "Reorganization
Agreement"); and
WHEREAS, Beatnik, Merger Sub and Mixman hereby agree that certain sections
and provisions of the Reorganization Agreement shall be amended:
NOW, THEREFORE, for due and adequate consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The Reorganization Agreement shall be amended as follows:
(a) All references to "Founders Options" are hereby deleted in their
entirety;
(b) Section 2.6(a) is hereby deleted in its entirety and replaced with the
following language:
"(a) Conversion of Mixman Common Stock. Each share
---------------------------------
of Mixman Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Dissenting
Shares) shall be converted, subject to Section 2.6(c) and
Section 2.6(d), into the right to receive a number of
shares of Beatnik Common Stock equal to the "Conversion
Ratio." The "Conversion Ratio" is the quotient of: (1) one-
half Beatnik's "Fully-Diluted Common Equivalents
Outstanding" (as defined below) as of immediately prior to
the Effective Time, divided by (2) Mixman's "Common
Equivalents Outstanding" (as defined below) as of
immediately prior to the Effective Time. As used herein,
"Common Equivalents Outstanding" means the sum of (A)
shares of common stock outstanding plus (B) shares of
common stock issuable upon conversion of all outstanding
shares of preferred stock, plus (C) shares of common stock
issuable upon exercise or conversion of all outstanding or
promised Options, warrants and convertible debt (and upon
conversion of any preferred stock issuable upon exercise or
conversion of all outstanding Options, warrants and
convertible debt). "Fully Diluted Common Equivalents
Outstanding" means the sum of (A) Common Equivalents
Outstanding, plus (B) all shares of common stock (or
securities convertible into or exchangeable for common
stock) reserved for issuance to employees, officers,
directors, contractors, consultants or advisors
-S-1-
<PAGE>
under any stock option, stock purchase, stock bonus or
other equity incentive plan. An example of the calculation
of the Conversion Ratio is set forth in Annex 1. All such
shares of Mixman Common Stock shall no longer be
outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the
shares of Beatnik Common Stock into which such Mixman
Common Stock has been converted. Certificates previously
representing shares of Mixman Common Stock shall be
exchanged for certificates representing whole shares of
Beatnik Common Stock issued in consideration therefor upon
the surrender of such certificates in accordance with
Section 2.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if
required) in the manner provided in Section 2.10)."
(c) Section 5.9 is hereby deleted in its entirety;
(d) Section 7.15 is hereby deleted in its entirety;
(e) Annex 1 is hereby replaced in its entirety as set forth in Exhibit A
---------
attached hereto.
2. The Reorganization Agreement shall be changed to reflect an extension of the
dead-line date for the closing, as defined in Section 2.1(b) of the
Reorganization Agreement (the "Closing") to December 15, 1999, and pursuant to
such change Section 10.1(a)(ii) of the Reorganization Agreement shall provide
that either Beatnik or Mixman may terminate the Reorganization Agreement if the
Closing shall not have occurred on or before December 15, 1999, other than due
to a breach of the Reorganization Agreement by the party seeking to terminate.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
-S-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.
BEATNIK, INC.
/s/ Lorraine Hariton
By _______________________________________
Lorraine Hariton
President and Chief Executive Officer
BEATNIK ACQUISITION SUB, INC.
/s/ Lorraine Hariton
By _______________________________________
Lorraine Hariton
President and Chief Executive Officer
MIXMAN TECHNOLOGIES INC.
/s/ Eric Almgren
By _______________________________________
Eric Almgren
Chief Executive Officer
-S-3-
<PAGE>
EXHIBIT A
---------
"Annex 1
--------
[SUBJECT TO UPDATE]
Beatnik/Mixman Calculations
---------------------------
Beatnik Shares (fully diluted) 24,461,705
- --------------------------------------------
. Common 7,437,686
- --------------------------------------------
. Options (incl. Pool) 2,205,116
- --------------------------------------------
. Preferred 14,459,485
- --------------------------------------------
. Warrants 359,418
- --------------------------------------------
Mixman Shares 3,650,057
- --------------------------------------------
. Common 2,023,471
- --------------------------------------------
. Options 528,633
- --------------------------------------------
. Preferred 1,092,148
- --------------------------------------------
. Promissory Note 5,805
- --------------------------------------------
Calculation Pursuant to Section 2.6(a)
--------------------------------------
Conversion ratio =
__
24,461,705
----------
2
_____________________________ = 3.3508662
3,650,057
Alternative Calculation
- -----------------------
24,461,705 = 36,692,557 (total shares post merger)
----------
2/3
- ---------------------------------------------------------------------------
12,230,852 Shares to Mixman SH (36,692,557 - 24,461,705)
- ---------------------------------------------------------------------------
12,230,852 = 3.3508661
----------
3,650,057
-S-4-
<PAGE>
MIXMAN SHARES
Note: The numbers provided on this page are rounded down by group, but not for
each Mixman shareholder. Thus, the Beatnik share-numbers are approximations.
- ---------------------------------------------------------------------------
Common = 2,023,471 shares
- ---------------------------------------------------------------------------
Preferred = 1,092,148 shares
- ---------------------------------------------------------------------------
Note = 5,805*
- ---------------------------------------------------------------------------
Options = 528,633
- ---------------------------------------------------------------------------
* Assumes conversion on October 29, 1999
- ------------------------------------------------------------------------------
2,023,471 x 3.3508662 = 6,780,380 Beatnik Shares for Mixman Common Stock
- ------------------------------------------------------------------------------
1,092,148 x 3.3508662 = 3,659,641 Beatnik Shares for Mixman Preferred Stock**
- ------------------------------------------------------------------------------
5,805 x 3.3508662 = 19,451 Beatnik Shares for Mixman Note converted into
Mixman Common
- ------------------------------------------------------------------------------
528,633 x 3.3508662 = 1,771,378 Beatnik Shares for Mixman Options
- ------------------------------------------------------------------------------
Mixman Series A to be exchanged for 1,945,131 shares of Beatnik Series D-1
Preferred Stock with a liquidation preference of $0.36111 per share
(approximately $702,406).
Mixman Series B and C to be exchanged for 1,714,511 shares of Beatnik Series D-2
Preferred Stock with a liquidation preference of $0.89529 per share
(approximately $1,534,984)."
-S-5-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BEATNIK, INC.
The undersigned, Lorraine Hariton and Patrizia Owen, hereby certify that:
ONE: They are the duly elected and acting President and Chief Financial
Officer, respectively, of Beatnik, Inc. (the "Corporation").
TWO: The Articles of Incorporation of the Corporation shall be amended and
restated to read in full as follows:
ARTICLE I
The name of the Corporation is Beatnik, Inc.
ARTICLE II
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
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock. This Corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is eighty-four million (84,000,000) shares, of which fifty-six million
(56,000,000) shares shall be Common Stock, with a par value of $.001 per share,
and twenty-eight million (28,000,000) shares shall be Preferred Stock, with a
par value of $0.001 per share, of which three million, seven hundred and nine
thousand nine hundred seventy-one (3,709,971) shares shall be designated Series
A Preferred Stock, one million three hundred nine thousand five hundred twenty-
four (1,309,524) shares shall be designated Series B Preferred Stock, ten
million five hundred thousand (10,500,000) shares shall be designated Series C
Preferred Stock, two million five hundred thousand (2,500,000) shares shall be
designated Series D-1 Preferred Stock, two million two hundred twenty-five
thousand (2,225,000) shares shall be designated Series D-2 Preferred Stock and
seven million (7,000,000) shares shall be designated Series E Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in series.
Except as to the Series A, Series B, Series C, Series D-1, Series D-2 and
Series E Preferred Stock and except as otherwise provided in these Articles of
Incorporation, the Board of
-1-
<PAGE>
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
additional Series of Preferred Stock, and the number of shares constituting any
such Series and the designation thereof, or any of them. The Board of Directors,
except as otherwise provided in these Articles of Incorporation, is also
authorized to decrease the number of shares of any series, subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any Series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series. The rights, preferences, privileges, and restrictions
granted to and imposed on the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D-1 Preferred Stock, the Series
D-2 Preferred Stock and the Series E Preferred Stock, are as follows:
(1) Dividends.
---------
(a) Subject to the rights of each series of Preferred Stock that may
from time to time come into existence, the holders of outstanding Series A,
Series B, Series C, Series D-1, Series D-2 and Series E Preferred Stock shall be
entitled to receive in any fiscal year, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at the rate of (i) $0.036 per share of Series A Preferred Stock per
annum, (ii) $0.050 per share of Series B Preferred Stock per annum, (iii) $0.07
per share of Series C Preferred Stock per annum, (iv) $0.0249828298349 per share
of Series D-1 Preferred Stock per annum, (v) $0.0619409004172 per share of
Series D-2 Preferred Stock per annum, and (vi) $0.30 per share of Series E
Preferred Stock per annum before any cash dividend is paid on Common Stock. Such
dividend or distribution may be payable annually or otherwise as the Board of
Directors may from time to time determine. No dividend or distribution may be
declared or paid on any series of Preferred Stock in any year unless dividends
shall have been paid on or declared and set apart upon all shares of Preferred
Stock at their respective annual rates for such year. Dividends or distributions
(other than dividends payable solely in shares of Common Stock) may be declared
and paid upon shares of Common Stock in any fiscal year of the Corporation only
if dividends shall have been paid on or declared and set apart upon all shares
of Preferred Stock at their respective annual rate; and no further dividends
shall be paid to holders of Preferred Stock in excess of such annual rate in any
fiscal year unless at the same time equivalent dividends are paid to holders of
shares of Common Stock; provided, however, that the rate of dividends on shares
of Common Stock shall not exceed the rate of dividends on shares of any class of
Preferred Stock. The right to such dividends on shares of Preferred Stock shall
not be cumulative and no right shall accrue to holders of shares of Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue
interest.
(b) In the event the Corporation shall declare a distribution payable
in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case, the holders of Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of Preferred
Stock were the holders of the number of shares of Common Stock of the
Corporation into which their respective
-2-
<PAGE>
shares of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(2) Voting Rights; Election of Directors.
------------------------------------
(a) Voting Rights. Each holder of Preferred Stock shall be entitled
-------------
to the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted on the record date for the
vote or consent of shareholders and shall have voting rights and powers equal to
the voting rights and powers of the Common Stock. The holder of each share of
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of the Corporation and shall vote with holders of the
Common Stock upon the election of directors and upon any other matter submitted
to a vote of shareholders, except on those matters required by law to be
submitted to a class vote. Fractional votes by the holders of Preferred Stock
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number.
(b) Election of Directors.
---------------------
(i) The holders of the Series B Preferred Stock shall be
entitled, as a group voting as a separate class (the "Series B Preferred
Class"), to elect (and to remove, either for or without cause) one (1) member of
the Board of Directors of the Corporation.
(ii) The holders of the Series C Preferred Stock shall be
entitled, as a group voting as a separate class (the "Series C Preferred
Class"), to elect (and to remove, either for or without cause) one (1) member of
the Board of Directors of the Corporation.
(iii) The other members of the Board of Directors shall be
elected by the holders of the Series A Preferred Stock, Series D-1 Preferred
Stock, Series D-2 Preferred Stock, Series E Preferred Stock and Common Stock
voting together as a class.
(iv) In the case of any vacancy in the office of a director
elected by either the Series B Preferred Class or the Series C Preferred Class
pursuant to subparagraphs (i) and (ii) of paragraph (b) of this Section 2, the
holders of a majority of the shares of that class, may elect a successor to hold
the office for the unexpired term of the director whose place shall be vacant,
as set forth above. Any director who shall have been elected by either the
Series B Preferred Class or the Series C Preferred Class may be removed during
the aforesaid term of office, whether with or without cause, only by the
affirmative vote of the holders of a majority of the outstanding shares of the
Series B Preferred Class or Series C Preferred Class, as the case may be,
provided that the number of votes against removal is less than the number of
votes necessary to elect that director.
(3) Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
-3-
<PAGE>
(a) Right to Convert.
----------------
(i) Each share of Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Preferred
Stock, into Common Stock at the initial conversion rate of one fully paid and
non-assessable share of Common Stock for each share of Preferred Stock, subject,
however, to the adjustments described below. (The number of shares of Common
Stock into which each share of Preferred Stock may be converted is hereafter
referred to as the "Conversion Rate.")
---------------
(ii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Rate
immediately upon the closing of the Corporation's sale of Common Stock pursuant
to a registration statement under the Securities Act of 1933, as amended,
pursuant to an underwritten firm commitment public offering, provided that such
offering is at a price of not less than $4.00 per share (as adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations) and results in
$10,000,000 or more in gross cash proceeds to the Corporation.
(iii) No fractional shares of Common Stock shall be issued upon
conversion of Preferred Stock and any shares of Preferred Stock surrendered for
conversion which would otherwise result in a fractional share of Common Stock
shall be redeemed for the then fair market value thereof as determined in good
faith by the Corporation's Board of Directors after considering relevant
factors, payable as promptly as possible whenever funds are legally available
therefor. If more than one share of Preferred Stock is surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock to be issued upon conversion shall be computed on the basis of the
aggregate number of shares of Preferred Stock so surrendered.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at such office that such holder elects to
convert all or part of the same and shall state in such notice the name or names
in which such holder wishes the certificate or certificates for the shares of
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to such holder's nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled. 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 on such date.
(c) Adjustment of Conversion Rate For Combinations or Consolidations
--------------------------------------------------------------------------
of Common Stock. In the event the Corporation, at any time or from time to time
- ---------------
after the effective date of a written agreement by the Corporation for the
initial sale of a Series of Preferred Stock (hereinafter referred to as the
"Original Issue Date"), effects a subdivision or combination of its
-4-
<PAGE>
outstanding Common Stock into a greater or lesser number of shares without a
proportionate and corresponding subdivision or combination of its outstanding
Preferred Stock, then and in each such event the Conversion Rate for such Series
of Preferred Stock shall be increased or decreased proportionately.
(d) Adjustment of Conversion Rate for Dividends, Distributions and
--------------------------------------------------------------
Common Stock Equivalents. In the event the Corporation at any time or from
- ------------------------
time to time after the Original Issue Date shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights (hereinafter referred to as "Common Stock
Equivalents") convertible into or entitling the holder thereof to receive
additional shares of Common Stock without payment of any consideration by such
holder for such Common Stock Equivalents or the additional shares of Common
Stock, then, and in each such event, the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common Stock issuable in
payment of such dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents shall be deemed to be issued and outstanding as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date. In each such event, the
Conversion Rate for the Preferred Stock shall be increased as of the time of
such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Conversion Rate
for such Series by a fraction,
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding or deemed to be issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such Common
Stock Equivalents and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, (x) if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Conversion Rate for such Series
shall be recomputed (but to no greater extent than originally adjusted)
accordingly as of the close of business on such record date and thereafter the
Conversion Rate for such Series shall be adjusted pursuant to this Section
(B)(3)(d) as of the time of actual payment of such dividends or distribution;
(y) if such Common Stock Equivalents provide, with the passage of time or
otherwise, for any decrease in the number of shares of Common Stock issuable
upon conversion or exercise thereof, the Conversion Rate for such Series shall,
upon any such decrease becoming effective, be recomputed to reflect such
decrease insofar as it affects the rights of conversion or exercise of the
Common Stock Equivalents then outstanding, and (z) upon the expiration of any
rights of conversion or exercise under any unexercised Common Stock Equivalents,
the Conversion Rate for such Series computed upon the original issue thereof
shall, upon such expiration, be recomputed as if the only additional shares of
Common Stock issued were the shares of such stock, if any, actually issued upon
the conversion or exercise of such Common Stock Equivalents (but to no greater
extent than originally adjusted).
-5-
<PAGE>
(e) Adjustment of Conversion Rate for Non-Common Stock Distributions.
----------------------------------------------------------------
In the event the Company shall at any time or from time to time after the
Original Issue Date distribute to any holder of shares of its Common Stock in
respect of such shares (including any such distribution made in connection with
a consolidation or merger in which the Company is the resulting or surviving
corporation and the Common Stock is not changed or exchanged), cash, evidences
of indebtedness of the Company or another issuer, securities of the Company or
another issuer or other assets or rights or warrants to subscribe for or
purchase securities of the Company, then, and in each such case, the Conversion
Rate then in effect for each Series of Preferred shall be adjusted by
multiplying the Conversion Rate for such Series in effect immediately prior to
the date of such distribution by a fraction (x) the numerator of which shall be
the current market price per share of Common Stock on the record date referred
to below and (y) the denominator of which shall be such current market price per
share of Common Stock less the then fair market value (both as determined in
good faith by the Board of Directors of the Company, a certified resolution with
respect to which shall be mailed to the holder of the Preferred Stock evidenced
hereby) of the portion of the cash, evidences of indebtedness, securities or
other assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock (but such denominator shall in no event
be zero). Such adjustment shall be made whenever any such distribution is made
and shall become effective retroactively to a date immediately following the
close of business on the record date for the determination of shareholders
entitled to receive such distribution.
(f) No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, 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 (B)(3) and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the holders of
Preferred Stock against impairment.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Rate for Preferred Stock pursuant
to this Section (B)(3), the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
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 like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Rate at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of the property which
at the time would be received upon the conversion of such holder's shares of
Preferred Stock.
(h) Notices of Record Date. In the event of the establishment by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any Common Stock
Equivalents 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, the Corporation shall mail to each holder of Preferred Stock,
at least twenty (20) days
-6-
<PAGE>
prior to the date specified therein, notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
shares of Preferred Stock; and 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 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 purpose.
(j) Notices. Any notices required by the provisions of this Section
-------
(B) (3) to be given to the holders of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at such holder's address appearing on the books of the
Corporation.
(4) Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, subject to the rights of each
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D-1 Preferred Stock, Series D-2 Preferred Stock and
Series E Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock by reason of their ownership thereof, the amount
of $0.60 per share for each share of Series A Preferred Stock, $0.84 per share
for each share of Series B Preferred Stock, $1.1647316 per share for each share
of Series C Preferred Stock, $0.35689756907 per share for each share of Series
D-1 Preferred Stock, 0.88487000596 per share for each share of Series D-2
Preferred Stock and $5.00 per share for each share of Series E Preferred Stock
then held by them, and, in addition, an amount equal to all declared but unpaid
dividends on the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock and
Series E Preferred Stock , as applicable. If, upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1
Preferred Stock, Series D-2 Preferred Stock and Series E Preferred Stock shall
be insufficient to permit the payment to such holders of the full preferential
amount, then, subject to the rights of each Series of Preferred Stock that may
from time to time come into existence, the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D-1 Preferred Stock, Series D-2 Preferred Stock
and Series E Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive. After payment has been made to the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D-1 Preferred Stock, Series D-2 Preferred Stock and
Series E Preferred Stock of
-7-
<PAGE>
the full amounts to which they shall be entitled as aforesaid, any remaining
assets shall be distributed ratably to the holders of the Corporation's Common
Stock.
(b) (i) For the purposes of this Section 4, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, or include, (A) the acquisition of the Corporation by another entity by
means of any transaction or Series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets or the
capital stock of the Corporation, unless the Corporation's shareholders of
record immediately prior to such acquisition or sale (by virtue of securities
issued as consideration for the Corporation's acquisition or sale or otherwise)
hold at least fifty percent (50%) of the voting power of the surviving or
acquiring entity.
(ii) In any of such events, if the consideration received by
the Corporation is other than cash, the value of such consideration will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty (30) calendar
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) business days
prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in subsections
(A) (1), (2) or (3) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the Corporation.
(iii) In the event the requirements of this Section 4(b) are not
complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 4 have been complied with, or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as
-8-
<PAGE>
such rights, preferences and privileges existing immediately prior to the date
of the first notice referred to in Section 4(b)(iv) hereof.
(iv) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction, which notice shall
be mailed, postage prepaid, to the post office address of such holder last shown
on the records of the Corporation, not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 4, and shall specify
the date of closing of such transaction. The Corporation shall there-after give
such holders prompt notice of any material changes in the terms and conditions
of the transaction. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes in the terms and conditions of the transaction; provided,
however, that such periods may be shortened upon the written consent of the
holders of a majority of each of the Series A Preferred Stock then outstanding,
the Series B Preferred Stock then outstanding, the Series C Preferred Stock then
outstanding, the Series D-1 Preferred Stock then outstanding, the Series D-2
Preferred Stock then outstanding and the Series E Preferred Stock then
outstanding.
(c) Reorganization, Reclassification, Consolidation, Merger or Sale
---------------------------------------------------------------
of Assets. In case of any capital reorganization or reclassification or other
- ---------
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another person (other than a consolidation or
merger solely for the purpose of changing the Company's state of domicile or in
which the Company is the resulting or surviving person and which does not result
in any reclassification or change of outstanding Common Stock), or in case of
any sale or other disposition to another person of all or substantially all of
the assets of the Company (any of the foregoing, a "Transaction"), the Company,
or such successor or purchasing person, as the case may be, shall execute and
deliver to each holder of the Preferred Stock, at least five (5) Business Days
prior to effecting any of the foregoing Transactions, a certificate that the
holder of Preferred Stock then outstanding shall have the right thereafter to
convert such Preferred Stock into the kind and amount of shares of stock or
other securities (of the Company or another issuer) or property or cash
receivable upon such Transaction by a holder of the number of shares of Common
Stock into which the Preferred Stock could have been converted immediately prior
to such Transaction based on the Conversion Rate for such Preferred Stock. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section B(4) and
shall contain other terms identical to the terms hereof. If, in the case of any
such Transaction, the stock, other securities, cash or property receivable
thereupon by a holder of Common Stock includes shares of stock or other
securities of a person other than the successor or purchasing persons and other
than the Company, which controls or is controlled by the successor or purchasing
person or which, in connection with such Transaction, issues Stock, securities,
other property or cash to holders of Common Stock, then such certificate also
shall be executed by such person, and such person shall, in such certificate,
specifically assume the obligations of such successor or purchasing person and
acknowledge its obligations
-9-
<PAGE>
to issue such stock, securities, other property or cash to holders of the
Preferred Stock as provided above. The provisions of this Section B(4)(c)
similarly shall apply to successive Transactions.
(5) Redemption Rights. The Preferred Stock is not redeemable.
-----------------
(6) Protective Provisions.
---------------------
(a) In addition to any other rights provided by law, so long as at
least twenty percent (20%) of the Preferred Stock designated and authorized
under this Article III remains outstanding, the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority in voting interest of such outstanding shares of Preferred
Stock, voting together as a single class:
(i) effect (x) any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Corporation) pursuant to which the Corporation is
acquired by another entity or (y) a sale of all or substantially all of the
assets or capital stock of the Corporation unless the Corporation's shareholders
of record immediately prior to such acquisition or sale (by virtue of securities
issued as consideration for the Corporation's acquisition or sale or otherwise)
hold at least fifty percent (50%) of the voting power of the surviving or
acquiring entity;
(ii) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets on a parity with any such
preference or priority of the outstanding Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of the Corporation having any preference or
priority as to dividends or assets on a parity with any such preference or
priority of the outstanding Preferred Stock;
(iii) redeem, purchase or otherwise acquire any shares of Common
Stock (other than pursuant to equity incentive agreements with employees or
service providers giving the Corporation the right to repurchase shares upon
termination of employment or services); or
(iv) redeem, purchase or otherwise acquire any share or shares
of Preferred Stock.
(b) In addition to any other rights provided by law and subject to
applicable law, so long as at least twenty percent (20%) of the Preferred Stock
designated and authorized under this Article III remains outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority in voting interest of
outstanding shares of each series of Preferred Stock adversely affected thereby,
voting as a separate series:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Articles of Incorporation or Bylaws if such action would alter
or change the rights,
-10-
<PAGE>
preferences or privileges of, or restrictions provided for the benefit of, the
outstanding Preferred Stock in a way that is materially adverse to the holders
of the outstanding Preferred Stock; or
(ii) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such preference
or priority of the outstanding Preferred Stock, or authorize or issue shares of
stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of the Corporation having any preference or priority as to
dividends or assets superior to any such preference or priority of the
outstanding Preferred Stock;
(7) No Reissuance of Preferred Stock. No share or shares of Preferred
--------------------------------
Stock acquired by the Corporation by reason of purchase, conversion or otherwise
shall be reissued, and all such shares shall be canceled, retired and eliminated
from the shares that the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the authorized number of shares of Preferred Stock
accordingly.
(8) Residual Rights. All rights accruing to the out-standing shares of
---------------
the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
(9) Consent for Certain Repurchases of Common Stock Deemed to be
------------------------------------------------------------
Distributions. Each holder of Preferred Stock shall be deemed to have
- -------------
consented, for purposes of sections 502, 503 and 506 of the California
Corporations Code, to distributions made by the Corporation in connection with
the repurchase of shares of Common Stock issued to or held by employees or
consultants upon termination of their employment or services pursuant to
agreements providing for such right of repurchase between the Corporation and
such persons.
(10) No Preemptive Rights. Holders of Preferred Stock shall have no
--------------------
preemptive rights except as granted by the Corporation pursuant to written
agreements.
(C) Common Stock.
------------
(1) Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(2) Liquidation Rights. Upon the liquidation, dissolution or winding up
------------------
of the Corporation, the assets of the Corporation shall be distributed as
provided in Article III(B)(4) hereof.
(3) Voting Rights. Each holder of shares of Common Stock shall have the
-------------
right to one vote per share of Common Stock held by such holder, and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote upon such matters and in such
manner as may be provided by law.
-11-
<PAGE>
(4) No Preemptive Rights. Holders of Common Stock shall have no
--------------------
preemptive rights except as granted by the Corporation pursuant to written
agreements.
ARTICLE IV
(A) Limitation of Directors' Liability. The liability of the directors
----------------------------------
of the Corporation for monetary damages shall be limited to the fullest extent
permissible under California law.
(B) Indemnification of Corporate Agents. The Corporation is authorized to
-----------------------------------
provide indemnification of agents (as defined in section 317 of the California
Corporations Code) to the fullest extent permissible under California law.
(C) Repeal or Modification. Any repeal or modification of the foregoing
----------------------
provisions of this Article IV by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
THREE: The foregoing amendment and restatement has been approved by the
Board of Directors of the Corporation.
FOUR: The foregoing amendment was approved by the holders of the requisite
number of shares of the Corporation in accordance with sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 16,663,801 shares
of Common Stock, 3,709,971 shares of Series A Preferred Stock, 1,309,523 shares
of Series B Preferred Stock, 9,439,991 shares of Series C Preferred Stock,
1,968,026 shares of Series D-1 Preferred Stock 1,734,695 shares of Series D-2
Preferred Stock. The number of shares voting in favor of the foregoing
amendment equaled or exceeded the vote required, such required vote being a
majority of the outstanding shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock
and Series D-2 Preferred Stock, voting together as a single class, and a
majority of each of the (i) outstanding shares of Common Stock, and (ii)
outstanding shares of Preferred Stock, each voting as a separate class.
-12-
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that we have read the foregoing Amended and Restated Articles of
Incorporation and know the contents thereof and that the same are true of our
own knowledge.
Executed on February 16 , 2000
---------------
in Palo Alto, California
/s/ Lorraine Hariton
-------------------------------
Lorraine Hariton
President
/s/ Patrizia Owen
--------------------------------
Patrizia Owen
Chief Financial Officer
-13-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
HEADSPACE, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................................. 1
1.1 PRINCIPAL OFFICE.............................................................. 1
1.2 OTHER OFFICES................................................................. 1
ARTICLE II MEETINGS OF SHAREHOLDERS...................................................... 1
2.1 PLACE OF MEETINGS............................................................. 1
2.2 ANNUAL MEETING................................................................ 1
2.3 SPECIAL MEETING............................................................... 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.............................................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................................. 3
2.6 QUORUM........................................................................ 3
2.7 ADJOURNED MEETING; NOTICE..................................................... 3
2.8 VOTING........................................................................ 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT............................. 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING....................... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS................... 6
2.12 PROXIES....................................................................... 6
2.13 INSPECTORS OF ELECTION........................................................ 7
ARTICLE III DIRECTORS..................................................................... 8
3.1 POWERS........................................................................ 8
3.2 NUMBER OF DIRECTORS........................................................... 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................................... 8
3.4 RESIGNATION AND VACANCIES..................................................... 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................................... 9
3.6 REGULAR MEETINGS.............................................................. 9
3.7 SPECIAL MEETINGS; NOTICE...................................................... 9
3.8 QUORUM........................................................................ 10
3.9 WAIVER OF NOTICE.............................................................. 10
3.10 ADJOURNMENT................................................................... 10
3.11 NOTICE OF ADJOURNMENT......................................................... 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................. 11
3.13 FEES AND COMPENSATION OF DIRECTORS............................................ 11
3.14 APPROVAL OF LOANS TO OFFICERS/*/.............................................. 11
ARTICLE IV COMMITTEES.................................................................... 11
4.1 COMMITTEES OF DIRECTORS....................................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES............................................. 12
ARTICLE V OFFICERS...................................................................... 12
5.1 OFFICERS...................................................................... 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.2 ELECTION OF OFFICERS.......................................................... 13
5.3 SUBORDINATE OFFICERS.......................................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS........................................... 13
5.5 VACANCIES IN OFFICES.......................................................... 13
5.6 CHAIRMAN OF THE BOARD......................................................... 13
5.7 PRESIDENT..................................................................... 14
5.8 VICE PRESIDENTS............................................................... 14
5.9 SECRETARY..................................................................... 14
5.10 CHIEF FINANCIAL OFFICER....................................................... 15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS........... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................... 15
6.2 INDEMNIFICATION OF OTHERS..................................................... 15
6.3 PAYMENT OF EXPENSES IN ADVANCE................................................ 16
6.4 INDEMNITY NOT EXCLUSIVE....................................................... 16
6.5 INSURANCE INDEMNIFICATION..................................................... 16
6.6 CONFLICTS..................................................................... 16
ARTICLE VII RECORDS AND REPORTS.......................................................... 17
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.................................. 17
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.......................................... 17
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS......................... 18
7.4 INSPECTION BY DIRECTORS....................................................... 18
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER......................................... 18
7.6 FINANCIAL STATEMENTS.......................................................... 18
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................................ 19
ARTICLE VIII GENERAL MATTERS............................................................. 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING......................... 19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..................................... 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED............................. 20
8.4 CERTIFICATES FOR SHARES....................................................... 20
8.5 LOST CERTIFICATES............................................................. 20
8.6 CONSTRUCTION; DEFINITIONS..................................................... 21
ARTICLE IX AMENDMENTS.................................................................... 21
9.1 AMENDMENT BY SHAREHOLDERS..................................................... 21
9.2 AMENDMENT BY DIRECTORS........................................................ 21
</TABLE>
(ii)
<PAGE>
BYLAWS
OF
HEADSPACE, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the third
Tuesday of May. However, if such day falls on a legal holiday, then the meeting
shall be held at the same time and place on the next succeeding full business
day. At the meeting, directors shall be elected, and any other proper business
may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10)(or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
-2-
<PAGE>
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at
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at the meeting at which the adjournment is taken. However, if a new record date
for the adjourned meeting is fixed or if the adjournment is for more than forty-
five (45) days from the date set for the original meeting, then notice of the
adjourned meeting shall be given. Notice of any such adjourned meeting shall be
given to each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
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2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting.
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Such notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a
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writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (l) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (l) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (l) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to actions required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than three (3)
nor more than five (5). The exact number of directors shall be three (3) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the remaining
directors, even if less than a quorum, or by a sole remaining director; however,
a vacancy created by the removal of a director by the vote or written consent of
the shareholders or by court order may be
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filled only by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
unanimous written consent of all shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors. Notice of the time and place of
special meetings shall be delivered personally or by telephone to each director
or sent by first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
corporation. If the notice is mailed, it shall be deposited in the United States
mail at least four (4) days before the time of the holding of the meeting. If
the notice is delivered personally or by telephone or telegram,
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it shall be delivered personally or by telephone or to the telegraph company at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed
with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS/*/
-----------------------------
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
___________________________
/*/ This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
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5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment. Any contract of employment with an officer shall be
unenforceable unless in writing and specifically authorized by the board of
directors.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive
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officer of the corporation and shall, subject to the control of the board of
directors, have general supervision, direction, and control of the business and
the officers of the corporation. He shall preside at all meetings of the
shareholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of a corporation,
and shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
-14-
<PAGE>
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by
-15-
<PAGE>
the corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the articles of
incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the articles of
incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
-16-
<PAGE>
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or
-17-
<PAGE>
by an agent or attorney and shall include the right to copy and make extracts.
Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
-18-
<PAGE>
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
-19-
<PAGE>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman of
the board or the vice chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary or
an assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
-20-
<PAGE>
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
-21-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
HEADSPACE, INC.
---------------
Adoption by Incorporator
------------------------
The undersigned person appointed in the articles of incorporation to act as
the Incorporator of Headspace, Inc. hereby adopts the foregoing bylaws,
comprising twenty-one (21) pages, as the Bylaws of the corporation.
Executed this 18th day of April, 1996.
/s/ Thomas Dolby
--------------------------------------
Thomas Dolby, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Headspace, Inc., and that the foregoing Bylaws,
comprising twenty-one (21) pages, were adopted as the Bylaws of the corporation
on April 18, 1996, by the person appointed in the articles of incorporation to
act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 18th day of April, 1996.
/s/ Mary Coller
--------------------------------------
Mary Coller, Secretary
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<PAGE>
BEATNIK, INC.
SECRETARY'S CERTIFICATE
I, Alan Beban, Secretary of Beatnik, Inc., Inc., a California corporation
(the "Company"), do hereby certify, in my capacity as such officer, as follows:
1. That on May 7, 1999, the Board of Directors, in a properly executed
Action by Written Consent of the Board of Directors of the Company, amended
Article III, Section 2 of the Bylaws of the Corporation to read in its entirety
as follows:
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than seven
(7) nor more than nine (9). The exact number of directors shall be eight (8)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than seven (7) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
IN WITNESS WHEREOF, I have signed this certificate.
Dated: May 7, 1999
/s/ Alan Beban
------------------------------------
Name: Alan Beban
Title: Secretary
<PAGE>
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
BEATNIK, INC.
BEATNIK, INC., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
FIRST: The name of this corporation is Beatnik, Inc.
SECOND: The original Certificate of Incorporation of the corporation
was filed with the Secretary of State of the State of Delaware on March __,
2000 and the original name of the corporation was Beatnik (Delaware), Inc.
A Restated Certificate of Incorporation of the corporation was filed with
the Secretary of State of the State of Delaware on March __, 2000. A
Certificate of Merger whereby Beatnik, Inc., a California corporation, was
merged with and into this corporation and this corporation's name was
changed to Beatnik, Inc. was filed with the Secretary of State of the State
of Delaware on March __, 2000.
THIRD: The Restated Certificate of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is BEATNIK, INC.
ARTICLE II
The registered office of the corporation within the State of Delaware is
located at 30 Old Rudnick Lane, in the City of Dover, County of Kent. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
A. Authorized Stock. The total number of shares of all classes of capital
stock which the corporation shall have authority to issue is one hundred five
million (105,000,000), of which one hundred million (100,000,000) shares of the
par value of one hundredth of one cent ($.0001) each shall be Common Stock (the
"Common Stock") and five million (5,000,000) shares of the
-1-
<PAGE>
par value of one hundredth of one cent ($.0001) each shall be Preferred Stock
(the "Preferred Stock"). The number of authorized shares of Common Stock or
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the then outstanding shares of Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such Preferred Stock holders is required pursuant to the provisions established
by the Board of Directors of this corporation (the "Board of Directors") in the
resolution or resolutions providing for the issue of such Preferred Stock, and
if such holders of such Preferred Stock are so entitled to vote thereon, then,
except as may otherwise be set forth in this Restated Certificate of
Incorporation, the only stockholder approval required shall be the affirmative
vote of a majority of the combined voting power of the Common Stock and the
Preferred Stock so entitled to vote.
B. Preferred Stock. The Preferred Stock may be issued in any number of
---------------
series, as determined by the Board of Directors. The Board of Directors may by
resolution fix the designation and number of shares of any such series, and may
determine, alter, or revoke the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series. The Board of Directors
may thereafter in the same manner, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, increase or decrease the number of
shares of any such series (but not below the number of shares of that series
then outstanding). In case the number of shares of any series shall be
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
A. The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Restated Certificate of
Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the corporation.
-2-
<PAGE>
B. Changes. The Board of Directors of this corporation, by amendment to
-------
the corporation's bylaws, is expressly authorized to change the number of
directors in any or all of the classes of directors without the consent of the
stockholders.
C. Elections. Elections of directors need not be by written ballot unless
---------
the Bylaws of the corporation shall so provide.
ARTICLE VII
A. Power of Stockholder to Act by Written Consent. No action required or
----------------------------------------------
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
B. Special Meetings of Stockholders. Special meetings of the stockholders
--------------------------------
of the corporation may be called for any purpose or purposes, unless otherwise
prescribed by statute or by this Restated Certificate of Incorporation, only at
the request of the Chairman of the Board of Directors, the Chief Executive
Officer or President of the corporation or by a resolution duly adopted by the
affirmative vote of a majority of the Board of Directors.
C. Cumulative Voting. The stockholders of corporation shall not have
-----------------
cumulative voting.
ARTICLE VIII
The Board of Directors is expressly empowered to adopt, amend or repeal the
Bylaws of the corporation; provided, however, that any adoption, amendment or
repeal of the Bylaws of the corporation by the Board of Directors shall require
the approval of at least sixty-six and two-
<PAGE>
thirds percent (66 2/3%) of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any resolution providing for adoption, amendment or repeal is presented to the
Board of Directors). The stockholders shall also have the power to adopt, amend
or repeal the Bylaws of the corporation, provided, however, that in addition to
any vote of the holders of any class or series of stock of the corporation
required by law or by this Restated Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all of the then outstanding shares of the stock of
the corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for such adoption, amendment or
repeal by the stockholders of any provisions of the Bylaws of the corporation.
ARTICLE IX
The books of the corporation may be kept at such place within or without
the State of Delaware as the bylaws of the corporation may provide or as may be
designated from time to time by the board of directors of the corporation.
ARTICLE X
Whenever a compromise or arrangement is proposed between the corporation
and its creditors or any class of them and/or between the corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
ARTICLE XI
A. Limitation on Liability. A director of the corporation shall not be
-----------------------
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (3) under Section 174 of the Delaware
General Corporation Law; or (4) for any transaction from which the director
derived an improper personal benefit.
<PAGE>
If the Delaware General Corporation Law hereafter is amended to further
eliminate or limit the liability of directors, then the liability of a director
of the corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Delaware
General Corporation Law.
B. Indemnification. Each person who is or is made a party or is threatened
---------------
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
If a claim under the first paragraph of this section is not paid in full by
the corporation within thirty (30) days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the
<PAGE>
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
C. Insurance. The corporation may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
D. Repeal and Modification. Any repeal or modification of the foregoing
-----------------------
provisions of this Article XI shall not adversely affect any right or protection
of any director, officer, employee or agent of the corporation existing at the
time of such repeal or modification.
ARTICLE XII
The corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
ARTICLE XIII
Notwithstanding any other provision of this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
amend in any respect or repeal this Article XIII, or Articles VI, VII, VIII and
XI.
* * * * *
Four: This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of this corporation.
<PAGE>
Five: This Restated Certificate of Incorporation was duly adopted by
written consent of the stockholders of the corporation in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware and written notice of such action has been given as provided in
Section 228.
IN WITNESS WHEREOF, Beatnik, Inc. has caused this certificate to be signed
by the undersigned officers, thereunto duly authorized, this ____ day of
__________, 2000.
By:
----------------------------
Lorraine Hariton
President and Chief Executive Officer
By:
----------------------------
Susan Marsch
Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
B Y L A W S
OF
BEATNIK, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 - Offices 1
1.1 Principal Office........................................... 1
1.2 Additional Offices......................................... 1
ARTICLE 2 - Meeting of Stockholders 1
2.1 Place of Meeting........................................... 1
2.2 Annual Meeting............................................. 1
2.3 Special Meetings........................................... 2
2.4 Notice of Meetings......................................... 2
2.5 Business Matter of a Special Meeting....................... 3
2.6 List of Stockholders....................................... 3
2.7 Organization and Conduct of Business....................... 3
2.8 Quorum and Adjournments.................................... 3
2.9 Voting Rights.............................................. 4
2.10 Majority Vote.............................................. 4
2.11 Record Date for Stockholder Notice and Voting.............. 4
2.12 Proxies.................................................... 4
2.13 Inspectors of Election..................................... 4
2.14 Action Without a Meeting................................... 5
ARTICLE 3 - Directors.................................................. 5
3.1 Number, Election, Tenure and Qualifications................ 5
3.2 Vacancies.................................................. 6
3.3 Resignation and Removal.................................... 6
3.4 Powers..................................................... 7
3.5 Chairman of the Board...................................... 7
3.6 Place of Meetings.......................................... 7
3.7 Annual Meetings............................................ 7
3.8 Regular Meetings........................................... 7
3.9 Special Meetings........................................... 7
3.10 Quorum, Action at Meeting, Adjournments.................... 7
3.11 Action Without Meeting..................................... 7
3.12 Telephone Meetings......................................... 8
3.13 Committees................................................. 8
3.14 Fees and Compensation of Directors......................... 8
3.15 Rights of Inspection....................................... 8
ARTICLE 4 - Officers................................................... 9
4.1 Officers Designated........................................ 9
4.2 Election................................................... 9
4.3 Tenure..................................................... 9
4.4 Compensation............................................... 9
4.5 The Chief Executive Officer................................ 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.6 The President.............................................. 9
4.7 The Vice President......................................... 10
4.8 The Secretary.............................................. 10
4.9 The Assistant Secretary.................................... 10
4.10 The Chief Financial Officer................................ 10
4.11 Bond....................................................... 11
4.12 Delegation of Authority.................................... 11
ARTICLE 5 - Notices.................................................... 11
5.1 Deliver.................................................... 11
5.2 Waiver of Notice........................................... 11
ARTICLE 6 - Indemnification............................................ 11
6.1 Actions Other Than By or in the Right of the Corporation... 11
6.2 Actions By or in the Right of the Corporation.............. 12
6.3 Success on the Merits...................................... 12
6.4 Specific Authorization..................................... 12
6.5 Advance Payment............................................ 13
6.6 Non-Exclusivity............................................ 13
6.7 Insurance.................................................. 13
6.8 Severability............................................... 13
6.9 Intent of Article.......................................... 13
ARTICLE 7 - Capital Stock.............................................. 13
7.1 Certificates for Shares.................................... 13
7.2 Signatures on Certificates................................. 14
7.3 Transfer of Stock.......................................... 14
7.4 Registered Stockholders.................................... 14
7.5 Lost, Stolen or Destroyed Certificates..................... 14
ARTICLE 8 - Certain Transactions....................................... 15
8.1 Transactions with Interested Parties....................... 15
8.2 Quorum..................................................... 15
ARTICLE 9 - General Provisions......................................... 15
9.1 Dividends.................................................. 15
9.2 Dividend Reserve........................................... 15
9.3 Checks..................................................... 16
9.4 Corporate Seal............................................. 16
9.5 Fiscal Year................................................ 16
9.6 Execution of Corporate Contracts and Instruments........... 16
9.7 Representation of Shares of Other Corporations............. 16
ARTICLE 10 - Amendments................................................ 16
</TABLE>
-ii-
<PAGE>
AMENDED AND RESTATED
B Y L A W S
OF
BEATNIK, INC.
-------------
(a Delaware corporation)
ARTICLE 1
Offices
-------
1.1 Principal Office. The registered office of the corporation shall be
----------------
30 Old Rudnick Lane, Dover, Delaware, and the name of the registered agent in
charge thereof is CorpAmerica, Inc.
1.2 Additional Offices. The corporation may also have offices at such
------------------
other places, either within or without the State of Delaware, as the Board of
Directors (the "Board") may from time to time designate or the business of the
corporation may require.
ARTICLE 2
Meeting of Stockholders
-----------------------
2.1 Place of Meeting. Meetings of stockholders may be held at such place,
----------------
either within or without of the State of Delaware, as may be designated by or in
the manner provided in these Bylaws, or, if not so designated, at the registered
office of the corporation or the principal executive offices of the corporation.
2.2 Annual Meeting. Annual meetings of stockholders shall be held each
--------------
year at such date and time as shall be designated from time to time by the Board
and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect by a plurality vote the number of directors equal to
the number of directors of the class whose term expires at such meetings (or, if
fewer, the number of directors properly nominated and qualified for election) to
hold office until the third succeeding annual meeting of stockholders after
their election. The stockholders shall also transact such other business as may
properly be brought before the meetings.
To be properly brought before the annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or the Chief Executive Officer, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or the Chief Executive Officer, or (c) otherwise properly
brought before the meeting by a stockholder of record. In addition to any other
applicable requirements, for business to be properly brought before the annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered personally or deposited
-1-
<PAGE>
in the United States mail, or delivered to a common carrier for transmission to
the recipient or actually transmitted by the person giving the notice by
electronic means to the recipient or sent by other means of written
communication, postage or delivery charges prepaid in all such cases, and
received at the principal executive offices of the corporation, addressed to the
attention of the Secretary of the corporation, not less than fifty (50) days nor
more than seventy-five (75) days prior to the scheduled date of the meeting
(regardless of any postponements, deferrals or adjournments of that meeting to a
later date); provided, however, that in the event that less than sixty-five (65)
days' notice or prior public disclosure of the date of the scheduled meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the earlier of (a) the close of business on the 15th day
following the day on which such notice of the date of the scheduled annual
meeting was mailed or such public disclosure was made, whichever first occurs,
and (b) two days prior to the date of the scheduled meeting. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the stockholder proposing such business, (iii) the class, series and number
of shares of the corporation that are owned beneficially by the stockholder, and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section; provided, however, that nothing in this Section shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
The Chairman of the Board of the corporation (or such other person
presiding at the meeting in accordance with these Bylaws) shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
2.3 Special Meetings. Special meetings of the stockholders may be called
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by the
Restated Certificate of Incorporation, by the Chief Executive Officer or
Secretary only at the request of the Chairman of the Board of Directors, the
Chief Executive Officer or President of the corporation or by a resolution duly
adopted by the affirmative vote of a majority of the Board of Directors. Such
request shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
2.4 Notice of Meetings. Written notice of stockholders' meetings, stating
------------------
the place, date and time of the meeting and, in the case of a special meeting,
the purpose or purposes for which such special meeting is called, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days prior to the meeting.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting
-2-
<PAGE>
is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date and time of the adjourned meeting shall be
given in conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
2.5 Business Matter of a Special Meeting. Business transacted at any
------------------------------------
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.
2.6 List of Stockholders. The officer in charge of the stock ledger of
--------------------
the corporation or the transfer agent shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.
2.7 Organization and Conduct of Business. The Chairman of the Board or,
------------------------------------
in his or her absence, the Chief Executive Officer or President of the
corporation or, in their absence, such person as the Board may have designated
or, in the absence of such a person, such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as Chairman
of the meeting. In the absence of the Secretary of the corporation, the
Secretary of the meeting shall be such person as the Chairman appoints.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.8 Quorum and Adjournments. Except where otherwise provided by law or
-----------------------
the Restated Certificate of Incorporation or these Bylaws, the holders of a
majority of the stock issued and outstanding and entitled to vote, present in
person or represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If, however, a
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the 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.
-3-
<PAGE>
2.9 Voting Rights. Unless otherwise provided in the Restated Certificate
-------------
of Incorporation, 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.
2.10 Majority Vote. 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 Restated Certificate of Incorporation or of these Bylaws, a different vote
is required in which case such express provision shall govern and control the
decision of such question.
2.11 Record Date for Stockholder Notice and Voting. For purposes of
---------------------------------------------
determining the stockholders entitled to notice of any meeting or to vote, or
entitled to receive payment of any dividend or other distribution, or entitled
to exercise any right in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of any such meeting nor more than sixty (60) days before
any other action. If the Board does not so fix a record date, 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 business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
2.12 Proxies. Every person entitled to vote for directors or on any other
-------
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the stockholder or the stockholder's attorney-in-
fact. A validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or attendance at the meeting and voting in person by, the person executing
the proxy; or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote pursuant to that proxy
is counted; provided, however, that no proxy shall be valid after the expiration
of three years from the date of the proxy, unless otherwise provided in the
proxy.
2.13 Inspectors of Election. The corporation shall, in advance of any
----------------------
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate one
or more persons to act as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
-4-
<PAGE>
2.14 Action Without a Meeting. No action required or permitted to be taken
------------------------
at any annual or special meeting of the stockholders of the corporation may be
taken without a meeting and the power of the stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
ARTICLE 3
Directors
---------
3.1 Number, Election, Tenure and Qualifications. The number of directors
-------------------------------------------
which shall constitute the whole Board of Directors shall be fixed at eight (8).
Thereafter, the number of directors which shall constitute the whole Board of
Directors shall be fixed from time to time by resolution of the Board of
Directors or stockholders at the annual meeting or any special meeting called
for that purpose.
The directors shall be elected at the annual meeting or at any special
meeting of the stockholders, except as otherwise provided in this Section, and
each director elected shall hold office until such director's successor is
elected and qualified, unless sooner displaced.
Subject to the rights of holders of any class or series of stock having a
preference over the common stock as to dividends or upon liquidation,
nominations of persons for election to the Board of Directors at the annual
meeting, by or at the direction of the Board of Directors, may be made by any
nominating committee or person appointed by the Board of Directors; nominations
may also be made by any stockholder of record of the corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered personally or deposited in the United
States mail, or delivered to a common carrier for transmission to the recipient
or actually transmitted by the person giving the notice by electronic means to
the recipient or sent by other means of written communication, postage or
delivery charges prepaid in all such cases, and received at the principal
executive offices of the corporation addressed to the attention of the Secretary
of the corporation not less than one hundred twenty (120) days prior to the
scheduled date of the meeting (regardless of any postponements, deferrals or
adjournments of that meeting to a later date); provided, however, that, in the
case of an annual meeting and in the event that less than one hundred (100)
days' notice or prior public disclosure of the date of the scheduled meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 7th day following the day
on which such notice of the date
-5-
<PAGE>
of the scheduled meeting was mailed or such public disclosure was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class, series and number of shares of capital stock of the
corporation that are owned beneficially by the person, (iv) a statement as to
the person's citizenship, and (v) any other information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the corporation that are owned beneficially by the stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as director of the corporation. No person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the Board of
Directors (or such other person presiding at such meeting in accordance with
these Bylaws) shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Directors shall serve as provided in the Restated Certificate of
Incorporation of the corporation. Directors need not be stockholders.
3.2 Vacancies. 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, and the directors so chosen shall hold office until the next
annual election at which the term of the class to which they have been elected
expires and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law or these bylaws, may exercise the powers of the full board until
the vacancy is filled.
3.3 Resignation and Removal. Any director may resign at any time upon
-----------------------
written notice to the corporation at its principal place of business or to the
Chief Executive Officer or the Secretary. Such resignation shall be effective
upon receipt of such notice unless the notice specifies such resignation to be
effective at some other time or upon the happening of some other event. Any
director or the entire Board of Directors may be removed, but only for cause, by
the holders of a majority of the shares then entitled to vote at an election of
directors, unless otherwise specified by law or the Restated Certificate of
Incorporation.
-6-
<PAGE>
3.4 Powers. The business of the corporation shall be managed by or under
------
the direction of the Board which may exercise all such powers of the corporation
and do all such lawful acts and things which are not by statute or by the
Restated Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
3.5 Chairman of the Board. If the Board of Directors appoints a Chairman
---------------------
of the Board, such Chairman shall, when present, preside at all meetings of the
stockholders and the Board. The Chairman shall perform such duties and possess
such powers as are customarily vested in the office of the Chairman of the Board
or as may be vested in the Chairman by the Board of Directors.
3.6 Place of Meetings. The Board may hold meetings, both regular and
-----------------
special, either within or without the State of Delaware.
3.7 Annual Meetings. The annual meetings of the Board shall be held
---------------
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present. The
annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.
3.8 Regular Meetings. Regular meetings of the Board may be held without
----------------
notice at such time and place as may be determined from time to time by the
Board; provided that any director who is absent when such a determination is
made shall be given prompt notice of such determination.
3.9 Special Meetings. Special meetings of the Board may be called by the
----------------
Chairman of the Board, the Chief Executive Officer, the President, the
Secretary, or on the written request of two or more directors, or by one
director in the event that there is only one director in office. Four hours'
notice to each director, either personally or by telegram, cable, telecopy,
commercial delivery service, telex or similar means sent to such director's
business or home address, or two days' notice by written notice deposited in the
mail or delivered by a nationally recognized courier service, shall be given to
each director by the secretary or by the officer or one of the directors calling
the meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
3.10 Quorum, Action at Meeting, Adjournments. At all meetings of the
---------------------------------------
Board, a majority of directors then in office, but in no event less than one
third (1/3) of the entire Board, 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, except as may be
otherwise specifically provided by law or by the Restated Certificate of
Incorporation. For purposes of this section, the term "entire Board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these Bylaws; provided, however, that if less
than all the number so fixed of directors were elected, the "entire Board" shall
mean the greatest number of directors so elected to hold office at any one time
pursuant to such authorization. If a quorum shall not be present at any meeting
of the Board, a majority of 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.
-7-
<PAGE>
3.11 Action Without Meeting. Unless otherwise restricted by the Restated
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if all members of the Board or 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.
3.12 Telephone Meetings. Unless otherwise restricted by the Restated
------------------
Certificate of Incorporation or these Bylaws, any member of the Board or any
committee thereof may participate in a meeting of the Board or of any committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.13 Committees. 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. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board 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
Restated 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 bylaws of the corporation; and, unless the
resolution designating such committee or the Restated Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. Each committee shall keep
regular minutes of its meetings and make such reports to the Board as the Board
may request. Except as the Board may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the conduct of
its business by the Board.
3.14 Fees and Compensation of Directors. Unless otherwise restricted by
----------------------------------
the Restated Certificate of Incorporation or these Bylaws, the Board shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board and may be
paid a fixed sum for attendance at each meeting of the Board or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15 Rights of Inspection. Any director shall have the right to examine
--------------------
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
-8-
<PAGE>
ARTICLE 4
Officers
--------
4.1 Officers Designated. The officers of the corporation shall be chosen
-------------------
by the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Chief Financial Officer. The Board may also choose a Chief
Operating Officer, one or more Vice Presidents, and one or more assistant
Secretaries. Any number of offices may be held by the same person, unless the
Restated Certificate of Incorporation or these Bylaws otherwise provide.
4.2 Election. The Board of Directors at its first meeting after each
--------
annual meeting of stockholders shall choose a Chief Executive Officer, a
President, a Secretary and a Chief Financial Officer. Other officers may be
appointed by the Board of Directors at such meeting, at any other meeting, or by
written consent or may be appointed by the Chief Executive Officer pursuant to a
delegation of authority from the Board of Directors.
4.3 Tenure. The officers of the corporation shall hold office until their
------
successors are chosen and qualify, unless a different term is specified in the
vote choosing or appointing such officer, or until such officer's earlier death,
resignation or removal. Any officer elected or appointed by the Board of
Directors or by the Chief Executive Officer may be removed with or without cause
at any time by the affirmative vote of a majority of the Board of Directors or a
committee duly authorized to do so, except that any officer appointed by the
Chief Executive Officer may also be removed at any time by the Chief Executive
Officer. Any vacancy occurring in any office of the corporation may be filled by
the Board of Directors, at its discretion. Any officer may resign by delivering
such officer's written resignation to the corporation at its principal place of
business or to the Chief Executive Officer or the Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
4.4 Compensation. The salaries of all officers of the corporation shall
------------
be fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because he is also a director of the corporation.
4.5 The Chief Executive Officer. Subject to such supervisory powers, if
---------------------------
any, as may be given by the Board to the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board are
carried into effect. He or she 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 to some other officer or agent of the corporation.
4.6 The President. The President shall, in the event there be no Chief
-------------
Executive Officer or in the absence of the Chief Executive Officer or in the
event of his or her disability or refusal to act, perform the duties of the
Chief Executive Officer, and when so acting, shall have the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
-9-
<PAGE>
shall perform such other duties and have such other powers as may from time to
time be prescribed for them by the Board, the Chairman of the Board, the Chief
Executive Officer or these Bylaws.
4.7 The Vice President. The Vice President (or in the event there be more
------------------
than one, the Vice Presidents in the order designated by the directors, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his or her disability or refusal to
act, perform the duties of the President, and when so acting, shall have the
powers of and subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the Board, the President, the
Chairman of the Board or these Bylaws.
4.8 The Secretary. The Secretary shall attend all meetings of the Board
-------------
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the Chief Executive Officer, under whose
supervision he or she shall act. The Secretary shall have custody of the seal of
the corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing thereof
by his or her signature. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
4.9 The Assistant Secretary. The Assistant Secretary, or if there be more
-----------------------
than one, the Assistant Secretaries in the order designated by the Board (or in
the absence of any designation, in the order of their election) shall, in the
absence of the Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
4.10 The Chief Financial Officer. The Chief Financial Officer 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. The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board, at
its regular meetings, or when the Board so requires, an account of all his or
her transactions as Chief Financial Officer and of the financial condition of
the corporation.
-10-
<PAGE>
4.11 Bond. If required by the Board of Directors, any officer shall give
----
the corporation a bond in such sum and with such surety or sureties and upon
such terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of such officer's office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in such
officer's possession or under such officer's control and belonging to the
corporation.
4.12 Delegation of Authority. The Board of Directors may from time to time
-----------------------
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
ARTICLE 5
Notices
-------
5.1 Deliver. Whenever, under the provisions of law, or of the Restated
-------
Certificate of Incorporation or these Bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or delivered to a nationally recognized
courier service. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
services, telex or similar means, addressed to such director or stockholder at
such person's address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery, in person or by telephone,
shall be deemed given at the time it is actually given.
5.2 Waiver of Notice. Whenever any notice is required to be given under
----------------
the provisions of law or of the Restated Certificate of Incorporation or of
these Bylaws, 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 thereto. In addition to the foregoing, notice of a meeting
need not be given to any director who signs a waiver of notice or a consent to
holding the meeting or an approval of the minutes thereof, whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to such director. All such waivers,
consents and approvals executed under this Section 5.2 shall be filed with the
corporate records or made a part of the minutes of the meeting.
ARTICLE 6
Indemnification
---------------
6.1 Actions Other Than By or in the Right of the Corporation. 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
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<PAGE>
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person 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 such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe such person's 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 equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
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 such person's conduct was unlawful.
6.2 Actions By or in the Right of the Corporation. 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 such
person 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 such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person 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 for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the Court of Chancery of the
State of Delaware 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 of the State
of Delaware or such other court shall deem proper.
6.3 Success on the Merits. To the extent that any person described in
---------------------
Sections 6.1 or 6.2 of this Article 6 has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
6.4 Specific Authorization. Any indemnification under Sections 6.1 or 6.2
----------------------
of this Article 6 (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections. 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
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<PAGE>
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders of the corporation.
6.5 Advance Payment. 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 as authorized by the Board
of Directors in the manner provided for in Section 6.4 of this Article 6 upon
receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that such
person is entitled to indemnification by the corporation as authorized in this
Article 6.
6.6 Non-Exclusivity. The indemnification provided by this Article 6 shall
---------------
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
6.7 Insurance. The Board of Directors may authorize, by a vote of the
---------
majority of the full board, the corporation 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 such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article 6.
6.8 Severability. If any word, clause or provision of this Article 6 or
------------
any award made hereunder shall for any reason be determined to be invalid, the
provisions hereof shall not otherwise be affected thereby but shall remain in
full force and effect.
6.9 Intent of Article. The intent of this Article 6 is to provide for
-----------------
indemnification to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware. To the extent that such Section or any
successor Section may be amended or supplemented from time to time, this Article
6 shall be amended automatically and construed so as to permit indemnification
to the fullest extent from time to time permitted by law.
ARTICLE 7
Capital Stock
-------------
7.1 Certificates for Shares. The shares of the corporation shall be
-----------------------
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Chief
Financial Officer, the Secretary or an Assistant Secretary of the corporation.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed
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<PAGE>
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. Certificates may be issued for partly paid
shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required by the General Corporation Law of the
State of Delaware or a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
7.2 Signatures on Certificates. Any or all of the signatures on a
--------------------------
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
7.3 Transfer of Stock. Upon surrender to the corporation or the transfer
-----------------
agent of the corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation 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 transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
7.4 Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a percent registered on its books as the owner of
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.
7.5 Lost, Stolen or Destroyed Certificates. The Board may direct that a
--------------------------------------
new certificate or certificates be issued to replace any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing the issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of the lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as it shall
require, and/or 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, stolen or destroyed.
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<PAGE>
ARTICLE 8
Certain Transactions
--------------------
8.1 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction or solely because the vote or votes of such director or officer are
counted for such purpose, if:
(a) the material facts as to such person's relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) the material facts as to such person's relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
8.2 Quorum. Common or interested directors may be counted in determining
------
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE 9
General Provisions
------------------
9.1 Dividends. Dividends upon the capital stock of the corporation,
---------
subject to any restrictions contained in the General Corporation Law of the
State of Delaware or the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the provisions of the Restated Certificate of Incorporation.
9.2 Dividend Reserve. 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>
9.3 Checks. All checks or demands for money and notes of the corporation
------
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
9.4 Corporate Seal. The Board of Directors may, by resolution, adopt a
--------------
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the Board of
Directors.
9.5 Fiscal Year. The fiscal year of the corporation shall be fixed by
-----------
resolution of the Board of Directors.
9.6 Execution of Corporate Contracts and Instruments. The Board, except
------------------------------------------------
as otherwise provided in these Bylaws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
9.7 Representation of Shares of Other Corporations. The Chief Executive
----------------------------------------------
Officer, the President or any Vice President or the Secretary or any Assistant
Secretary of this corporation is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of any
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
ARTICLE 10
Amendments
----------
The Board of Directors is expressly empowered to adopt, amend or repeal
these Bylaws, provided, however, that any adoption, amendment or repeal of these
Bylaws by the Board of Directors shall require the approval of at least sixty-
six and two-thirds percent (66-2/3%) of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the board). The stockholders shall also have power to adopt, amend
or repeal these Bylaws, provided, however, that in addition to any vote of the
holders of any class or series of stock of this corporation required by law or
by the Restated Certificate of Incorporation of this corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for such adoption,
amendment or repeal by the stockholders of any provisions of these Bylaws.
-16-
<PAGE>
EXHIBIT 4.2
BEATNIK, INC.
AMENDED AND RESTATED RIGHTS AGREEMENT
March 10, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Amendment.................................................... 2
2. Registration Right........................................... 2
2.1 Definitions........................................... 2
2.2 Requested Registration................................ 4
2.3 Company Registration.................................. 5
2.4 Obligations of the Company............................ 6
2.5 Furnish Information................................... 7
2.6 Expenses of Demand Registration....................... 7
2.7 Expenses of Company Registration...................... 7
2.8 Underwriting Requirements............................. 8
2.9 Delay of Registration................................. 8
2.10 Indemnification....................................... 8
2.11 Reports Under Securities Exchange Act of 1934......... 10
2.12 Form S-3 Registration................................. 10
2.13 Assignment of Registration Rights..................... 11
2.14 Limitations on Subsequent Registration Rights......... 12
2.15 "Market Stand-Off" Agreement.......................... 12
2.16 Termination of Registration Rights.................... 12
3. Additional Rights............................................ 13
3.1 Right of First Offer.................................. 13
4. Other Covenants of the Company............................... 14
4.1 Delivery of Financial Statements...................... 14
4.2 Inspection............................................ 15
4.3 Termination of Information and Inspection Covenants... 15
4.4 Qualified Small Business.............................. 15
5. Miscellaneous................................................ 16
5.1 Assignment............................................ 16
5.2 Third Parties......................................... 16
5.3 Governing Law......................................... 16
5.4 Counterparts.......................................... 16
5.5 Notices............................................... 16
5.6 Severability.......................................... 16
5.7 Amendment and Waiver.................................. 16
5.8 Effect of Amendment or Waiver......................... 17
5.9 Rights of Holders..................................... 17
5.10 Delays or Omissions................................... 17
</TABLE>
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<PAGE>
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "Agreement"), entered into
as of March 10, 2000, by and among BEATNIK, INC., a California corporation (the
-------------
"Company) and the shareholders and warrantholders listed on Exhibit A attached
hereto (individually, a "Shareholder," collectively, the "Shareholders"),
W I T N E S S E T H:
WHEREAS, certain of the undersigned Shareholders (the "Existing
Shareholders") are holders of the Company's Series A Preferred Stock, par value
$.001 per share (the "Series A Shares"), Series B Preferred Stock, par value
$.001 per share (the "Series B Shares"), Series C Preferred Stock, no par value
per share (the "Series C Shares"), Series D-1 Preferred Stock, par value $.001
per share (the "Series D-1 Shares") and Series D-2 Preferred Stock, par value
$.001 per share (the "Series D-2 Shares" and with the Series D-1 Shares, the
"Series D Shares") and are parties to that certain Amended and Restated Rights
Agreement dated as of December 14, 1999 (the "Prior Agreement"), and such
undersigned Shareholders hold a majority of the Registrable Securities, as such
term is defined in the Prior Agreement; and
WHEREAS, (i) certain of the undersigned Shareholders (the "Series C
Warrantholders") are holders of warrants (the "Series C Warrants") to purchase
Series C Shares, and (ii) certain of the undersigned Shareholders (the "Common
Warrantholders") are holders of warrants (the "Common Warrants") to purchase
shares of Common Stock; and
WHEREAS, the Company has issued warrants (the "Zomba Warrants") to purchase
Common Stock to Zomba Recording Corporation and Zomba Enterprises, Inc. ("Zomba
Warrantholders") and such Zomba Warrantholders and the Company intend that the
Zomba Warrantholders shall receive the rights and benefits of this Agreement;
and
WHEREAS, the Company is issuing to certain of the undersigned Shareholders
(the "New Shareholders") shares of Series E-1 Preferred Stock, par value $.001
per share (the "Series E-1 Shares") in connection with the Series E Purchase
Agreement (as defined below); and
WHEREAS, the execution of this Agreement by the Company and the holders of
a majority of the Series A Shares, the Series B Shares, the Series C Shares, the
Series D Shares outstanding immediately before the consummation of the
transactions contemplated by the Agreement (as defined below) is a condition to
the obligations of the Shareholders under the Series E Purchase Agreement (as
defined below); and
WHEREAS, the Company, the Existing Shareholders, the Warrantholders and the
New Shareholders wish to amend and restate the Prior Agreement in order to
restate the rights granted the Shareholders as set forth herein:
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
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<PAGE>
1. Amendment. Except as expressly provided herein, neither this
---------
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
--------
however, that any provisions hereof may be amended, waived, discharged or
- -------
terminated upon the written consent of the Company and the holders of a majority
of the then outstanding Registrable Securities (as defined below); and,
provided, further, that Section 3.1 may also be amended, waived, discharged or
- -------- -------
terminated upon the unanimous action of the Company's Board of Directors.
Notwithstanding the foregoing, in the event an amendment, waiver, discharge or
termination of any provision of this Agreement would affect the Shareholders
disproportionately, then such amendment, waiver, discharge or termination shall
require the written consent of the holders of at least seventy percent (70%) of
the then outstanding Registrable Securities. Any amendment, waiver, discharge or
termination executed in accordance with this Section 1, shall be binding on all
of the Shareholders. The Company and the Existing Shareholders agree that this
Agreement shall supersede and replace the Prior Agreement in its entirety.
2. Registration Right.
------------------
2.1 Definitions. As used in this Agreement:
-----------
(a) The term "Common Stock" shall mean shares of the Company's common
stock, par value $.001 per share.
(b) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Act"), and the
subsequent declaration or ordering of the effectiveness of such registration
statement.
(c) The term "Registrable Securities" means:
(i) the shares of the Company's Common Stock issuable or issued upon
conversion of the Series A Shares, the Series B Shares, the Series C
Shares, the Series D Shares, the Series E Shares, the MTVi Shares or upon
exercise of the Warrants or upon conversion of any Series C Shares issuable
upon exercise of the Warrants (the shares of Common Stock referred to in
this paragraph (i) are referred to hereafter as the "Stock"); and
(ii) any other shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution (including
those issued as a result of a stock split or recapitalization) with respect
to, or in exchange for or in replacement of, the Stock,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his or her rights under this Agreement are not assigned;
provided, however, that Common Stock or other securities shall only be treated
- -------- -------
as Registrable Securities if and so long as they have not been (a) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (b) sold in a transaction exempt from the
registration and
-2-
<PAGE>
prospectus delivery requirements of the Act under section 4(1) thereof so that
all transfer restrictions, and restrictive legends with respect thereto, if any,
are removed upon the consummation of such sale.
(d) The term "Holder" means any holder of outstanding Registrable
Securities who purchased or acquired such Registrable Securities pursuant to the
Series A Purchase Agreements, Series B Purchase Agreements, Series C Purchase
Agreements, Series E Purchase Agreement, Reorganization Agreement, Warrant
Agreement or in accordance with the provisions of Section 2.13 of this Agreement
in a transaction or Series of transactions not involving any registered public
offering.
(e) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently adopted by the
Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(f) The term "MTVi Shares" means any shares of Series E Preferred Stock
issued to MTVN Online, L.P. either directly or upon exercise of a warrant or
other contractual right.
(g) The term "Reorganization Agreement" shall mean that Agreement and Plan
of Reorganization dated October 8, 1999 by and among the Company, Beatnik
Acquisition Sub, Inc. and Mixman Technologies, Inc.
(h) The term "Series A Purchase Agreements" means: (i) that certain Series
A Preferred Stock Purchase Agreement dated July 1, 1996 by and among the Company
and the purchasers of Series A Preferred Stock named therein, (ii) that certain
Series A Preferred Stock Purchase Agreement dated March 14, 1997 by and among
the Company and the purchasers of Series A Preferred Stock named therein, and
(iii) that certain Series A Preferred Stock Purchase Agreement dated December
29, 1997 by and among the Company and the purchasers of Series A Shares named
therein.
(i) The term "Series B Purchase Agreements" means: (i) that certain Series
B Preferred Stock Purchase Agreement dated November 25, 1998 by and among the
Company and the purchasers of Series B Shares named therein, and (ii) that
certain Series B Preferred Stock Purchase Agreement dated May 9, 1999 by and
among the Company and the purchasers of Series B Shares named therein.
(j) The term "Series C Purchase Agreements" means (i) that certain Series
C Preferred Stock Purchase Agreement dated May 28, 1999 by and among the Company
and the purchasers of Series C Shares named therein, (ii) that certain Series C
Preferred Stock Purchase Agreement dated August 4, 1999, and (iii) that certain
Third Series C Purchase Agreement dated September 17, 1999.
(k) The term "Series E Purchase Agreement" means that certain Series E
Preferred Stock Purchase Agreement dated as of March 10, 2000 by and among the
Company and the parties named therein.
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<PAGE>
(l) The term "Warrants" shall mean the Common Warrants, the Series C
Warrants and the Zomba Warrants.
(m) The term "Warrant Agreements" means (i) that certain Warrant Agreement
dated as of August 20, 1999 by and between the Company and Yahoo! Inc.; (ii)
that certain Warrant Agreement dated as of December 16, 1999 by and between the
Company and Zomba Recording Corporation and (iii) that certain Warrant Agreement
dated as of December 31, 1999 by and between the Company and Zomba Enterprises,
Inc.
(n) The term "Warrantholders" shall mean the Common Warrantholders, the
Series C Warrantholders and the Zomba Warrantholders.
2.2 Requested Registration.
----------------------
(a) If the Company shall receive at any time after the earlier of (i)
March 10, 2004, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction), a written request from the Holders of at
least fifty percent (50%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least thirty percent (30%) of the Registrable Securities then
outstanding, then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 2.2(b), effect as soon as practicable, and in
any event within ninety (90) days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 5.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 2.2 and the Company
shall include such information in the written notice to the Holders referred to
in subsection 2.2(a). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 2.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Initiating Holders in writing that inclusion of all of
the shares proposed to be included in such registration would materially
adversely affect the marketing of the shares to be underwritten and that such
adverse effect requires a limitation of the number of shares to be underwritten,
then the Initiating Holders shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder.
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<PAGE>
(c) The Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 2.2:
(i) After the Company has effected one (1) registration pursuant to
this Section 2.2 and such registration has been declared or ordered
effective and remained effective for at least one hundred twenty (120)
days;
(ii) During the period starting with the date sixty (60) days prior
to the Company's good faith estimate of the date of filing of a
registration statement subject to Section 2.3 hereof and ending on a date
one hundred eighty (180) days after the effective date of such registration
statement; provided that the Company is actively employing in good faith
--------
all reasonable efforts to cause such registration statement to become
effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 2.12 below.
(d) Notwithstanding the foregoing, if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer such filing for a period of not more
than one hundred twenty (120) days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
-------- -------
right more than once in any twelve (12) month period; and provided, further,
that following such a deferral, the Initiating Holders may withdraw their
request, in which case the Initiating Holders will not be deemed to have made a
request for registration pursuant to this Section 2.2.
(e) Except for registration statements on Form S-4, S-8 or any successor
forms thereto, the Company will not file with the SEC any other registration
statement with respect to its Common Stock, whether for its own account or that
of other holders, from the date of receipt of a notice from Initiating Holders
pursuant to Section 2.2(a) until the earliest of (i) one hundred eighty (180)
days following the effective date of such registration, (ii) completion of the
period of distribution for the registration contemplated thereby, or (iii)
withdrawal of such registration.
2.3 Company Registration. If (but without any obligation to do so) the Company
--------------------
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its Common Stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating either to the
sale of securities to participants in a Company stock option, stock purchase or
similar plan or to an SEC Rule 145 transaction, or a registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after the mailing of such notice by the Company in
accor-
-5-
<PAGE>
dance with Section 5.5, the Company shall, subject to the provisions of
Section 2.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
2.4 Obligations of the Company. Whenever required under this Section 2 to
--------------------------
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days. Prior
to filing such registration statement with the SEC, the Company shall afford
counsel to the selling Holders reasonable time to review and comment thereon.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement. Prior to filing such amendments and supplements with the
SEC, the Company shall afford counsel to the selling Holders reasonable time to
review and comment thereon.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering and perform its obligations thereunder. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such
-6-
<PAGE>
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any.
(h) Use its reasonable best efforts to list the securities covered by such
registration statement with any securities exchange on which any securities of
the Company are then listed, if any.
(i) Furnish, at the request of any Holders requesting registration of
Registrable Securities pursuant to this Section 2, to such Holders, their
underwriters (if such securities are being sold through underwriters), and their
respective attorneys, accountants and agents, such information reasonably
requested by such Holders, underwriters, attorneys, accountants or agents.
2.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding such Holder, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
2.6 Expenses of Demand Registration. All out of pocket expenses incurred
-------------------------------
in connection with registrations, filings or qualifications pursuant to Section
2.2, including (without limitation), all registration, filing and qualification
fees, printers and accounting, transfer taxes, fees of transfer agents and
registrars, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
-------- -------
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses)
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 2.2; provided
further, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request or of an event of
the type referred to in Section 2.2(d), then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
2.2. In no event will the Company bear or pay underwriting discounts and
commissions relating to Registrable Securities.
2.7 Expenses of Company Registration. The Company shall bear and pay all
--------------------------------
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
2.3 for each Holder (which right may be assigned as provided in Section 2.13),
including (without limitation) all registration,
-7-
<PAGE>
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders. In addition, the Company will pay the fees and disbursements
for the Company's counsel. In no event will the Company bear or pay underwriting
discounts and commissions relating to Registrable Securities.
2.8 Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 2.3 to include any of the Holders' securities in such
underwriting unless the Holders accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in
such quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by Holders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of Registrable Securities which the underwriters believe will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the Holders according to the total amount of securities entitled to be
included therein by each Holder or in such other proportions as shall mutually
be agreed to by such Holders) but in no event shall the amount of Registrable
Securities issued or issuable upon conversion of the Series A Shares, the Series
B Shares, the Series C Shares, the Series D Shares, the Series E Shares, or upon
conversion of any Series C Shares issuable upon exercise of Warrants or upon
exercise of the Warrants, included in the offering by selling Holders be reduced
below ten percent (10%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities ("IPO"), in which case the selling Holders may be excluded entirely
if the underwriters make the determination described above. If the offering is
the Company's IPO and the underwriters exclude all securities from such
offering, the Company shall have no obligations to provide notice as set forth
in Section 2.3 above. For purposes of the above parenthetical concerning
apportionment, for any Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
2.9 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.10 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in
-8-
<PAGE>
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay as incurred to each such
Holder, underwriter or controlling person, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
-------- ------
indemnity agreement contained in this subsection 2.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in the
registration statement by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in the
registration statement; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 2.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 2.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; and provided, further, that in
no event shall any indemnity under this subsection 2.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.10
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
-------- -------
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or
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<PAGE>
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding in the written opinion of
counsel. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 2.10, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 2.10.
(d) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(e) The obligations of the Company and Holders under this Section 2.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
2.11 Reports Under Securities Exchange Act of 1934. With a view to making
---------------------------------------------
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its Common
Stock under section 12 of the 1934 Act, as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities, such action to be
taken as soon as practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
2.12 Form S-3 Registration. In case the Company shall receive from a
---------------------
Holder or Holders of in excess of thirty percent (30%) of the Registrable
Securities then outstanding a
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<PAGE>
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
- -------- -------
registration, qualification or compliance, pursuant to this Section 2.12, (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 2.12
(provided, however, that the Company shall not utilize this right more than once
-------- -------
in any twelve (12) month period); (iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected two
registrations on Form S-3 for the Holders pursuant to this Section 2.12; or (v)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to this Section 2.12, including, without limitation, all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration and, if it participates, the Company
(on a pro rata basis); provided, however, that the Company shall bear any
-------- -------
auditing expenses that shall be incurred in the normal course of business and
shall bear all regular salary expenses of its employees. Registrations effected
pursuant to this Section 2.12 shall not be counted as demands for registration
or registrations effected pursuant to Section 2.2 or 2.3, respectively.
2.13 Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to a transferee or assignee of at least the lesser of (a) all of such
Holder's Registrable Securities, or (b) 100,000
-11-
<PAGE>
shares of such Registrable Securities provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership or limited liability company who are
partners or retired partners or members or retired members of such partnership
or limited liability company (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership or limited liability company; provided that all
assignees and transferees who would not qualify individually for assignment or
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
2.
2.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would grant such holder or prospective holder any or all of
the registration rights contemplated herein; provided, however, that such
-------- -------
restriction shall not apply to registration rights granted in conjunction with
the issuance of up to an aggregate of 500,000 shares of Common Stock, including
rights to acquire Common Stock or securities convertible into Common Stock,
issued or issuable in connection with capital equipment leases, technology
acquisitions, strategic partnerships and other comparable transactions approved
by the Board of Directors and provided such rights are subordinated to those of
the Holders hereunder.
2.15 "Market Stand-Off" Agreement. Each shareholder hereby agrees that
---------------------------
during the one hundred eighty (180) day period following the effective date of
the initial registration statement of the Company filed under the Act, it shall
not, to the extent requested by the Company and any underwriter retained for the
offering pursuant to such registration statement, sell or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound) any Common
Stock of the Company held by it at any time during such period except Common
Stock included in such registration; provided, however, that a majority of the
-------- -------
officers and a majority of the directors of the Company and a majority of all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities held by the Purchaser
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.16 Termination of Registration Rights. No Holder shall be entitled to
----------------------------------
exercise any right provided for in this Section 2 after the earlier of (a) five
(5) years following the consummation of the first Company initiated registered
initial public offering of Common Stock of the Company, (b) the consummation of
the first Company initiated registered public offering of Common Stock of the
Company if all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
single
-12-
<PAGE>
ninety (90) day period or (c) at such time following the consummation of the
Company's initial public offering that such Holder may sell all of such Holder's
Registrable Securities during any one ninety (90) day period pursuant to Rule
144 (or such successor rule as may be adopted).
3. Additional Rights.
-----------------
3.1 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this Section 3.1, the Company hereby grants to each Holder (so long as such
Holder holds at least 50,000 shares of Stock (as adjusted to reflect stock
splits, stock dividends or recapitalizations)) (the "Rightholder"), a right of
first offer with respect to future sales by the Company of its New Securities
(as hereinafter defined). For purposes of this Section 3.1, the term Rightholder
includes any partners, members, shareholders or affiliates of a Holder. A Holder
shall be entitled to apportion the right of first offer hereby granted among
itself and its partners, members, shareholders and affiliates in such
proportions as it deems appropriate.
(a) In the event the Company proposes to issue New Securities, it shall
give the Rightholder written notice (the "Notice") of its intention stating (i)
a description of the New Securities it proposes to issue, (ii) the number of
shares of New Securities it proposes to issue, (iii) the price per share at
which, and other terms on which, it proposes to issue such New Securities and
(iv) the number of shares that the Rightholder has the right to purchase under
this Section 3.1, based on the Rightholder's Percentage (as defined in Section
3.1(e)).
(b) Within twenty (20) days after the Notice is given (in accordance with
Section 5.5), the Rightholder may elect to purchase, at the price specified in
the Notice, up to the number of shares of the New Securities proposed to be
issued that the Rightholder has the right to purchase as specified in the
Notice. An election to purchase shall be made in writing and must be given to
the Company within such twenty (20) day period (in accordance with Section 5.5).
The closing of the sale of New Securities by the Company to the participating
Rightholder upon exercise of its rights under this Section 3.1 shall take place
simultaneously with the closing of the sale of New Securities to third parties.
(c) The Company shall have forty-five (45) days after the last date on
which the Rightholder's right of first offer lapsed to enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within thirty (30) days from the execution thereof) to sell the New
Securities which the Rightholder did not elect to purchase under this Section
3.1, at or above the price and upon terms not materially more favorable to the
purchasers of such securities than the terms specified in the initial Notice
given in connection with such sale. In the event the Company has not entered
into an agreement to sell the New Securities within such forty-five (45) day
period (or sold and issued New Securities in accordance with the foregoing
within thirty (30) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rightholders in the manner provided in this Section 3.1.
(d) "New Securities" shall mean any shares of, or securities convertible
into or exercisable for any shares of, any class of the Company's capital stock;
provided that "New Securities" does not include: (i) the Series A Shares, the
Series B Shares, the Series C Shares, the Series D Shares, the Series E Shares
or the Common Stock issuable upon conversion thereof;
-13-
<PAGE>
(ii) the Warrants, the Common Stock or Series C Shares issuable upon exercise of
the Warrants, or the Common Stock issuable upon conversion of any Series C
Shares issuable upon exercise of the Warrants; (iii) securities issued pursuant
to the acquisition of another business entity by the Company by merger, purchase
of substantially all of the assets of such entity, or other reorganization
whereby the Company owns not less than a majority of the voting power of such
entity; (iv) any shares, or options to purchase shares, of the Company's Common
Stock and the shares of Common Stock issuable upon exercise of such options,
issued pursuant to any arrangement approved by a majority of the Board of
Directors, to employees, officers and directors of, or consultants, advisors or
other persons performing services for, the Company; (v) shares of the Company's
Common Stock or Preferred Stock of any Series issued in connection with any
stock split, stock dividend or recapitalization of the Company; (vi) Common
Stock issued upon exercise of warrants, options or convertible securities if the
issuance of such warrants, options or convertible securities was a result of the
exercise of the right of first offer granted under this Section 3.1 or was
subject to the right of first offer granted under this Section 3.1; (vii)
capital stock or securities exercisable for or convertible into shares of
capital stock issued by the Company to a strategic partner in connection with a
corporate partnering transaction or to a lender in connection with any loan or
lease financing transaction, provided such issuances are for other than
primarily equity financing purposes; and (viii) securities sold to the public in
an offering pursuant to a registration statement filed with the Securities and
Exchange Commission under the Act.
(e) The applicable "Percentage" for the Rightholder shall be the
percentage calculated by dividing (i) the total number of Registrable Securities
then held by the Rightholder by (ii) the total number of shares of Common Stock
outstanding at the time the Notice is given (assuming full conversion and
exercise of all convertible or exercisable securities).
(f) The right of first offer granted under this Section 3.1 shall expire
upon the consummation of the Company's sale of its Common Stock in a bona fide,
firm commitment underwriting pursuant to a registration statement on Form S-1
under the Act, which results in aggregate gross cash proceeds to the Company in
excess of $10,000,000 and the public offering price of which is not less than
$4.00 per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization).
4. Other Covenants of the Company.
------------------------------
4.1 Delivery of Financial Statements.
--------------------------------
(a) The Company shall deliver to each Holder as soon as practicable, but
in any event within ninety (90) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, and prepared in accordance with generally accepted accounting
principles ("GAAP").
(b) The Company shall deliver to each Holder, so long as such Holder holds
at least 50,000 shares of Stock (as adjusted to reflect stock splits, stock
dividends or recapitalizations),
-14-
<PAGE>
within forty-five (45) days after the end of each fiscal quarter, an unaudited
income statement and balance sheet.
(c) For purposes of this Section 4.1, the term Holder includes any
partners, members, shareholders or affiliates of a Holder.
4.2 Inspection. The Company shall permit each Holder so long as such
----------
Holder holds at least 50,000 shares of Stock (as adjusted to reflect stock
splits, stock dividends or recapitalizations), at such Holder's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Holder;
provided, however, that the Company shall not be obligated pursuant to this
- -------- -------
Section 4.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information. For purposes of this
Section 4.2, the term Holder includes any partners, members, shareholders or
affiliates of a Holder.
4.3 Termination of Information and Inspection Covenants. The covenants
---------------------------------------------------
set forth in Sections 4.1 and 4.2 shall terminate as to the Holders and be of no
further force or effect immediately upon the consummation of the Company's sale
of its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Act, which results in aggregate
gross cash proceeds to the Company of not less than $10,000,000 and in which the
public offering price per share is not less than $4.00 (as adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations).
4.4 Qualified Small Business. The Company covenants that so long as any
------------------------
of the shares of Series C Preferred Stock, Series D Preferred Stock, or Series E
Preferred Stock or the Common Stock into which such shares are converted, are
held by a Holder (or a transferee in whose hands such shares or Common Stock are
eligible to qualify as Qualified Small Business Stock as defined in section
1202(c) of the Code), it will use its reasonable efforts (including complying
with any applicable filing or reporting requirements imposed by the Code on
issuers of Qualified Small Business Stock) to cause such shares, or the
Conversion Stock to qualify as Qualified Small Business Stock; provided,
--------
however, that "reasonable efforts" as used in this Section 4.4 shall not be
- -------
construed to require the Company to operate its business in a manner which would
adversely affect its business, limit its future prospects or alter the timing or
resource allocation related to its planned operations or financing activities.
Further, the Company covenants and agrees, on the reasonable request of any
Holder, to conduct a reasonable investigation into the question of whether the
shares of Preferred Stock (and the shares of Common Stock issued or issuable
upon conversion thereof) held by the Holders, remain "qualified small business
stock" within the meaning of the Code, and to thereafter deliver to such Holder
a duly executed Certificate of Representations in the form attached hereto as
Exhibit B (the "QSBS Certificate"). If the Company is unable to deliver an
executed QSBS Certificate because representation statement 2 in the QSBS
Certificate is inaccurate, the Company covenants and agrees to deliver a
statement explaining the reasons for such inaccuracy.
-15-
<PAGE>
5. Miscellaneous.
-------------
5.1 Assignment. The terms and conditions of this Agreement shall inure to
----------
the benefit of and be binding upon the respective successors and assigns of the
parties hereto.
5.2 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and performed entirely within California.
5.4 Counterparts. This 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.
5.5 Notices.
-------
(a) All notices, requests, demands and other communications under this
Agreement or in connection herewith shall be given to or made upon the
respective parties as follows:
To the Company: Beatnik, Inc.
2600 South El Camino Real
San Mateo, California 94403
Attention: President
To a Holder: At such Holder's address as set forth on
Exhibit A attached hereto.
-------
(b) All notices, requests, demands and other communications given or made
in accordance with the provisions of this Agreement shall be in writing, and
shall be sent by certified mail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed
(c) Any party may, by written notice to the other, alter its address or
respondent, and such notice shall be considered to have been given ten (10) days
after the mailing, telexing or telecopying thereof.
5.6 Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
5.7 Amendment and Waiver. Any amendment or waiver effected in accordance
--------------------
with Section 1 shall be binding upon each Holder of Registrable Securities, and
the Company. In addition, the Company may waive performance of any obligation
owing to it, as to some or all of
-16-
<PAGE>
the Holders of Registrable Securities, or agree to accept alternatives to such
performance, without obtaining the consent of any other Holder of Registrable
Securities.
5.8 Effect of Amendment or Waiver. Each Holder and its successors and
-----------------------------
assigns acknowledge that by the operation of Section 5.7 hereof the holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
5.9 Rights of Holders. Each holder of Registrable Securities shall have
-----------------
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
5.10 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
IN WITNESS WHEREOF, the parties have executed this Rights Agreement as of
the date first above written.
COMPANY
-------
BEATNIK, INC.
By /s/ Lorraine Hariton
----------------------------------------
Title President and Chief Executive Officer
--------------------------------------
-17-
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Adam Ventures, L.P.
------------------------------------
[Print Name of Holder]
By: Adam Ventures Management, LLC
Its general partner
By /s/ Casey McGlynn
----------------------------------
Signature
Address 650 Page Mill Road
----------------------------
Palo Alto, Ca 94304
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Ahin Thomas Trust 1996
------------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
---------------------------------
Signature
Address 2550 Hanover Street
----------------------------
Palo Alto, Ca 94304
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Alejandro Jauco
------------------------------------
[Print Name of Holder]
By /s/ Alejandro Jauco
----------------------------------
Signature
Address 775 Longfellow Drive
----------------------------
Fremont, Ca 94539
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Allen Morgan
------------------------------------
[Print Name of Holder]
By /s/ Allen Morgan
-----------------------------------
Signature
Address 2133 Webster Street
----------------------------
Palo Alto, Ca 94301
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Allison Leopold Tilley
------------------------------------
[Print Name of Holder]
By /s/ Allison L. Tilley
----------------------------------
Signature
Address 26217 Dori Lane
----------------------------
Los Altos Hills, Ca 94022
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Alvin F. Espinola
------------------------------------
[Print Name of Holder]
By /s/ Alvin Espinola
-----------------------------------
Signature
Address 2737 South Sultana Avenue #1
----------------------------
Atwater, Ca 95301-9750
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Amal M. Johnson
------------------------------------
[Print Name of Holder]
By /s/ Amal Johnson
-----------------------------------
Signature
Address 120 Crest Road
----------------------------
Woodside, Ca 94062
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Angel Investors, L.P.
------------------------------------
Angel (Q) Investors, L.P.
------------------------------------
[Print Name of Holder]
By /s/ Casey McGlynn
----------------------------------
Signature
Address 650 Page Mill Road
----------------------------
Palo Alto, Ca 94304
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Angel (Q) Investors II, L.P.
------------------------------------
[Print Name of Holder]
By: ArchAngel II, LLC its general partner
By /s/ Casey McGlynn
----------------------------------
Signature
Address 650 Page Mill Road
----------------------------
Palo Alto, Ca 94304
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Arvind Thadhani & Gita Thadhani as Custodians
---------------------------------------------
For Armaan Thadhani
---------------------------------------------
[Print Name of Holder]
By /s/ Arvind Thadhani /s/ Gita Thadhani
--------------------------------------------
Signature
Address 1052 Bellview Road
-------------------------------------
McLean, VA 22101
-------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Arthur Stabenow
-------------------------------------
[Print Name of Holder]
By /s/ Arthur Stabenow
-----------------------------------
Signature
Address 24877 Olive Tree Lane
-----------------------------
Los Altos Hills, Ca 94024
-----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Arvind & Gita Thadhani
--------------------------------
[Print Name of Holder]
By /s/ Arvind Thadhani /s/ Gita Thadhani
----------------------------------------
Signature
Address 1052 Bellview Road
------------------------
McLean, VA 22101
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Brian Connors
------------------------------------
[Print Name of Holder]
By /s/ Brian Connors
-----------------------------------
Signature
Address 5878 Country Club Parkway
----------------------------
San Jose, Ca 95138
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Clark Callander
----------------------------------
[Print Name of Holder]
By /s/ Clark Callander
---------------------------------
Signature
Address 2815 Scott Street
--------------------------
San Francisco, Ca 94123
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Coralsprings Partners
-------------------------------------
[Print Name of Holder]
By __________________________________
Signature
Address 844 Moraga Drive
-----------------------------
Los Angeles, Ca 90049
-----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Cyber Lifestyle Limited
-------------------------------------------
[Print Name of Holder]
By ________________________________________
Signature
Address TrustNet Chambers, P.O. Box 3444
-----------------------------------
Road Town, Tortola, British Virgin
-----------------------------------
Islands.
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
David Carlick & Toni Walker, Carlick Walker
-------------------------------------------
Revocable Family Trust
-------------------------------------------
[Print Name of Holder]
By /s/ Toni Walker, Trustee
-----------------------------------------
Signature
Address 1311 Heaven Hill Rd
------------------------------------
Sonoma, Ca 95476
------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
David Hariton
------------------------------------
[Print Name of Holder]
By /s/ David Hariton
-----------------------------------
Signature
Address c/o Sullivan & Cromwell
----------------------------
125 Broad Street
----------------------------
New York, NY 10004
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Dezso Molnar
--------------------------------
[Print Name of Holder]
By /s/ Dezso Molnar
------------------------------
Signature
Address 20 Prescott Court
------------------------
San Francisco, Ca 94133
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Diane & Peter Hart Revocable Trust of 1984
------------------------------------------
[Print Name of Holder]
By /s/ Diane Hart /s/ Peter Hart
-----------------------------------------
Signature
Address 301 Arbor Rd.
----------------------------------
Menlo Park, Ca 94025
----------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Digital Origin
-----------------------------------
[Print Name of Holder]
By _________________________________
Signature
Address 460 E. Middlefield Road
---------------------------
Mountain View, Ca 94043
---------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Draper Richards L.P.
-----------------------------------------
[Print Name of Holder]
By /s/ William H. Draper III
---------------------------------------
Signature
Address 50 California Street, Suite 2925
--------------------------------
San Francisco, Ca 94111
--------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Edward Briscoe
----------------------------------
[Print Name of Holder]
By /s/ Edward Briscoe
--------------------------------
Signature
Address 200 Crocker Avenue
--------------------------
Piedmont, Ca 94611
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
E.J. Kim
------------------------------------
[Print Name of Holder]
By /s/ EJ Kim
-----------------------------------
Signature
Address 2975 Wilshire Blvd. # 640
----------------------------
Los Angeles, Ca 90010
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Entertainment Media Ventures LLC
-------------------------------------
[Print Name of Holder]
By: Entertainment Media Ventures
Management Co, LLC, its Manager
By /s/ Sanford Climan
------------------------------------
Signature
Address 828 Moraga Drive, 2/nd/ Floor
-----------------------------
Los Angeles, Ca 90049
-----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Erik M. Macenas
-----------------------------------
[Print Name of Holder]
By /s/ Erik M. Macenas
---------------------------------
Signature
Address 3715 California Street # 7
---------------------------
San Francisco, Ca 94118
---------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Frederick Brown IV
-------------------------------
[Print Name of Holder]
By /s/ Frederick Brown IV
------------------------------
Signature
Address 1702 Mulberry Lane
-----------------------
San Jose, Ca 95125
-----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Girish J. Gaitonde and Vibhavari G. Gaitonde , as
-------------------------------------------------
Co-Trustees of the Gaitonde Living Trust
-------------------------------------------------
Dated September 19, 1996
-------------------------------------------------
[Print Name of Holder]
By ______________________________________________
Signature
Address 20865 Saratoga Hills Road
-----------------------------------------
Saratoga, Ca 95070
-----------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Herbert V. Criscito
-------------------------------------------
[Print Name of Holder]
By /s/ Herbert Criscito
------------------------------------------
Signature
Address 48 Nicole Drive
-----------------------------------
Denville, NJ 07834
-----------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Hikari Tsushin, Inc.
-----------------------------------------------
[Print Name of Holder]
By: Masahide Saito, Executive Managing Director
By /s/ Masahide Saito
----------------------------------------------
Signature
Address 23F Ohtemach Nomura Bldg., 2-1-1
---------------------------------------
Chiyoda-ku, Ohtemachi, Tokyo, 100
---------------------------------------
0004 Japan
---------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
James Abendroth
----------------------------------
[Print Name of Holder]
By /s/ James Abendroth
--------------------------------
Signature
Address 1250 Space Park Way
--------------------------
Mountain View, Ca 94043
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
James Anderson
----------------------------------
[Print Name of Holder]
By /s/ James Anderson
---------------------------------
Signature
Address 900 University Avenue
--------------------------
Palo Alto, Ca 94301
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
James J. Harrison
---------------------------------
[Print Name of Holder]
By /s/ James J. Harrison
-------------------------------
Signature
Address 777-80 San Antonio Road
-------------------------
Palo Alto, Ca 94303
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Joan J. Kim
--------------------------------
[Print Name of Holder]
By /s/ Joan J. Kim
-------------------------------
Signature
Address 8105 NE 5th Street
------------------------
Medina, Wa 98039
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John Joseph Beaghan
-------------------------------
[Print Name of Holder]
By /s/ John Joseph Beaghan
-----------------------------
Signature
Address _______________________
_______________________
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John Eckstein
---------------------------------
[Print Name of Holder]
By /s/ John Eckstein
--------------------------------
Signature
Address P.O. Box 1652
-------------------------
Palo Alto, Ca 94302
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John F. Powers
-------------------------------
[Print Name of Holder]
By /s/ John F. Powers
-----------------------------
Signature
Address _______________________
_______________________
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John F. Stabenow
------------------------------
[Print Name of Holder]
By /s/ John Stabenow
----------------------------
Signature
Address 1505 Arriba Ct.
----------------------
Los Altos, Ca 94024
----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John Rizzi
----------------------------------
[Print Name of Holder]
By /s/ John Rizzi
--------------------------------
Signature
Address 2500 Sand Hill Road, # 113
--------------------------
Menlo Park, Ca 94025
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
John Zucker
------------------------------------
[Print Name of Holder]
By /s/ John Zucker
------------------------------------
Signature
Address 271 Sierra Vista Avenue, # 9
----------------------------
Mountain View, Ca 94043-4375
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Jorge del Calvo as Custodian for Andrew del Calvo,
--------------------------------------------------
UTMA
--------------------------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
-----------------------------------------------
Signature
Address 2550 Hanover Street
------------------------------------------
Palo Alto, Ca 94304
------------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Jorge del Calvo as Custodian for Lucas del Calvo,
-------------------------------------------------
UTMA
-------------------------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
-----------------------------------------------
Signature
Address 2550 Hanover Street
-----------------------------------------
Palo Alto, Ca 94304
-----------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Jorge del Calvo
------------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
----------------------------------
Signature
Address 2550 Hanover Street
----------------------------
Palo Alto, Ca 94304
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Joseph D. & Elizabeth M Rizzi Family Trust,
--------------------------------------------
[Print Name of Holder]
By /s/ Joe Rizzi
-------------------------------------------
Signature
Address 2500 Sand Hill Road, Suite 113
------------------------------------
Menlo Park, Ca 94025
------------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Joseph Rizzi
--------------------------------------
[Print Name of Holder]
By /s/ Joe Rizzi
-------------------------------------
Signature
Address 2500 Sand Hill Road, Suite 113
------------------------------
Menlo Park, Ca 94025
------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Knowledge Net Holdings, LLC
--------------------------------------
[Print Name of Holder]
By ___________________________________
Signature
Address 844 Moraga Drive
------------------------------
Los Angeles, Ca 90049
------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Lorna F. Meyer
-------------------------------
[Print Name of Holder]
By /s/ Lorna Meyer
------------------------------
Signature
Address 1050 Green Street
-----------------------
San Francisco, Ca 94133
-----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Mario A. Criscito
---------------------------------
[Print Name of Holder]
By /s/ Mario Criscito
--------------------------------
Signature
Address 11 Chadwick Road
-------------------------
Livingston, NJ 07039
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Mayfield Associates Fund IV
--------------------------------
By: Mayfield IX Management, LLC
--------------------------------
Its General Partner
--------------------------------
[Print Name of Holder]
By _____________________________
Signature
Address 2800 Sand Hill Road # 250
-------------------------
Menlo Park, Ca 94025
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Mayfield IX
---------------------------------
By: Mayfield IX Management, LLC
---------------------------------
Its General Partner
---------------------------------
[Print Name of Holder]
By ______________________________
Signature
Address 2800 Sand Hill Road
-------------------------
Menlo Park, Ca 94025
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
NBM Investment-1, Inc.
---------------------------------
[Print Name of Holder]
By ______________________________
Signature
Address 50 Main Street, Suite 325
-------------------------
White Plains, NY 10606
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Michael Kim
-------------------------------------
[Print Name of Holder]
By /s/ Michael Kim
------------------------------------
Signature
Address 8105 NE 5th Street
-----------------------------
Medina, WA 98039
-----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
J. Michael MacKeen
---------------------------------
[Print Name of Holder]
By /s/ J. Michael MacKeen
-------------------------------
Signature
Address 39 Washington Drive
-------------------------
Sudbury, Ma 01776
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Michael J. Morey
--------------------------------
[Print Name of Holder]
By /s/ Michael Morey
------------------------------
Signature
Address 3314 Oakley Drive
-----------------------
Los Angeles, Ca 90068
-----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Mindbinder, Inc.
--------------------------------------
[Print Name of Holder]
By /s/ David Tobias
-----------------------------------
Signature
Address 11925 Wilshire Blvd. 3rd Floor
------------------------------
Los Angeles, Ca 90025
------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Mitchell Grossman
--------------------------------
[Print Name of Holder]
By /s/ Mitchell Grossman
------------------------------
Signature
Address 1660 Mason St. # 9
------------------------
San Francisco, Ca 94133
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
MTVN Online, L.P.
----------------------------------
[Print Name of Holder]
By ________________________________
Signature
Address 770 Broadway, 10th Floor
--------------------------
New York, NY 10012
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Niraj Shah
------------------------------
[Print Name of Holder]
By /s/ Niraj Shah
-----------------------------
Signature
Address 1853 Ardmore Rd.
----------------------
Atlanta, Ga 30309
----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Penelope Finnie
--------------------------------
[Print Name of Holder]
By /s/ Penelope Finnie
-------------------------------
Signature
Address 128 Alvarado Rd.
------------------------
Berkeley, Ca 94705
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
PM&S Venture Fund III, LLC
--------------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
------------------------------------
Signature
Address 2550 Hanover Street
------------------------------
Palo Alto, Ca 94304
------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Quintus King
-----------------------------------
[Print Name of Holder]
By /s/ Quintus King
---------------------------------
Signature
Address 4221 21st Street
---------------------------
San Francisco, Ca 94114
---------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Rajan Raghavan
---------------------------------
[Print Name of Holder]
By /s/ Rajan Raghavan
-------------------------------
Signature
Address 21789 Mount Eden Rd
-------------------------
Saratoga, Ca 95070
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Richard Asher
-------------------------------
[Print Name of Holder]
By /s/ M. Richard Asher
-----------------------------
Signature
Address 5886 NW 25th Ct
-----------------------
Boca Raton, FL 33496
-----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Richard Innenberg
----------------------------------
[Print Name of Holder]
By /s/ Richard Innenberg
--------------------------------
Signature
Address 670 Grand View Avenue
-------------------------
San Francisco, Ca 94114
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Richard Rasmussen
-----------------------------
[Print Name of Holder]
By /s/ Richard Rasmussen
---------------------------
Signature
Address 1056 Fairview Avenue
---------------------
San Jose, Ca 95125
---------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Robert N. Michelson
----------------------------------
[Print Name of Holder]
By /s/ Robert Michelson
--------------------------------
Signature
Address 136 Beach Rd
--------------------------
Glencoe, IL 60022
--------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Robert Tobias
------------------------------------
[Print Name of Holder]
By /s/ Robert Tobias
----------------------------------
Signature
Address 50 Washington Street # 19
----------------------------
Santa Clara, Ca 95050
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Roger K. Summit
-----------------------------------
[Print Name of Holder]
By /s/ Roger Summit
--------------------------------
Signature
Address 13390 Lenox Way
---------------------------
Los Altos Hills, Ca 94022
---------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Ron and Marci Lake
------------------------------
[Print Name of Holder]
By /s/ Ron Lake /s/ Marci Lake
-------------------------------
Signature
Address 1643 Mulberry Lane
----------------------
San Jose, Ca 95125
----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Sound Trust
------------------------------
[Print Name of Holder]
By ___________________________
Signature
Address ______________________
______________________
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Space Shower Networks, Inc.
------------------------------------
[Print Name of Holder]
By _________________________________
Signature
Address 3-16-35 Roppongi, Minato-Ku
----------------------------
Tokyo 106-8011, Japan
----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Steven D. Brooks
---------------------------------
[Print Name of Holder]
By /s/ Steven D. Brooks
-------------------------------
Signature
Address 45 Scenic Way
-------------------------
San Francisco, Ca 94121
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Steven Shea
------------------------------
[Print Name of Holder]
By /s/ Steven Shea
----------------------------
Signature
Address 290 Donald Lynch Blvd.
----------------------
Malboro, MA 01752
----------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Sun Microsystems, Inc.
----------------------------------
[Print Name of Holder]
By _______________________________
Signature
Address __________________________
__________________________
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Suneil Thomas Trust 1996
---------------------------------
[Print Name of Holder]
By /s/ Jorge del Calvo
-------------------------------
Signature
Address 2550 Hanover Street
-------------------------
Palo Alto, Ca 94304
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Sunrise Capital Fund I, LLC
-------------------------------------
[Print Name of Holder]
By __________________________________
Signature
Address 2 North Santa Cruz Ave. # 203
-----------------------------
Los Gatos, Ca 95030
-----------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Suzanne Rizzi Phelan
--------------------------------------
[Print Name of Holder]
By /s/ S R Phelan
-----------------------------------
Signature
Address 2500 Sand Hill Road, Suite 113
------------------------------
Menlo Park, Ca 94025
------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Technology Fund II Pte Ltd
-------------------------------------------
[Print Name of Holder]
By /s/ Thomas Ng
-----------------------------------------
Signature
Address 9, Scotts Rd, #06-01, Pacific Plaza
-----------------------------------
Singapore, 228210
-----------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Thampy Thomas
---------------------------------
[Print Name of Holder]
By /s/ A. Thampy Thomas
-------------------------------
Signature
Address 40 Foxhill Rd.
-------------------------
Woodside, Ca 94062
-------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Thomas Kelly
--------------------------------
[Print Name of Holder]
By /s/ Thomas Kelly
-------------------------------
Signature
Address 428 Waverley St., Apt. 6
------------------------
Menlo Park, Ca 94025
------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Zomba Enterprises
---------------------------------------
[Print Name of Holder]
By /s/ Brian Roberts
--------------------------------------
Signature
Address 138 West 25th Street, 8th Floor
-------------------------------
New York, NY 10001
-------------------------------
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED AGREEMENT
DATED AS OF MARCH 10, 2000
BY AND AMONG
BEATNIK, INC.
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Beatnik, Inc. Amended and
Restated Rights Agreement (the "Agreement") to which this Signature Page is
attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of such Agreement and signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Zomba Entertainment Holding, B.V.
--------------------------------------
[Print Name of Holder]
By ___________________________________
Signature
Address 138 W. 25th Street, 8th Floor
------------------------------
New York, NY 10001
------------------------------
<PAGE>
EXHIBIT A
LIST OF SHAREHOLDERS
[To Be Completed Following Identification of Dissenting Shares]
Existing Shareholders Number of Shares
- ------------------------------------------------ -----------------------------
Series A Shares
Chris Anderson 610,000 Series A Shares
Imagine Media
150 North Hill Drive
Brisbane, CA 94005
Draper Richards L.P. 333,333 Series A Shares
50 California Street, Suite 2925
San Francisco, CA 94111
Thampy Thomas 319,751 Series A Shares
40 Foxhill Road
Woodside, CA 94062
Joseph D. & Elizabeth M. Rizzi Family Trust 269,750 Series A Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road, #113
Menlo Park, CA 94025
Mario Criscito 250,667 Series A Shares
11 Chadwick Road
Livingston, NJ 07039
Big Bend III Investments LP 250,000 Series A Shares
4515 Cole Avenue
Suite 400
Dallas, TX 75025
Sunrise Capital I, LLC 208,334 Series A Shares
c/o John Balletto
2 North Santa Cruz Avenue
Suite 203
Los Gatos, CA 95030
A-1
<PAGE>
Existing Shareholders Number of Shares
- ------------------------------------------------ -----------------------------
Series A Shares
Girish Gaitonde and Vibhavari Girish Gaitonde, as 200,000 Series A Shares
co-trustees of the Gaitonde Living Trust, dated
September 19, 1996
Tekedge Corp.
5400 Betsy Ross Drive, Suite 200
Santa Clara, CA 95054
Rajan Raghavan and Ragini Raghavan, Trustees of The 166,667 Series A Shares
Raghavan Family Trust UA dtd 03-12-97
21789 Mt. Eden Road
Saratoga, CA 95070
Invision Interactive, Inc. 150,000 Series A Shares
c/o Mitch Tuchman
195 Gloria Circle
Menlo Park, CA 94025
Steven D. Brooks 125,000 Series A Shares
45 Scenic Way
San Francisco, CA 94141
OR
Broadview
950 Tower Lane
18th Floor
Foster City, CA 94404
Leslie Family Trust 100,000 Series A Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
Arthur Stabenow 98,669 Series A Shares
24877 Olive Tree Lane
Los Altos, CA 94924
[email protected]
Michael Kim 83,333 Series A Shares
c/o BEI International
10777 Main St., #202
Bellevue, WA. 98039
A-2
<PAGE>
Existing Shareholders Number of Shares
- ------------------------------------------------ -----------------------------
Series A Shares
Joan Kim 83,333 Series A Shares
c/o BEI International
10777 Main St., #202
Bellevue, WA. 98039
Fred Van den Bosch 66,667 Series A Shares
Veritas Software Corporation
1600 Plymouth Street
Mountain View, CA 94043
Herbert Criscito 58,334 Series A Shares
48 Nicole Drive
Denville, NJ 07834
James Harrison 62,500 Series A Shares
777-80 San Antonio Road
Palo Alto, CA 94303
John Zucker 41,667 Series A Shares
271 Sierra Vista #9
Mountain View, CA 94043
Arvind and Gita Thadhani 41,666 Series A Shares
1052 Bellview Road
McLean, VA 22101
Armaan Thadhani, Arvind and Gita Thadhani as Custodians 33,333 Series A Shares
1052 Bellview Road
McLean, VA 22101
Tim Richardson 33,333 Series A Shares
5455 Lingerlonger Road
Cumming, GA 30131
John Rizzi 8,333 Series A Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road, #113
Menlo Park, CA 94025
A-3
<PAGE>
Existing Shareholders Number of Shares
- ------------------------------------------------ -----------------------------
Series A Shares
Suzanne Rizzi Phelan 25,000 Series A Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road, #113
Menlo Park, CA 94025
Seth Leslie 19,485 Series A Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
Joshua Leslie 19,485 Series A Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
VLG Investments 1996 13,333 Series A Shares
c/o Kenji Yanagishita
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
John F. Stabenow 8,999 Series A Shares
1505 Arriba Court
Los Altos, CA 94024
Elizabeth K. Stabenow 8,999 Series A Shares
11630 Magdalena Avenue
Los Altos, CA 94024
Mark A. Medearis 3,333 Series A Shares
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
---------------------
Total Series A Preferred Stock 3,709,971
- ------------------------------
A-4
<PAGE>
Existing Shareholders Number of Shares
- ------------------------------------------------ -----------------------------
Series B Shares
Zomba Enterprises, Inc. 1,190,476
c/o Brian Roberts
138 W. 25th Street, 8th Floor
New York, NY 10001
Thampy Thomas 47,619
40 Foxhill Road
Woodside, CA 94062
Joe Rizzi 47,619
Matrix Partners
2500 Sand Hill Road, #113
Menlo Park, CA 94025
Sunrise Capital I, L.L.C. 23,809
c/o John Balletto
2 North Santa Cruz Avenue
Suite 203
Los Gatos, CA 95030
---------------------
Total Series B Preferred Stock 1,309,523
- ------------------------------
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
Mayfield Associates Fund IV 240,398 Series C Shares
Mr. Allen Morgan
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Mayfield IX 4,567,575 Series C Shares
Mr. Allen Morgan
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
H. Enterprises International, Inc. 171,713 Series C Shares
Mr. Richard O'Leary
120 S. 6th Street, Suite 2300
Minneapolis, MN 55402
A-5
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
Jorge del Calvo 42,928 Series C Shares
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
David Hariton 42,928 Series C Shares
141 Prince Street, 5th Floor
New York, New York, 10012
Digital Origin, Inc 36,059 Series C Shares
Mr. Mark Housley
460 E. Middlefield Rd.
Mountain View, CA 94043
Angel Investors (Q), L.P. 32,196 Series C Shares
c/o Casey McGlynn
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
cc: Ronald Conway
76 Adam Way
Atherton, CA 94027
Adam Ventures, L.P. 10,732 Series C Shares
c/o Casey McGlynn
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
cc: Ronald Conway
76 Adam Way
Atherton, CA 94027
Jorge del Calvo, as Custodian for 8,585 Series C Shares
Andrew del Calvo, UTMA
c/o Jorge del Calvo
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
A-6
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
Jorge del Calvo, as Custodian for 8,585 Series C Shares
Lucas del Calvo, UTMA
c/o Jorge del Calvo
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Allison Leopold Tilley 8,585 Series C Shares
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Zomba Entertainment Holdings, B.V. (B) 1,091,979 Series C Shares
Zomba Enterprises, Inc.
138 W. 25th Street, 8th Floor
New York, NY 10001
PM&S Venture Fund II, LLC 42,928 Series C Shares
2550 Hanover Street
Palo Alto, CA 94304
Attn: Jorge del Calvo
Rizzi Family Trust 64,543 Series C Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road #113
Menlo Park, CA 94025
John Rizzi 15,722 Series C Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road #113
Menlo Park, CA 94025
Suzanne Phelan 15,722 Series C Shares
c/o Joseph D. Rizzi
Matrix Partners
2500 Sand Hill Road #113
Menlo Park, CA 94025
Herbert V. Criscito 15,241 Series C Shares
48 Nicole Drive
Denville, NJ 07834
A-7
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
Mario A. Criscito 65,495 Series C Shares
11 Chadwick Road
Livingston, NJ 07039
Sunrise Capital Fund 59,342 Series C Shares
c/o John Balletto
2 North Santa Cruz Avenue
Suite 203
Los Gatos, CA 95030
Leslie Family Trust U/A 2/7/96 20,318 Series C Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
Seth Leslie 3,959 Series C Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
Joshua Leslie 3,959 Series C Shares
c/o Mark Leslie
2701 Waltham Cross
Belmont, CA 94002
James J. Harrison 12,699 Series C Shares
777-80 San Antonio Road
Palo Alto, CA 94303
Ahin Thomas Trust 1996 47,994 Series C Shares
c/o Thomas, Thampy
40 Foxhill Road
Woodside, CA 94062
Suneil Thomas Trust 1996 47,993 Series C Shares
c/o Thomas, Thampy
40 Foxhill Road
Woodside, CA 94062
Mark A. Medearis 677 Series C Shares
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
A-8
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
VLG Investments 1999 3,483 Series C Shares
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
John F. Stabenow 23,051 Series C Shares
1505 Arriba Court
Los Altos, CA 94024
Elizabeth Stabenow Roberts 653 Series C Shares
11630 Magdalena Avenue
Los Altos, CA 94024
Steven D. Brooks 25,398 Series C Shares
45 Scenic Way
San Francisco, CA 94141
John Zucker 10,887 Series C Shares
271 Sierra Vista #9
Mountain View, CA 94043
Raj Raghavan 42,605 Series C Shares
21789 Mt. Eden Road
Saratoga, CA 95070
Girish J. Gaitonde and Vibhavari G. Gaitonde, as 52,257 Series C Shares
Co-Trustees of the Gaitonde Living Trust
Tekedge Corp.
5400 Betsy Ross Drive, Suite 200
Santa Clara, CA 95054
Chris Anderson 159,382 Series C Shares
Imagine Media
150 North Hill Drive
Brisbane, CA 94005
Fred Van Den Bosch 17,042 Series C Shares
c/o Fred Van den Bosch
Veritas Software Corporation
1600 Plymouth Street
Mountain View, CA 94043
A-9
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series C Shares
Morton H. Meyerson 65,320 Series C Shares
4514 Cole Avenue, Suite 400
Dallas, TX 75205
Coralsprings Partners 257,570 Series C Shares
c/o Richard V. Sandler
844 Moraga Drive
Los Angeles, CA 90049
Knowledge Net Holdings, Inc. 171,713 Series C Shares
c/o Stanley Maron
844 Moraga Drive
Los Angeles, CA 90049
Entertainment Media Ventures, LLC 1,931,775 Series C Shares
c/o Sanford Climan
828 Moraga Drive
Los Angeles, CA 90049
-------------------------
Total Series C Preferred Stock 9,439,991
- ------------------------------
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series D-1
Abendroth, John James 24,793
1250 Spacepark Way
Mountain View, CA 94043
Amber Ventures I, Ltd 82,644
25225 La Mola Drive
Los Altos Hills, CA 94022
(415) 941-8367 F (415) 941-8369
Andre, Anthony D. [Dissenter]
Interface Analysis Associates
1135 South DeAnza Blvd.
San Jose, CA 95129
A-10
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series D-1
Asher, M Richard 906
5886 N.W. 25th Court
Boca Raton, FL 33496
(561) 994-9909
(561) 994-8437 (fax)
Brenton Anderson Trust, dated 6/12/99 as amended; 41,322
Brent Anderson, Trustee
25225 La Loma Drive
Los Altos Hills, CA 94022-4540
(415) 322-1113 [TRANSFER IN PROCESS]
Brown, Frederick IV 20,661
1702 Mulberry Lane
San Jose, CA 95125
(408) 265-3371
Carlick, David 20,661
1311 Heaven Hill Road
Sonoma, CA 95476
(707) 933-9158
Connors 1993 Revocable Trust, dated 5/12/93 Conners 41,322
Brian & Barbara, TR UA
5970 Thorntree Drive
San Jose, CA 95120
(408) 997-54045970
Espinola, Alvin & Wanda 4,132
2737 S. Sultana Avenue, #1
Atwater, CA 95301-9750
Hurwitz, Shawn 12,396
543 College Street
Bellaire, TX 77401
(713) 665-6645
Izuka, David 20,661
309 Clifton Avenue
San Jose, CA 94070
(415) 593-4121
A-11
<PAGE>
Name and Address Number of Shares
- --------------------------------------- -------------------------------------
Series D-1
Lexa International Corporation 41,322
c/o Axel Johnson, Inc.
300 Atlantic Street
Stamford, CT 06901-3530
(203) 326-5200
McKinney, Donald K. 82,644
407 Hale St.
Palo Alto, CA 94301
(408) 542-0213
Meyer, Lorna F. 20,661
1050 Greet Street, #1
San Francisco, CA 94133
(415) 474-7065/Off. (415) 544-2802
Moretti, Dick 20,661
1410 Kitts Lane
Foster City, CA 94404
(415) 341-8980
Morey, Michael 4,132
P.O. Box 788
San Marcos, CA 92079-0788
Piccus, Todd 10,330
741 Milwood Avenue
Venice, CA 90291-3828
310-305-9700
Rasmussen, Richard 20,661
1056 Fairview Avenue
San Jose, CA 95125
408-264-4637
F 408-448-4980
Segal, Leon D. 1,570
1 Yohanan Hasandlar Street
PO Box 12661
Herzeliya Pituach, 46582, ISRAEL
Spindler, Lee R. 10,000
A-12
<PAGE>
Name and Address Number of Shares
- ---------------------------------------- ------------------------------------
Series D-1
Spindler Family Trust 4/8/87 37,851
Spindler Squier, Heidi 18,264
Tobias, Robert P. 20,661
50 Washington Street, Apt. 19
Santa Clara, CA 95050
- ---------------------
Work Address (for rush deliveries):
Buzme
3145 Porter Drive, Building A
Palo Alto, CA 94304
650-475-7505 (wk)
Zeichner, Ann 20,661
1443 Arbor Avenue
Los Altos, CA 94024
------------------------
Total Series D-1 Preferred Stock 1,962,704
- --------------------------------
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Series D-2
Rasmussen, Richard 8,333
1056 Fairview Avenue
San Jose, CA 95125
408-264-4637
F 408-448-4980
Technology Fund Pte Ltd. 166,667
c/o TDF Management Pte Ltd.
21 Science Park Road #02-01
The Aquarius
Singapore Science Park II
Singapore 117628
011-65-770-5810
F 011-65-775-5163
A-13
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------- ---------------------------
Series D-2
Anderson, James C. and Carrie 16,666
75 Willow road, Suite 103
Menlo Park, CA 94025
Brenton Anderson Trust, dated 6/12/99 as amended; 16,666
Brent Anderson, Trustee
25225 La Loma Drive
Los Altos Hills, CA 94022-4540
(415) 322-1113 [TRANSFER IN PROCESS]
Carlick/Walker Family Trust Revocable Trust, David 8,333
Carlick, Trustee
1311 Heaven Hill Road
Sonoma, CA 95476
(707) 933-9158
Conners Brian & Barbara, TR UA 5/12/93 Connors 1993 8,333
Revocable Trust
5970 Thorntree Drive
San Jose, CA 95120
(408) 997-54045970
Eckstein, John 8,333
PO Box 1652
Palo Alto, CA 94302
McKinney Family Trust UAD 6/2/86; Donald K. and 33,333
Rebecca McDaniel McKinney, Trustees
407 Hale Street
Palo Alto, CA 94301
(408) 542-0213
Rasmussen, Richard 33,333
1056 Fairview Avenue
San Jose, CA 95125
408-264-4637
F 408-448-4980
A-14
<PAGE>
Name and Address Number of Shares
- ------------------------------------------------- ---------------------------
Series D-2
Philip J. Rosenbaum Revocable Living Trust dated 16,666
7/28/97; Philip J. Rosenbaum, Trustee
4231 Westlake Drive, #E-1
Austin, TX 78746
(408) 264-4637
F(408) 448-4980
Summit, Roger 3,333
13390 Lennox Way
Los Altos Hills, CA 94022-3543
415-941-0101
Technology Fund Pte Ltd. 200,000
c/o TDF Management Pte Ltd.
21 Science Park Road #02-01
The Aquarius
Singapore Science Park II
Singapore 117628
011-65-770-5810
F 011-65-775-5163
Waldbusser, Steve 16,666
1213 Innsbruck
Sunnyvale, CA 94024
------------------------
Total Series D-2 Preferred Stock 1,706,444
- --------------------------------
Warrants to Purchase Series C Preferred Stock
Name and Address Number of Shares
- ------------------------------------------------ -----------------------------
Yahoo!, Inc 333,888
A-15
<PAGE>
EXHIBIT B
BEATNIK, INC.
a California corporation
CERTIFICATE OF REPRESENTATIONS
REGARDING QUALIFIED SMALL BUSINESS STOCK
THIS CERTIFICATE OF REPRESENTATIONS REGARDING QUALIFIED SMALL BUSINESS
STOCK (this "Certificate") is executed as of March ___, 2000, by Beatnik, Inc.,
a California corporation (the "Company"), for the benefit of [requesting Holder
or Holders], ("Shareholder"). As used herein, the term "Stock" means those
shares of Company stock issued by the Company to Shareholder and described more
fully on Schedule A hereto.
Representations
Subject to the limitations and qualifications set forth below, the Company
hereby represents as follows:
1. The Company has conducted a reasonable investigation into the question
of whether the Stock is "qualified small business stock" ("QSBS") within the
meaning of Section 1202(c) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
2. As of the date first above written, and assuming that Shareholder has
not sold, distributed, or otherwise transferred the Stock, all of the Stock is
QSBS.
Qualifications and Limitations
1. Qualification of the Stock as QSBS is based, in part, on the value of
Company stock or other assets at certain relevant times. For purposes of the
representations made in this Certificate, the Company has made a good faith
determination of such values, taking into account all material facts and
circumstances, but cannot guarantee that the Internal Revenue Service will not
successfully assert that such determination is incorrect.
2. Qualification of the Stock as QSBS is based, in part, on whether the
Company has been engaged in the active conduct of one or more qualified trades
or businesses. The term "qualified trade or business" set forth in Section
1202(e)(3) of the Code, but cannot guarantee that the Internal Revenue Service
will not successfully assert a contrary definition.
3. Qualification of the Stock as QSBS is based, in part, on whether at
least eight percent (80%) (by value) of the Company's assets have been used in
the active conduct of one or more qualified trades or businesses. For this
purpose, assets held as "working capital" of a qualified trade or business
within the meaning of Section 1202(e)(6) of the Code are treated as used in the
active conduct of such trade or business. The term "working capital" as set
forth in Section 1202(e)(6) of the Code is not clearly defined in all respects.
For purposes of the representations made in this Certificate, the Company has
made a good faith effort to apply the definition of
B-1
<PAGE>
working capital set forth in Section 1202(e)(6) of the Code, but cannot
guarantee that the Internal Revenue Service will not successfully assert a
contrary definition.
4. Qualification of the Stock as QSBS is based, in part, on whether the
Company purchased any of its stock from a person related to Shareholder during a
relevant testing period. For purposes of the representations made in this
Certificate, the Company has made a good faith determination that such purposes
did not occur, but cannot guarantee that the Internal Revenue Service will not
successfully assert that such determination is incorrect.
IN WITNESS WHEREOF, the Company has executed this Certificate as of the
date first above written.
By
----------------------------
Title
-------------------------
B-2
<PAGE>
EXHIBIT 4.3
THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Yahoo! Inc., a Delaware
corporation (the "Warrantholder"), the right to subscribe for and purchase from
the Company three hundred thirty-three thousand eight hundred eighty-eight
(333,888) validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Series C Preferred Stock (the "Series C Stock"), at
the purchase price per share of $1.1647316 (the "Exercise Price"). This Warrant
shall be exercisable at any time and from time to time during the period (the
"Exercise Period") commencing on the Launch Date as such term is defined in that
certain Software and Sound Recording License and Web Site Promotions Agreement
of even date herewith (the "Recording and Promotions Agreement") between the
Company and Warrantholder and ending on the earlier of (i) August 20, 2001, (ii)
termination by the Company following Warrantholder's breach of the Recording and
Promotions Agreement pursuant to the terms of Section 13.2(d) of that Agreement
and (iii) thirty (30) days from the date hereof in the event that Company
terminates the Recording and Promotions Agreement pursuant to the terms of
Section 1.13 of that Agreement.
1. Exercise of Warrant; Limitation on Exercise; Payment of Taxes.
-------------------------------------------------------------
1.1 Exercise of Warrant.
-------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
-------------
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, but in
no event more than five (5) business days after the date of Company's receipt of
the Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the
-1-
<PAGE>
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Series C Stock prior to the date as of which the Warrantholder shall
be deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Series C Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Series C Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Series C Stock otherwise purchasable
under this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's Series C
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
(c) Automatic Exercise. In the event that (a) the Warrantholder has not
------------------
exercised this Warrant by 11:59 p.m. on the last day of the Exercise Period and
(b) such exercise would result in the issuance of Warrant Shares to the
Warrantholder based on the formula set forth for a net issue exercise in Section
1.1(b), the Warrantholder shall be deemed to have exercised this Warrant as of
the close of business on such date for all of the Warrant Shares issuable upon
exercise of this Warrant in accordance with the net issue exercise provision set
forth in Section 1.1(b).
(d) Fair Market Value. For purposes of Sections 1.1(b) and 1.1(c), the
-----------------
fair market value of Warrant Shares on the date of calculation shall mean with
respect to each share of Warrant 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
Securities and Exchange Commission, then the fair market value per share
shall be the product of (x) the initial
-2-
<PAGE>
"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 Warrant Stock is convertible at the date of calculation;
(ii) if this Warrant is exercised after, and not in connection with,
the Company's initial public offering, and if the Company's Common Stock is
traded on a securities exchange or The Nasdaq Stock Market ("Nasdaq") or
actively traded over-the-counter:
(A) if the Company's Common Stock is traded on a securities
exchange or The Nasdaq Stock Market, the fair market value shall be deemed
to be the product of (x) the average of the closing prices over a twenty
(20) trading day period ending the trading day before date of exercise and
(y) the number of shares of Common Stock into which each share of Warrant
Shares is convertible on such date; or
(B) if the Company's Common Stock is actively traded over-the-
counter, the fair market value shall be deemed to be the product of (x) the
average of the closing bid or sales price (whichever is applicable) over
the twenty (20) trading day period ending the date before the date of
exercise and (y) the number of shares of Common Stock into which each share
of Warrant Shares is convertible on such date; or
(iii) if neither (i) nor (ii) are applicable, the Market Price of the
Warrant Shares as of a specified day shall be determined in good faith by
written resolution of the Board of Directors of the Company.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder
-----------
received before the Company's initial public offering, the Company agrees to
deliver promptly to such Warrantholder a copy of its current financial
statements.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer. If the Company has not yet completed
------------------------
its initial public offering, the Warrant Shares issued upon the exercise of the
Warrant may not be transferred or assigned in whole or in part without the
written consent of the company and without compliance with all applicable
federal and state securities laws by the transferor and transferee (including
the delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company). The
restriction set forth in this Section 2.1 will terminate upon the termination of
the Recording and Promotions Agreement.
-3-
<PAGE>
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued
-------------------
in substitution for this Warrant issued pursuant to Section 5 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (a) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (b) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, Etc. The Company covenants
--------------------------------------------
and agrees that all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens, security interests, charges and other encumbrances
with respect to the issue thereof, other than taxes in respect of any transfer
occurring contemporaneously with such issue. The Company further covenants and
agrees that, during the Exercise Period, the Company will at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Series C Stock to provide for the exercise of the
rights represented by this Warrant and will, at its expense, upon each such
reservation of shares, procure such listing of such shares of Series C Stock
(subject to issuance or notice of issuance) as then may be required on all stock
exchanges on which the Series C Stock is then listed or on Nasdaq.
4. Representations and Covenants of Warrantholder. This Warrant has been
----------------------------------------------
entered into by the Company in reliance upon the following representations and
covenants of the Warrantholder.
-4-
<PAGE>
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (a) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant will be exempt from the registration and
qualifications requirements thereof, and (b) that the Company's reliance on such
exemption is predicated on the representations set forth in this Section 4.
4.3 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.
4.4 Indefinite Holding Period. The Warrantholder understands that it may
-------------------------
be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares 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.
4.5 Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
5. Exchange, Loss or Destruction of Warrant. Upon receipt by the Company
----------------------------------------
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may reasonably require, and, in the case of such
mutilation, upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor. The term "Warrant" as used in
this Agreement shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant.
6. Ownership of Warrant. The Company may deem and treat the entity in
--------------------
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Conversion or Redemption of Series C Preferred Stock. Should all of
----------------------------------------------------
the Company's Series C Stock be, or if outstanding would be, at any time prior
to the expiration of this Warrant or any portion thereof, redeemed or converted
into shares of the Company's Common Stock in
-5-
<PAGE>
accordance with the Company's Amended and Restated Articles of Incorporation,
then this Warrant shall immediately become exercisable for that number of shares
of the Company's Common Stock equal to the number of shares of the Common Stock
that would have been received if this Warrant had been exercised in full and the
Series C Stock received thereupon had been simultaneously converted immediately
prior to such event, and the Exercise Price shall be immediately adjusted to
equal the quotient obtained by dividing (x) the aggregate Exercise Price of the
maximum number of shares of Series C Preferred Stock for which this Warrant was
exercisable immediately prior to such conversion or redemption, by (y) the
number of shares of Common Stock for which this Warrant is exercisable
immediately after such conversion or redemption.
(b) Stock Dividends. If at any time prior to the exercise of this Warrant
---------------
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Series C Stock or (ii) the number of shares of
Series C Stock shall have been increased by a subdivision or split-up of shares
of Series C Stock, then, on the record date fixed for the determination of
holders of Series C Stock entitled to receive such dividend or immediately after
the effective date of subdivision or split-up, as the case may be, the number of
shares of Series C Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Series C Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (g).
(c) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Series C Stock outstanding shall have
been decreased by a combination of the outstanding shares of Series C Stock,
then, immediately after the effective date of such combination, the number of
shares of Series C Stock to be delivered upon exercise of this Warrant will be
decreased so that the Warrantholder thereafter will be entitled to receive the
number of shares of Series C Stock that such Warrantholder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto, and the Exercise Price will be adjusted as provided below in
paragraph (g).
(d) Reorganization, etc. If at any time prior to the exercise of this
-------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Series C Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Series C Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Series C Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Series C Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 7.
-6-
<PAGE>
(e) Fractional Shares. No fractional shares of Series C Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Series C Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Fair Market Value per share of
Series C Stock.
(f) Carryover. Notwithstanding any other provision of this Section 7, no
---------
adjustment shall be made to the number of shares of Series C Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than one percent (1%) of the number of shares to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to one percent (1%) or more of
the number of shares to be so delivered.
(g) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(h) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
7.3 Notice of Adjustment and Warrant Termination. Whenever the number of
--------------------------------------------
Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as
herein provided, the Company shall promptly mail by first class, postage
prepaid, to the Warrantholder, notice of such adjustment or adjustments and a
certificate of the chief financial officer of the Company setting forth the
number of Warrant Shares and the Exercise Price of such Warrant Shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
The Company shall promptly mail by first class, postage prepaid mail to the
Warrantholder, at least thirty (30) days before the end of the Exercise Period,
notice of termination of the Exercise Period. In such an event, the
Warrantholder will be bound by the provisions of Section 1.1(c).
-7-
<PAGE>
8. Notices of Corporate Action. 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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Series C Stock
(or other securities) shall be entitled to exchange their shares of Series C
Stock (or other securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least twenty (20)
days prior to the date therein specified, in the case of any date referred to in
the foregoing subdivision (i), and at least twenty (20) days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
9. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (a) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (b) the sale of all or substantially all of the assets of the
Company to any other person or (c) any sale or transfer of any capital stock of
the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
-8-
<PAGE>
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
------------- ---------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 7 hereof.
Nasdaq: the meaning specified in Section 1.1(d)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant and the Recording and Promotions
----------------
Agreement constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
-------------------------
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
-9-
<PAGE>
10.4 Section and Other Headings. The section and other headings contained
--------------------------
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
10.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
2600 S. El Camino Real
San Mateo, CA 94403
Attention: Alan Beban
Telecopier: (650) 696-9400
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
Telecopier: (650) 233-4545
(b) if to the Warrantholder, addressed to:
Yahoo! Inc.
3420 Central Expressway
Santa Clara, CA 95051
Attention: Chief Executive Officer
With a copy to:
Yahoo! Inc.
3420 Central Expressway
Santa Clara, CA 95051
Attention: General Counsel
Fax: (408) 731-3400
-10-
<PAGE>
Except as otherwise provided herein, all such notices and communications
shall be deemed to have been received on the date of delivery thereof, if
delivered personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Separability. Any term or provision of this Warrant which is invalid
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
10.10 No Rights or Liabilities as Shareholder. Except as otherwise provided
---------------------------------------
herein, nothing contained in this Warrant shall be deemed to confer upon the
Warrantholder any rights as a shareholder of the Company or to impose any
obligations on the Warrantholder to purchase any securities whether such
obligations are asserted by the Company or by creditors or shareholders of the
Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: August 20, 1999.
YAHOO! INC. BEATNIK, INC.
/s/ Lorraine Hariton
By____________________________ By________________________________________
VP President and Chief Executive Officer
Title_________________________ Title_____________________________________
-11-
<PAGE>
Exhibit A
---------
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for ________of the Warrant Shares to the
order of Beatnik, Inc. in the amount of $__________ in accordance with
the terms of this Warrant; or
[_] herewith tenders this Warrant for __________ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b) of
this Warrant
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: __________________.
____________________________________________
(Signature)
____________________________________________
(Print Name)
____________________________________________
(Street Address)
____________________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
A-1
<PAGE>
EXHIBIT 4.4
THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Lambeau Investors LLC,
a limited liability corporation organized under the laws of California (the
"Warrantholder"), the right to subscribe for and purchase from the Company
25,530 validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), at the purchase
price per share of $1.1647316 (the "Exercise Price"). This Warrant shall be
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the date hereof and ending on the earlier of June 30,
2002 or the consummation of an underwritten firm commitment public offering of
the Company with gross proceeds to the Company of at least $10,000,000 and a per
share price of at least $4.00, all subject to the terms, conditions and
adjustments herein set forth.
1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
--------------------------------------------------------------------
Taxes.
- -----
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
-------------
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within 10 days, thereafter. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under
this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
-1-
<PAGE>
(c) Fair Market Value. For purposes of Section 1.1(b) fair market value
-----------------
of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or
(ii) if not listed or traded on any such exchange, the last reported
sales price per share on the Nasdaq National Market or the Nasdaq Small-Cap
Market (collectively, "Nasdaq"), or
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets"), or
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. The
---------------------------------------------------------
Warrant Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
-2-
<PAGE>
3. Reservation and Registration of Shares, Etc.
--------------------------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Representations and Covenants of Warrantholder.
----------------------------------------------
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder.
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (i) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant 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 4.
4.3 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.
4.4 Indefinite Holding Period. The Warrantholder understands that it
-------------------------
may be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares 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.
4.5 Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
5. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
6. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
---------------
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to
-3-
<PAGE>
receive the number of shares of Common Stock that such Warrantholder would have
owned immediately following such action had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as provided
below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
--------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 7.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Fair Market Value per share of
Common Stock.
(e) Carryover. Notwithstanding any other provision of this Section 7, no
---------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
8. Notices of Corporate Action.
---------------------------
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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon
-4-
<PAGE>
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior to
the date therein specified, in the case of any date referred to in the foregoing
subdivision (i), and at least 20 days prior to the date therein specified, in
the case of the date referred to in the foregoing subdivision (ii).
9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
-5-
<PAGE>
10.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
217 South B Street
San Mateo, CA 94401
Attention: Alan Beban
Telecopier: (650) 696-9400
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
Telecopier: (650) 233-4545
(b) if to the Warrantholder, addressed to:
Lambeau Investors LLC
c/o Orvick Management Group
1887 O'Toole Avenue, Suite C208
San Jose, California 95131
Attn: Mr. Ken Orvick
with copies to:
Lambeau Investors LLC
c/o Worthing Capital
845 Oak Grove Avenue, Suite 105
Menlo Park, California 94025
Attn: Mr. Vincent Sakowski
and
Allen, Matkins, Leck, Gamble & Mallory LLP
333 Bush Street, Suite 1700
San Francisco, California 94104
Attn: Richard C. Mallory, Esq
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Separability. Any term or provision of this Warrant which is invalid
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: June , 1999.
---
LAMBEAU INVESTORS LLC BEATNIK, INC.
By /s/ Vincent Sorkowski By /s/ Alan Beban
------------------------ ----------------------------
Title G.P. Working Capital Title CFO
---------------------- -------------------------
<PAGE>
EXHIBIT 4.5
THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Lambeau Investors LLC,
a limited liability corporation organized under the laws of California (the
"Warrantholder"), the right to subscribe for and purchase from the Company
50,000 validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), at the purchase
price per share of $6.00 (the "Exercise Price"). This Warrant shall be
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the date hereof and ending on the earlier of December 1,
2002 or the consummation of an underwritten firm commitment public offering of
the Company with gross proceeds to the Company of at least $10,000,000 and a per
share price of at least $4.00, all subject to the terms, conditions and
adjustments herein set forth.
1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
--------------------------------------------------------------------
Taxes.
- -----
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
-------------
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within 10 days, thereafter. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends
-1-
<PAGE>
paid or payable to holders of record of Common Stock prior to the date as of
which the Warrantholder shall be deemed to be the record holder of such Warrant
Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under
this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) fair market value
-----------------
of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading, or
(ii) if not listed or traded on any such exchange, the last reported
sales price per share on the Nasdaq National Market or the Nasdaq Small-Cap
Market (collectively, "Nasdaq"), or
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets"), or
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
-2-
<PAGE>
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. The
---------------------------------------------------------
Warrant Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
-3-
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, Etc.
--------------------------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Representations and Covenants of Warrantholder.
----------------------------------------------
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder.
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (i) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant 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 4.
4.3 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.
-4-
<PAGE>
4.4 Indefinite Holding Period. The Warrantholder understands that it
-------------------------
may be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares 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.
4.5 Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
5. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
6. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
---------------
in Warrantholder, full (i) the Company shall fix a record date for the issuance
of any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or split-up of
shares of Common Stock, then, on the record date fixed for the determination of
holders of Common Stock entitled to receive such dividend or immediately after
the effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
-5-
<PAGE>
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
-------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 7.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Fair Market Value per share of
Common Stock.
(e) Carryover. Notwithstanding any other provision of this Section 7, no
---------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
-6-
<PAGE>
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
8. Notices of Corporate Action.
---------------------------
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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, the Company will mail to the Warrantholder a notice specifying (i)
the date or expected date on which any such record is to be taken for the
purpose of such dividend, distribution or right and the amount and character of
any such dividend, distribution or right, (ii) the date or expected date on
which any such reorganization, reclassification, recapitalization, Change of
Control, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior to
the date therein specified, in the case of any date referred to in the foregoing
subdivision (i), and at least 20 days prior to the date therein specified, in
the case of the date referred to in the foregoing subdivision (ii).
9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
-7-
<PAGE>
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the
-8-
<PAGE>
Company and the Warrantholder, or their respective successors, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
10.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
217 South B Street
San Mateo, CA 94401
Attention: Alan Beban
Telecopier: (650) 696-9400
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
Telecopier: (650) 233-4545
-9-
<PAGE>
(b) if to the Warrantholder, addressed to:
Lambeau Investors LLC
c/o Orvick Management Group
1887 O'Toole Avenue, Suite C208
San Jose, California 95131
Attn: Mr. Ken Orvick
with copies to:
Lambeau Investors LLC
c/o Worthing Capital
845 Oak Grove Avenue, Suite 105
Menlo Park, California 94025
Attn: Mr. Vincent Sakowski
and
Allen, Matkins, Leck, Gamble & Mallory LLP
333 Bush Street, Suite 1700
San Francisco, California 94104
Attn: Richard C. Mallory, Esq
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: December 1, 1999.
LAMBEAU INVESTORS LLC BEATNIK, INC.
/s/ Patrizia Owen
By____________________________ By_________________________________
CFO
Title_________________________ Title______________________________
-11-
<PAGE>
EXHIBIT A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for _______ of the Warrant Shares to the
order of Beatnik, Inc. in the amount of $_________ in accordance with
the terms of this Warrant; or
[_] herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of this Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
___________________________________
(Signature)
___________________________________
(Print Name)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
A-1
<PAGE>
EXHIBIT 4.6
THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Zomba Recording
Corporation, a corporation organized under the laws of New York (the
"Warrantholder"), the right to subscribe for and purchase from the Company up to
500,000 shares (the "Warrant Shares") of the Company's Common Stock (the "Common
Stock"), at the purchase price per share of $2.00 (the "Exercise Price"). This
Warrant shall be exercisable at any time and from time to time during the period
(the "Exercise Period") commencing on the date hereof and ending on November
15, 2002, all subject to the terms, conditions and adjustments herein set forth.
1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
Taxes.
---------------------------------------------------------------------
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
---- -------------
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within 10 days, thereafter. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
-1-
<PAGE>
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) fair market value
-----------------
of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading, or
(ii) if not listed or traded on any such exchange, the last reported
sales price per share on the Nasdaq National Market or the Nasdaq Small-Cap
Market (collectively, "Nasdaq"), or
(iii)if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets"), or
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company; provided, however, that in the event this Warrant is issued within
fifteen days prior to the Company's initial
-2-
<PAGE>
public offering, the fair market value shall be equal to the price at which
the Board reasonably believes such shares will be sold to the public in
such offering.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. The
---------------------------------------------------------
Warrant Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
-3-
<PAGE>
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, Etc.
--------------------------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Representations and Covenants of Warrantholder.
----------------------------------------------
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder.
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (i) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant 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 4.
-4-
<PAGE>
4.3 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.
4.4 Indefinite Holding Period. The Warrantholder understands that it may
-------------------------
be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares 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.
4.5 Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
5. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
6. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
---------------
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock, 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 or (ii)
the number of shares of Common Stock shall have been increased by a subdivision
or split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of subdivision or split-up, as the case may
be, the number of shares of Common Stock to be delivered upon exercise of this
Warrant will be increased so that the Warrantholder will be entitled to receive
the number of shares of Common Stock that such Warrantholder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto, and the Exercise Price will be adjusted as provided below in
paragraph (f).
-5-
<PAGE>
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
--------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 7.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Fair Market Value per share of
Common Stock.
(e) Carryover. Notwithstanding any other provision of this Section 7, no
---------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
-6-
<PAGE>
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
8. Notices of Corporate Action.
---------------------------
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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, or
(d) the Company's initial public offering,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such initial public offering, reorganization, reclassification,
recapitalization, Change of Control, dissolution, liquidation or winding-up is
to take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, Change of Control, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 20 days prior to the date therein
specified, in the case of any date referred to in the foregoing subdivision (i),
and at least 20 days prior to the date therein specified, in the case of the
date referred to in the foregoing subdivision (ii).
-7-
<PAGE>
9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
-8-
<PAGE>
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 Section and Other Headings. The section and other headings contained
--------------------------
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
10.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
2600 El Camino Real
San Mateo, CA 94403
Attention: Ms. Patrizia Owen
Telecopier: (650) 696-9400
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
-9-
<PAGE>
Telecopier: (650) 233-4545
(b) if to the Warrantholder, addressed to:
Zomba Recording Corporation
137-139 West 25th Street
New York, NY 10001
Attn: Ivan Gavin
Senior Vice President of Finance
Senior Vice President of Business Affairs
Facsimile: (212) 727-2184
with copies to:
DeCampo, Diamond & Ash
805 3rd Avenue
New York, NY 10022
Attn: Joseph A. DeCampo
Facsimile: (212) 758-1728
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
-10-
<PAGE>
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: November 16, 1999.
Zomba Recording Corporation BEATNIK, INC.
By: /s/ Ivan Gavin By /s/ Lorraine Hariton
--------------------- -----------------------
Title Senior VP of Finance and Title President and CEO
Commercial Operations --------------------
---------------------------
-11-
<PAGE>
Exhibit A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for _______ of the Warrant Shares to the order
of Beatnik, Inc. in the amount of $_________ in accordance with the
terms of this Warrant; or
[_] herewith tenders this Warrant for _______ Warrant Shares pursuant to the
Net Issue Exercise provisions of Section 1.1(b) of this Warrant
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
------------------------------------
(Signature)
------------------------------------
(Print Name)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
-12-
<PAGE>
EXHIBIT 4.7
THIS WARRANT IS NOT TRANSFERABLE. TRANSFERABLE. ANY SHARES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik,
Inc., a California corporation (the "Company"), hereby grants to Zomba
Enterprises, Inc., a corporation organized under the laws of New York (the
"Warrantholder"), the right to subscribe for and purchase from the Company up to
500,000 shares (the "Warrant Shares") of the Company's Common Stock (the "Common
Stock"), at the purchase price per share of $5.00 (the "Exercise Price"). This
Warrant shall be exercisable at any time and from time to time during the period
(the "Exercise Period") commencing on the date hereof and ending on the earlier
of the third anniversary hereof or the consummation of an underwritten firm
commitment public offering of the Company, all subject to the terms, conditions
and adjustments herein set forth.
1. Exercise of Warrant; Limitation on Exercise; Payment of Taxes.
-------------------------------------------------------------
1.1 Exercise of Warrant.
-------------------
(a) Cash Exercise. This Warrant may be exercised by the
-------------
Warrantholder by (i) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be purchased,
during normal business hours on any Business Day during the Exercise Period and
(ii) the delivery of payment to the Company, for the account of the Company, by
cash, wire transfer of immediately available funds to a bank account specified
by the Company, or by certified or bank cashier's check, of the Exercise Price
for the number of Warrant Shares specified in the Exercise Form in lawful money
of the United States of America. The Company agrees that such Warrant Shares
shall be deemed to be issued to the Warrantholder as the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for the Warrant Shares as
aforesaid. A stock certificate or certificates for the Warrant Shares specified
in the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within 10 days, thereafter. The stock certificate
or certificates so delivered shall be in denominations of 100 shares each or
such lesser or greater denominations as may be reasonably specified by the
Warrantholder in the Exercise Form. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
-1-
<PAGE>
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under
this Warrant (at the date of such calculation);
A = the Fair Market Value (as defined below) of one share of the
Company's Common Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) "Fair Market Value"
-----------------
of one share of the Company's Common Stock shall mean the fair market value per
share of the Company's Common Stock on the date such notice was received by the
Company as reasonably determined by the Board of Directors of the Company;
provided, however, that in the event this Warrant is issued within fifteen days
prior to the Company's initial public offering, the fair market value shall be
equal to the price at which the Board reasonably believes such shares will be
sold to the public in such offering.
(d) Other Rights and Obligations. Ownership of the Warrant and Warrant
----------------------------
Shares shall (i) entitle the Warrantholder to any and all rights and benefits,
and (ii) impose upon the Warrantholder the same obligations, in each case, which
are applicable to Holders of Registrable Securities, as set forth in that
certain Beatnik, Inc. Amended and Restated Rights Agreement, dated as of
December 14, 1999.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
-2-
<PAGE>
1.3 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. The
---------------------------------------------------------
Warrant Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
-3-
<PAGE>
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, etc.
--------------------------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Representations and Covenants of Warrantholder.
----------------------------------------------
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder.
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (i) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the
Securities Act (or a successor rule thereto) or qualified under applicable state
securities laws on the ground that the issuance contemplated by this Warrant
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 4.
4.3 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.
4.4 Indefinite Holding Period. The Warrantholder understands that it may
-------------------------
be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares which might be made by it in reliance upon Rule
144 under the Securities Act may be made only in accordance with the terms and
conditions of that Rule.
-4-
<PAGE>
4.5 Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
5. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
6. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
---------------
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock, 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 or (ii) the
number of shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of subdivision or split-up, as the case may
be, the number of shares of Common Stock to be delivered upon exercise of this
Warrant will be increased so that the Warrantholder will be entitled to receive
the number of shares of Common Stock that such Warrantholder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto, and the Exercise Price will be adjusted as provided below in
paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
-------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any
-5-
<PAGE>
consolidation of the Company with or merger of the Company with or into any
other person or any sale, lease or other transfer of all or substantially all of
the assets of the Company to any other person, shall be effected in such a way
that the holders of Common Stock shall be entitled to receive stock, other
securities or assets (whether such stock, other securities or assets are issued
or distributed by the Company or another person) with respect to or in exchange
for Common Stock, then, upon exercise of this Warrant the Warrantholder shall
have the right to receive the kind and amount of stock, other securities or
assets receivable upon such reorganization, reclassification, consolidation,
merger or sale, lease or other transfer by a holder of the number of shares of
Common Stock that such Warrantholder would have been entitled to receive upon
exercise of this Warrant had this Warrant been exercised immediately before such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current Fair Market Value per share of
Common Stock.
(e) Carryover. Notwithstanding any other provision of this Section 7, no
---------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
-6-
<PAGE>
7.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
8. Notices of Corporate Action.
---------------------------
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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company, or
(d) the Company's initial public offering,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, and (ii) the date or expected date on which any
such initial public offering, reorganization, reclassification,
recapitalization, Change of Control, dissolution, liquidation or winding-up is
to take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, Change of Control, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 20 days prior to the date therein
specified, in the case of any date referred to in the foregoing subdivision (i),
and at least 20 days prior to the date therein specified, in the case of the
date referred to in the foregoing subdivision (ii).
9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in
-7-
<PAGE>
which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder.
-8-
<PAGE>
Either the Company or the Warrantholder may, by an instrument in writing, waive
compliance by the other party with any term or provision of this Warrant on the
part of such other party hereto to be performed or complied with. The waiver by
any such party of a breach of any term or provision of this Warrant shall not be
construed as a waiver of any subsequent breach.
10.4 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
10.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
2600 El Camino Real
San Mateo, CA 94403
Attention: Ms. Lorraine Hariton
Telecopier: (650) 696-9400
With a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
Telecopier: (650) 233-4545
(b) if to the Warrantholder, addressed to:
Zomba Enterprises, Inc.
138 West 25/th/ Street
New York, NY 10001
Attention: Ivan Gavin
Senior Vice President of Business Affairs
Facsimile: (212) 229-0822
-9-
<PAGE>
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
120 West Forty-Fifth Street
New York, NY 10036
Attn: Jeffrey D. Neuburger
Facsimile: (212) 840-2429
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: December 31, 1999.
ZOMBA ENTERPRISES, INC. BEATNIK, INC.
By /s/ Brian Roberts By /s/ Lorraine Hariton
------------------------------ ------------------------------
Title Sr. VP Finance & Comm Ops. Title President & CEO
--------------------------- ---------------------------
-11-
<PAGE>
Exhibit A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for _______ of the Warrant Shares to the order
of Beatnik, Inc. in the amount of $_________ in accordance with the
terms of this Warrant; or
[_] herewith tenders this Warrant for _______ Warrant Shares pursuant to the
Net Issue Exercise provisions of Section 1.1(b) of this Warrant
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
___________________________________________
(Signature)
___________________________________________
(Print Name)
___________________________________________
(Street Address)
___________________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
<PAGE>
EXHIBIT 10.1
HEADSPACE, INC.
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1997 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Headspace, Inc., a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
-2-
<PAGE>
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1997 Stock Plan.
----
(s) "Reporting Person" means an officer, director, or greater than ten
----------------
percent shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(v) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 700,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. In addition,
any Shares of Common Stock which are retained by the Company upon exercise of an
Option or Stock Purchase Right in order to satisfy the exercise or purchase
price for such Option or Stock Purchase Right or any withholding taxes due with
respect to such exercise shall be treated as not issued and shall continue to be
available under the Plan. Shares repurchased by the Company pursuant to any
repurchase right which the Company may have shall not be available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
-3-
<PAGE>
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
grants under the Plan may be made by different bodies with respect to directors,
non-director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, such grants shall be made by (A) the Board if the Board may
make grants to Reporting Persons under the Plan in compliance with Rule 16b-3,
or (B) a committee designated by the Board to make grants to Reporting Persons
under the Plan, which committee shall be constituted in such a manner as to
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the committee and thereafter directly
make grants to Reporting Persons under the Plan, all to the extent permitted by
Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ---------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
---------------
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
-4-
<PAGE>
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account
-5-
<PAGE>
in the order in which they were granted, and the Fair Market Value of the Shares
subject to an Incentive Stock Option shall be determined as of the date of the
grant of such Option.
(c) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with such Optionee's right or the Company's right
to terminate his or her employment or consulting relationship at any time, with
or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the written option agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
-6-
<PAGE>
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, and reflected in the written option
agreement, which may include vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee; provided that such Option shall
become exercisable at the rate of at least twenty percent (20%) per year over
five (5) years from the date the Option is granted. In the event that any of
the Shares issued upon exercise of an Option should be subject to a right of
repurchase in the Company's favor, such repurchase right shall lapse at the rate
of at least twenty percent (20%) per year over five (5) years from the date the
Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a
-7-
<PAGE>
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock, not
withstanding the exercise of the Option. The Company shall issue (or cause to be
issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three (3) months of the date of
-8-
<PAGE>
such termination, the Option will not qualify for ISO treatment under the Code.
To the extent that Optionee was not entitled to exercise the Option at the date
of termination, or if Optionee does not exercise such Option to the extent so
entitled within six months (6) from the date of termination, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within thirty (30) days following termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of Optionee's Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a person owning stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the price shall not be less than one hundred percent (100%) of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable
-9-
<PAGE>
upon the voluntary or involuntary termination of the purchaser's employment with
the Company for any reason (including death or disability). The purchase price
for Shares repurchased pursuant to the Restricted Stock purchase agreement shall
be the original purchase price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Administrator may determine, but at a
minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, or the Shares to be
issued in connection with the Stock Purchase Right, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
-10-
<PAGE>
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or
-11-
<PAGE>
Stock Purchase Right or to substitute an equivalent option or right, in which
case such Option or Stock Purchase Right shall terminate upon the consummation
of the merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee or Stock Purchase Rights Holder only by the Optionee or Stock
Purchase Rights Holder.
14. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided
however that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an
Option, the Company
-12-
<PAGE>
may require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
and Stock Purchase Rights issued under the Plan shall become void in the event
such approval is not obtained.
20. Information and Documents to Optionees and Purchasers. The Company
-----------------------------------------------------
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares Pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee or the Purchaser a copy of the Plan and a copy of
the agreement(s) pursuant to which securities under the Plan are issued.
-13-
<PAGE>
BEATNIK, INC.
1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
________________________
________________________
You have been granted an option to purchase Common Stock ("Common Stock") of
------------
Beatnik, Inc. (the "Company") as follows:
-------
Board Approval Date: ((Board_Approval_Date))
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): ((GrantDate))
Vesting Commencement Date: ((VestingCommenceDate))
Exercise Price Per Share: $((ExercisePrice))
Total Number of Shares Granted: ((NoofShares))
Total Exercise Price: $((TotalExercisePrice))
Type of Option: ((ISO)) Incentive Stock Option ("ISO")
------- ---
((NSO)) Nonstatutory Stock Option ("NSO")
------- ---
Term/Expiration Date: ((ExpirDate))
Vesting Schedule: 1/4 of the Shares subject to the Option
shall vest on the 12 month anniversary of
the Vesting Commencement Date and 1/48 of
the total number of Shares subject to the
Option shall vest monthly thereafter.
-1-
<PAGE>
Termination Period: Option may be exercised for 90 days after
termination of employment or consulting
relationship except as set out in Sections
6 and 7 of the Stock Option Agreement (but
in no event later than the Expiration
Date).
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1997 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
((Optionee)) BEATNIK, INC.
___________________________ By: ______________________________
Signature
__________________________________
Print Name and Title
-2-
<PAGE>
BEATNIK, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Beatnik, Inc. a California corporation (the
---------------
"Company"), hereby grants to ((Optionee)) ("Optionee") an option (the "Option")
to purchase a total number of shares of Common Stock (the "Shares") set forth in
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the Beatnik, Inc. 1997 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify as
an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may be exercised in whole or in part at any
time after the Date of Grant. As to Shares which have not yet vested under the
vesting schedule indicated on the Notice of Stock Option Grant, Optionee shall
execute as a condition to such exercise of this Option, the Early Exercise
Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the
---------
"Early Exercise Agreement"). If Optionee chooses to exercise this Option solely
------------------------
as to Shares which have vested under the vesting schedule indicated on the
Notice of Stock Option Grant, Optionee shall complete and execute the form of
Exercise Notice and Restricted Stock Purchase Agreement attached hereto as
Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the Company
- --------- ------------------
may in its discretion prescribe or accept a different form of notice of exercise
and/or stock purchase agreement if such forms are otherwise consistent with this
Agreement, the Plan and then-applicable law.
(ii) This Option may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by Sections 5, 6 and 7 below, subject to the limitation
contained in Section 2(a)(iv) below.
(iv) In no event may this Option be exercised after the date of
expiration of the Term of this Option as set forth in the Notice of Stock Option
Grant.
(b) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being
-1-
<PAGE>
exercised, and such other representations and agreements as to the holder's
investment intent with respect to such shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice shall
be signed by Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon receipt
by the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law, including the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six (6) months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price; or
(e) a promissory note in the form attached to this Agreement as
Exhibit C, or in any other form approved by the Company.
- ---------
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee
-2-
<PAGE>
was not entitled to exercise this Option at such Termination Date, or if
Optionee does not exercise this Option within the Termination Period, the Option
shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant and in Section 9 below), exercise this Option
to the extent he or she was entitled to exercise it at such Termination Date. To
the extent that Optionee was not entitled to exercise the Option Termination
Date, or if Optionee does not exercise such Option to the extent so entitled
within the time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of a disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the Termination Date (but in no event later than
the Expiration Date set forth in the Notice of Stock Option Grant and in Section
9 below), exercise the Option to the extent Optionee was entitled to exercise it
as of such Termination Date; provided, however, that if this is an Incentive
Stock Option and Optionee fails to exercise this Incentive Stock Option within
three (3) months from the Termination Date, this Option will cease to qualify as
an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee
will be treated for federal income tax purposes as having received ordinary
income at the time of such exercise in an amount generally measured by the
difference between the Exercise Price for the Shares and the fair market value
of the Shares on the date of exercise. To the extent that Optionee was not
entitled to exercise the Option at the Termination Date, or if Optionee does not
exercise such Option to the extent so entitled within the time specified in this
Section 6(b), the Option shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant and in Section 9 below), by Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
-3-
<PAGE>
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the fair market value of the Shares on the date of exercise or (if later) on the
date any forfeiture restrictions applicable to the option shares lapse (but see
subsection (c) below) over the Exercise Price will be treated as an adjustment
to the alternative minimum tax for federal tax purposes and may subject Optionee
to the alternative minimum tax in the year of exercise (or, if later, the date
on which the restrictions lapse).
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) at the time of exercise, or (if later) on the date
any restrictions applicable to the Shares lapse (but see subsection (c) below)
equal to the excess, if any, of the fair market value of the Shares on the date
of exercise (or, if later, the date on which the restrictions lapse) over the
Exercise Price. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise (or, if later, the date on which the
restrictions lapse).
(c) Section 83(b) Election. If Optionee exercises this Option for
Shares that are subject to a restriction, such as a repurchase option
exercisable by the Company at Optionee's original purchase price upon Optionee's
termination of employment ("Unvested Shares"), then the Optionee may elect
---------------
under Section 83(b) of the Code to be taxed under the income and alternative
minimum tax rules, as applicable, at the time the Unvested Shares are acquired
rather than when, and as, such shares cease to be subject to the restriction.
Such election must be filed with the Internal Revenue Service within thirty (30)
days after the date of exercise. Failure to make this filing for the exercise of
Unvested Shares within the applicable thirty (30) day period will result in the
recognition of the applicable form of income by Optionee as the forfeiture
restrictions lapse.
(d) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California
-4-
<PAGE>
income tax purposes. If Shares purchased under an Incentive Stock Option are
disposed of within such one-year or two-year period, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (i) the fair market value of the Shares on the date of exercise, or (ii) the
sale price of the Shares.
(e) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations. Optionee understands that, upon either
---------------------------
the exercise of a Nonstatutory Stock Option or the date on which any
restrictions applicable to the Shares lapse, he or she will recognize income for
tax purposes in an amount equal to the excess of the then fair market value of
the Shares on the applicable date over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation,
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income. Additionally, Optionee may at
some point be required to satisfy tax withholding obligations with respect to
the disqualifying disposition of an Incentive Stock Option. Optionee shall
satisfy his or her tax withholding obligation arising upon the exercise of this
Option by one or some combination of the following methods: (a) by cash payment,
(b) out of Optionee's current compensation, (c) if permitted by the
Administrator, in its discretion, by surrendering to the Company Shares which
(i) in the case of Shares previously acquired from the Company, have been owned
by Optionee for more than six months on the date of surrender, and (ii) have a
fair market value on the date of surrender equal to or greater than Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
--------
If Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
-------
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
-5-
<PAGE>
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-6-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one document.
BEATNIK, INC.
By: ______________________________
Name: ____________________________
(print)
Title: ___________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or
she is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ____________________ _______________________________________
((Optionee))
-7-
<PAGE>
EXHIBIT A
---------
BEATNIK, INC.
1997 STOCK PLAN
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Beatnik, Inc., a California corporation (the "Company"), and ((Optionee))
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1997 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________ (the "Option Agreement"). Of these Shares, Purchaser has elected
----------------
to purchase _______________ of those Shares which have become vested as of the
date hereof under the Vesting Schedule set forth in the Notice of Stock Option
Grant (the "Vested Shares") and _____________ Shares which have not yet vested
-------------
under such Vesting Schedule (the "Unvested Shares"). The purchase price for the
---------------
Shares shall be $((ExercisePrice)) per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, (d) delivery of a promissory note in the form attached as
Exhibit C to the Option Agreement (or in any form acceptable to the Company), or
- ---------
(e) by a combination of the foregoing. If Purchaser delivers a promissory note
as partial or full payment of the purchase price, Purchaser will also deliver a
Pledge and Security Agreement in the form attached to Exhibit D to the Option
---------
Agreement (or in any form acceptable to the Company).
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from such Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
A-1
<PAGE>
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") for a period of 60 days from such
-----------------
date to repurchase all or any portion of the Unvested Shares held by Purchaser
as of the Termination Date which have not yet been released from the Company's
Repurchase Option at the original purchase price per Share specified in Section
1 (adjusted for any stock splits, stock dividends and the like).
(i) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(ii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant until all Shares are released from the
Repurchase Option. Fractional shares shall be rounded to the nearest whole
share.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift
------
or operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
-------------------
number of Shares to be transferred to each Proposed Transferee; and (iv) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred
A-2
<PAGE>
to any one or more of the Proposed Transferees, at the purchase price determined
in accordance with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's immediate family or a trust for the benefit of
Purchaser's immediate family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above)
of all or a portion of the Shares by the record holder thereof, the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by Purchaser pursuant to this Agreement or the fair
market
A-3
<PAGE>
value of the Shares on the date of transfer. Upon such a transfer, the person
acquiring the Shares shall promptly notify the Secretary of the Company of such
transfer. The right to purchase such Shares shall be provided to the Company for
a period of thirty (30) days following receipt by the Company of written notice
by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within thirty (30) days after receipt by it of written notice of
the transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase under Section 3(a). Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(f) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(b) and the expiration or exercise of the Company's
repurchase option described in Section 3(a) above, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) herein and delivered
to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Company's
Repurchase Option described in Section 3(a), to deliver such certificate(s),
together with an Assignment Separate from Certificate in the form attached to
this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse
------------
(if required for transfer), in blank, to the Secretary of the Company, or the
Secretary's designee, to hold such
A-4
<PAGE>
certificate(s) and Assignment Separate from Certificate 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. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's 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. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). 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. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
A-5
<PAGE>
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
A-6
<PAGE>
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a nonstatutory stock option and as alternative minimum taxable income
for an incentive stock option the difference between the amount paid for the
Shares and the fair market value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" means the right of the
-----------
Company to buy back the Shares pursuant to the Repurchase Option set forth in
Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect
to be taxed at the time the Shares are purchased, rather than when and as the
Repurchase Option expires, by filing an election under Section 83(b) (an "83(b)
-----
Election") of the Code with the Internal Revenue Service within 30 days from the
- --------
date of purchase. Even if the fair market value of the Shares at the time of the
execution of this Agreement equals the amount paid for the Shares, the election
must be made to avoid income and alternative minimum tax treatment under Section
83(a) in the future. Purchaser understands that failure to file such an election
in a timely manner may result in adverse tax consequences for Purchaser.
Purchaser further understands that an additional copy of such election form
should be filed with his or her federal income tax return for the calendar year
in which the date of this Agreement falls. Purchaser acknowledges that the
foregoing is only a summary of the effect of United States federal income
taxation with respect to purchase of the Shares hereunder, and does not purport
to be complete. Purchaser further acknowledges that the Company has directed
Purchaser to seek independent advice regarding the applicable provisions of the
Code, the income tax laws of any municipality, state or foreign country in which
Purchaser may reside, and the tax consequences of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment") attached hereto as
--------------
Attachment B. Purchaser further agrees that he or she will execute and submit
- ------------
with the Acknowledgment a copy of the 83(b) Election attached hereto as
Attachment C if Purchaser has indicated in the Acknowledgment his or her
- ------------
decision to make such an election.
9. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
A-7
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
A-8
<PAGE>
The parties have executed this Agreement as of the date first set forth above.
COMPANY:
BEATNIK, INC.
By: ________________________________
Name: ______________________________
(print)
Title: _____________________________
2600 S. El Camino
San Mateo, CA 94403
PURCHASER:
((Optionee))
____________________________________
(Signature)
____________________________________
(Print Name)
Address:
____________________________________
____________________________________
I, ______________________, spouse of ((Optionee)), have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be irrevocably bound by the Agreement and further agree that any community
property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
____________________________________
Spouse of ((Optionee))
A-9
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercised Notice and
Restricted Stock Purchase Agreement between the undersigned ("Purchaser") and
---------
Beatnik, Inc., dated _____________, 19__ (the "Agreement"), Purchaser hereby
---------
sells, assigns and transfers unto _______________________________ (________)
shares of the Common Stock of Beatnik, Inc., standing in Purchaser's name on the
books of said corporation represented by Certificate No. ___ herewith and hereby
irrevocably appoints _____________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE ATTACHMENTS THERETO.
Dated: ____________, 19__.
Signature: ___________________________
((Optionee))
______________________________________
Spouse of ((Optionee)) (if applicable)
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
Option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
Att. A-1
<PAGE>
ATTACHMENT B
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser of
___________ shares of Common Stock of Beatnik, Inc., a California corporation
(the "Company") by exercise of an option (the "Option") granted pursuant to the
------- ------
Company's 1997 Stock Plan (the "Plan"), hereby states as follows:
----
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business
address is ______________________________, regarding the
federal, state and local tax consequences of purchasing
shares under the Plan, and particularly regarding the
advisability of making elections pursuant to Section 83(b)
of the Internal Revenue Code of 1986, as amended (the
"Code") and pursuant to the corresponding provisions, if
----
any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the
undersigned's executed Early Exercise Notice and Restricted
Stock Purchase Agreement, an executed form entitled
"Election Under Section 83(b) of the Internal Revenue Code
of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: ________________________ _____________________________________
((Optionee))
Date: ________________________ _____________________________________
Spouse of ((Optionee))
Att. B-2
<PAGE>
ATTACHMENT C
------------
ELECTION UNDER SECTION 83(B)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's income for the current taxable
year, the amount of any compensation taxable to taxpayer in connection with
taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ((Optionee))
NAME OF SPOUSE: ________________________
ADDRESS: ________________________
________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $0.001 par value, of Beatnik,
Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ________________________ _____________________________________
((Optionee))
Dated: ________________________ _____________________________________
Spouse of ((Optionee))
Att. C-1
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for ________ shares of Common Stock of Beatnik, Inc. (the "Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Early Exercise
Notice and Restricted Stock Purchase Agreement Purchaser has previously entered
into with the Company. As escrow holder, the Secretary of the Company, or his
or her designee, holds the original of the aforementioned certificate issued in
the undersigned's name.
Date: ________________________ _____________________________________
((Optionee))
<PAGE>
EXHIBIT B
---------
BEATNIK, INC.
1997 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Beatnik, Inc., a California corporation (the "Company"), and ((Optionee))
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1997 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $((ExercisePrice)) per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, (d) delivery of a promissory note in the form attached as
Exhibit C to the Option Agreement (or in any form acceptable to the Company), or
- ---------
(e) by a combination of the foregoing. If Purchaser delivers a promissory note
as partial or full payment of the purchase price, Purchaser will also deliver a
Pledge and Security Agreement in the form attached as Exhibit D to the Option
---------
Agreement (or in any form acceptable to the Company).
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or any
transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift
------
or operation of law), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3(a) (the "Right of First Refusal").
----------------------
B-1
<PAGE>
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (iv) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section,
B-2
<PAGE>
and there shall be no further transfer of such Shares except in accordance with
the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(a)(vi) above)
of all or a portion of the Shares by the record holder thereof, the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by Purchaser pursuant to this Agreement or the fair
market value of the Shares on the date of transfer. Upon such a transfer, the
person acquiring the Shares shall promptly notify the Secretary of the Company
of such transfer. The right to purchase such Shares shall be provided to the
Company for a period of thirty (30) days following receipt by the Company of
written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within thirty (30) days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall
B-3
<PAGE>
be issued, on request, without the legend referred to in Section 6(a)(ii) herein
and delivered to Purchaser.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION
B-4
<PAGE>
OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER HELD BY THE ISSUER OR ITS
ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
7. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
B-5
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
B-6
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
BEATNIK, INC.
By:________________________________
Name:______________________________
(print)
Title:_____________________________
2600 S. El Camino
San Mateo, CA 94403
PURCHASER:
((OPTIONEE))
___________________________________
(Signature)
___________________________________
(Print Name)
Address:
______________________
______________________
I, ______________________, spouse of ((Optionee)), have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
___________________________________
Spouse of ((Optionee))
B-7
<PAGE>
EXHIBIT C
---------
PROMISSORY NOTE
---------------
$__________ _______, California
_______________, 19__
For value received, the undersigned promises to pay Beatnik, Inc., a
California corporation (the "Company"), at its principal office the principal
-------
sum of $__________ with interest from the date hereof at a rate of _____% per
annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on __________.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
___________________________________
((Optionee))
C-1
<PAGE>
EXHIBIT D
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
_____ day of ____________ by and between Beatnik, Inc., a California corporation
(the "Company") and ((Optionee)) ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
------
Agreement dated __________ between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares or the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
D-1
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
D-2
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
BEATNIK, INC.
By:________________________________
Name:______________________________
(print)
Title:_____________________________
Address:
2600 S. El Camino
San Mateo, CA 94403
PURCHASER:
((OPTIONEE))
___________________________________
(Signature)
___________________________________
(Print Name)
Address:
____________________
____________________
D-3
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Beatnik, Inc., dated
--------
_____________, (the "Agreement"), Purchaser hereby sells, assigns and transfers
---------
unto _______________________________ (________) shares of the Common Stock of
Beatnik, Inc., standing in Purchaser's name on the books of said corporation
represented by Certificate No. ___ herewith and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated:_____________________
Signature:_______________________________
((Optionee))
_________________________________________
Spouse of ((Optionee)) (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
RECEIPT
-------
The undersigned hereby acknowledges receipt of Certificate No. _____ for
__________ shares of Common Stock of Beatnik, Inc. (the "Company").
-------
Dated:__________________ ___________________________________
((Optionee))
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy Certificate No.
_____ purchaser for __________ shares of Common Stock of Beatnik, Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as Pledge Holder pursuant to the Pledge and
Security Agreement Purchaser has previously entered into with the Company. As
Pledge Holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated:__________________ _________________________________
((Optionee))
<PAGE>
RECEIPT
-------
Beatnik, Inc. (the "Company") hereby acknowledges receipt of (check as
-------
applicable):
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
_____ Certificate No. ____ representing ______ shares of the Company's
Common
Stock with a fair market value of $__________
_____ A promissory note in the amount of $__________.
given by Optionee as consideration for Certificate No. ______ for
___________ shares of Common Stock of the Company.
Dated:______________ BEATNIK, INC.
By:____________________________
Name:__________________________
(print)
Title:_________________________
<PAGE>
Beatnik, Inc.
1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
((Optionee))
____________________
____________________
You have been granted an option to purchase Common Stock of Beatnik, Inc.
(the "Company") as follows:
-------
Board Approval Date: ((Grant Date))
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): ((Grant Date))
Vesting Commencement Date: ((Vesting Commencement Date))
Exercise Price per Share: $((Exercise Price))
Total Number of Shares Granted: ((Total No of Shares Granted))
Total Exercise Price: $((Total Exercise Price))
Type of Option: ((No Shares of ISO)) Incentive Stock
Option))
((No Shares of NSO)) Nonstatutory
Stock Option))
Term/Expiration Date: ((Expiration Date))
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance with
the following schedule: 1/4th of the
Shares subject to the Option shall
vest on the 12-month anniversary of
the Vesting Commencement Date and
1/48th of the total number of Shares
subject to the Option shall vest
monthly thereafter.
Termination Period: Option may be exercised for 90 days
after termination of employment or
consulting relationship except as set
out in Sections 7 and 8 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1997 Stock Plan and the Stock Option Agreement, all
of which are attached and made a part of this document.
((Optionee:)) BEATNIK, INC.
________________________________ By:__________________________
Signature
________________________________ Title:________________________
Print Name
-2-
<PAGE>
BEATNIK, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Beatnik, Inc., a California corporation (the
---------------
"Company"), hereby grants to Optionee named in the Notice of Stock Option Grant
------
(the "Optionee"), an option (the "Option") to purchase a total number of shares
-------- ------
of Common Stock (the "Shares") set forth in the Notice of Stock Option Grant, at
------
the exercise price per share set forth in the Notice of Stock Option Grant (the
"Exercise Price") subject to the terms, definitions and provisions of the
--------------
Beatnik, Inc. 1997 Stock Plan (the "Plan") adopted by the Company, which is
----
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the date of
expiration of the Term of this Option as set forth in the Notice of Stock Option
Grant.
(b) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
---------
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the
<PAGE>
requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
Optionee's Investment Representation Statement in the form attached hereto as
Exhibit B, and shall read the applicable rules of the Commissioner of
- ---------
Corporations attached to such Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six (6) months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the exercise
price; or
(e) such other consideration, including promissory notes, as may be
determined by the Board in its absolute discretion to the extent permitted under
Sections 408 and 409 of the California General Corporation Law.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
-----------
Date"), exercise this Option during the
- ----
-2-
<PAGE>
period ending on the Expiration Date set out in the Notice of Option Grant. To
the extent that Optionee was not entitled to exercise this Option at such
Termination Date, or if Optionee does not exercise this Option within the time
specified herein, the Option shall terminate.
7. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 6 above, in the event
of termination of Continuous Status as an Employee or Consultant as a result of
Optionee's total and permanent disability (as defined in Section 22(e)(3) of the
Code), Optionee may, but only within twelve (12) months from the Termination
Date (but in no event later than the date of expiration of the Term of this
Option as set forth in the Notice of Stock Option Grant and in Section 10
below), exercise this Option to the extent Optionee was entitled to exercise it
as of such Termination Date. To the extent that Optionee was not entitled to
exercise the Option as of the Termination Date, or if Optionee does not exercise
such Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(b) Notwithstanding the provisions of Section 6 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of any disability not constituting a total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within six (6) months from the Termination Date (but in no event later than the
date of expiration of the Term of this Option as set forth in the Notice of
Stock Option Grant and in Section 10 below), exercise this Option to the extent
Optionee was entitled to exercise it as of such Termination Date; provided,
however, that if this is an Incentive Stock Option and Optionee fails to
exercise this Incentive Stock Opinion within three (3) months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the exercise
price for the Shares and the fair market value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option at
the Termination Date, or if Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the Term
of this Option as set forth in the Notice of Stock Option Grant and in Section
10 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised
-3-
<PAGE>
during the lifetime of Optionee only by him or her. The terms of this Option
shall be binding upon the executors, administrators, heirs, successors and
assigns of Optionee.
10. Term of Option. This Option may be exercised only within the Term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such Term
only in accordance with the Plan and the terms of this Option. The limitations
set out in Section 7 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.
11. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the fair market value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if the Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if the Shares transferred pursuant to the Option are held for at least one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. If the Shares
purchased under an Incentive Stock Option are disposed of within such one-year
period or within two years after the Date of Grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (i) the fair market value of the Shares on the date of exercise, or (ii) the
sale price of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or
-4-
<PAGE>
otherwise disposes of any of the Shares acquired pursuant to such Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after the date of exercise, Optionee shall
immediately notify the Company in writing of such disposition. Optionee
acknowledges and agrees that he or she may be subject to income tax withholding
by the Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
12. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee
------------
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. The Optionee shall satisfy his or her tax withholding obligation
arising upon the exercise of this Option by one or some combination of the
following methods: (a) by cash payment, (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (i) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (ii) have a fair market value on the date of
surrender equal to or greater than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
---
Date").
- ----
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
-5-
<PAGE>
13. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
-6-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
BEATNIK, INC.
By:___________________________________
Title:________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:______________________________ _________________________________
((Optionee))
-7-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
---------------
Beatnik, Inc.
217 South B Street
San Mateo, CA 94401
Attention: President
1. Exercise of Option. Effective as of today, _______________, 199__,
------------------
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
--------
purchase _____________ shares of the Common Stock (the "Shares") of Beatnik,
------
Inc. (the "Company") under and pursuant to the Company's 1997 Stock Plan (the
-------
"Plan") and the Stock Option Agreement dated ________ __, 199__ (the "Option
---- ------
Agreement").
- ---------
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan, the Option Agreement and the Investment
Representation Statement attached as Exhibit B to the Option Agreement, and
---------
agrees to abide by and be bound by their terms and conditions. If applicable,
Optionee has executed and delivered the Investment Representation Statement to
the Company. Optionee further represents that Optionee is purchasing the Shares
for Optionee's own account for investment and not with a view to, or for sale in
connection with, a "distribution" of any of such Shares for purposes of the
Securities Act of 1933, as amended (the "Securities Act").
--------------
3. Compliance with Securities Laws. Optionee understands and
-------------------------------
acknowledges that the Shares have not been registered under the Securities Act
and, notwithstanding any other provision of the Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act, all applicable state
securities laws and all applicable requirements of any stock exchange or over
the counter market on which the Company's Common Stock may be listed or traded
at the time of exercise and transfer. Optionee agrees to cooperate with the
Company to ensure compliance with such laws.
4. Federal Restrictions on Transfer. Optionee understands that the
--------------------------------
Shares have not been registered under the Securities Act and therefore cannot be
resold and must be held indefinitely unless they are registered under the
Securities Act or unless an exemption from such registration is available and
that the certificate(s) representing the Shares may bear a legend to that
effect. Optionee understands that the Company is under no obligation to
register the Shares and that an exemption may not be available or may not permit
Optionee to transfer Shares in the amounts or at the times proposed by Optionee.
Specifically, Optionee has been advised that Rule 144 promulgated under the
Securities Act, which permits certain resales of unregistered
<PAGE>
securities, is not presently available with respect to the Shares and, in any
event requires that the Shares be fully paid for by means other than a
promissory note secured by the Shares themselves and then be held for at least
two years (and in some cases three years) before they may be resold under Rule
144.
5. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal pursuant to Section 6 below. Upon such exercise,
Optionee shall have no further rights as a holder of the Shares so purchased
except the right to receive payment for the Shares so purchased in accordance
with the provisions of this Agreement, and Optionee shall forthwith cause the
certificate(s) evidencing the Shares so purchased to be surrendered to the
Company for transfer or cancellation.
6. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Optionee or any transferee
(either being sometimes referred to herein as the "Holder") shall not assign,
------
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Company's Right of First Refusal. Before any Shares held by the
--------------------------------
Holder may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 6(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
-------------------
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
-------------
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
-2-
<PAGE>
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during Optionee's lifetime or on Optionee's death by will or
intestacy to Optionee's immediate family or a trust for the benefit of
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce) or
all or a portion of the Shares by the record holder thereof, the Company shall
have an option to purchase all of the Shares transferred at the greater of the
purchase price paid by Purchaser pursuant to this Agreement or the fair market
value of the Shares on the date of transfer. Upon such a transfer, the person
acquiring the Shares shall promptly notify the Secretary of the Company of such
transfer. The right to
-3-
<PAGE>
purchase such Shares shall be provided to the Company for a period of thirty
(30) days following receipt by the Company of written notice by the person
acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 6(b)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within thirty (30) days after receipt by it of written notice of
the transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of
-----------------------------------
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are met.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 6(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 6(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section 6(a), a new
certificate or certificates representing the Shares not repurchased shall be
issued, on request, without the legend referred to in Section 8(a)(ii) herein
and delivered to Purchaser.
7. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
8. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any
-4-
<PAGE>
certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by state or federal securities laws:
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the
-5-
<PAGE>
effective date of such registration as may be requested by the Company or such
managing underwriters and to execute an agreement reflecting the foregoing as
may be requested by the underwriters at the time of the public offering.
10. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
11. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
12. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
13. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
14. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
15. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
-6-
<PAGE>
16. Entire Agreement. The Plan and Notice of Stock Option Grant/Option
----------------
Agreement are incorporated herein by reference. This Agreement, the Plan and
the Notice of Stock Option Grant/Option Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
Optionee: BEATNIK, INC.
_______________________________ By:_______________________________
<<Optionee>>
Title:____________________________
Address:________________________ Address: 217 South B Street
________________________ San Mateo, CA 94401
-7-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
-----------------------------------
OPTIONEE: <<Optionee>>
COMPANY: Beatnik, Inc.
SECURITY: Common Stock
AMOUNT: __________________ Shares
DATE: ___________________, 199__
In connection with the purchase of the above-listed Securities, I, Optionee,
represent to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
------------
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
----------
Act").
- ---
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at
the time of issuance of the Securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company later becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange
<PAGE>
Act of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, and the amount of securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), if applicable. Notwithstanding this paragraph (d), I acknowledge and
agree to the restrictions set forth in paragraph (f) below.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about
the Company; (2) the resale occurring not less than two years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934), and (4) the amount of securities being sold during any
three month period not exceeding the specified limitations stated therein, if
applicable. I UNDERSTAND THAT PAYMENT FOR THE SHARES WITH A PROMISSORY NOTE IS
NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS THE NOTE IS SECURED BY
ASSETS OTHER THAN THE SHARES.
(e) I understand that at such time in the future that I might wish to
sell the Securities, there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, I will be precluded from selling the Securities under Rule 144 even
I have satisfied the two-year minimum holding period.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 or Rule 701 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales, and
that such persons and their respective brokers who participate in such
transactions do so at their own risk.
(g) I understand that the certificate evidencing the Securities may
be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the applicable Commissioner of Corporations of
California. I have read the applicable Commissioner's Rules with respect to such
restriction, a copy of which is attached.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE
-2-
<PAGE>
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
Optionee:
__________________________________
Optionee:
Date: ________________, 199__
-3-
<PAGE>
BEATNIK, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
__________, by and between Beatnik, Inc., a California corporation (the
"Company"), and ________________ ("Purchaser") pursuant to the Company's 1997
------- ---------
Stock Plan. To the extent any capitalized terms used in this Agreement are not
defined, they shall have the meaning ascribed to them in the 1997 Stock Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, __________ shares
of the Company's Common Stock (the "Shares") at a purchase price of $______ per
------
Share for a total purchase price of $___________. The per share purchase price
of the Shares shall be not less than 85% of the Fair Market Value of the Shares
as of the date of the offer of such Shares to the Purchaser, or, in the case of
any person owning stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (or any affiliated
company), the per share purchase price shall be not less than one hundred
percent (100%) of the Fair Market Value of the Shares as of such date. The term
"Shares" refers to the purchased Shares and all securities received in
------
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution of this Agreement by the parties, or on such other date as
the Company and Purchaser shall agree (the "Purchase Date"). On the Purchase
-------------
Date, the Company will deliver to Purchaser a certificate representing the
Shares to be purchased by Purchaser (which shall be issued in Purchaser's name)
against payment of the purchase price therefor by Purchaser by (a) check made
payable to the Company, (b) cancellation of indebtedness of the Company to
Purchaser, (c) delivery of a Promissory note in the form attached as Exhibit A
---------
to this Agreement (or in any form acceptable to the Company), or (d) by a
combination of the foregoing. If Purchaser delivers a promissory note as
partial or full payment of the purchase price, Purchaser will also deliver a
Pledge and Security Agreement in the form attached as Exhibit B to this
---------
Agreement (or in any form acceptable to the Company).
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from such Repurchase Option,
<PAGE>
Purchaser shall not assign, encumber or dispose of any interest in such Shares
except in compliance with the provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") for a period of 60 days from such
-----------------
date to repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company's Repurchase
Option at the original purchase price per Share specified in Section 1 (adjusted
for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Shares shall initially be
subject to the Repurchase Option. ____________ of the total number of Shares
shall be released from the Repurchase Option on the monthly anniversary of the
Vesting Commencement Date (as set forth on the signature page of this
Agreement), until all Shares are released from the Repurchase Option.
Fractional shares shall be rounded to the nearest whole share.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
Holder") may be sold or otherwise transferred (including transfer by gift or
- ------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
-2-
<PAGE>
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or
-3-
<PAGE>
other involuntary transfer (including death or divorce, but excluding a transfer
to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion
of the Shares by the record holder thereof, the Company shall have an option to
purchase all of the Shares transferred at the greater of the purchase price paid
by Purchaser pursuant to this Agreement or the fair market value of the Shares
on the date of transfer. Upon such a transfer, the person acquiring the Shares
shall promptly notify the Secretary of the Company of such transfer. The right
to purchase such Shares shall be provided to the Company for a period of thirty
(30) days following receipt by the Company of written notice by the person
acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within thirty (30) days after receipt by it of written notice of
the transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase under Section 3(a). Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are met.
(f) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(b) and the expiration or exercise of the Company's
repurchase option described in Section 3(a) above, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) herein and delivered
to Purchaser.
-4-
<PAGE>
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Company's
Repurchase Option described in Section 3(a), to deliver such certificate(s),
together with an Assignment Separate from Certificate in the form attached to
this Agreement as Exhibit C executed by Purchaser and by Purchaser's spouse (if
---------
required for transfer), in blank, to the Secretary of the Company, or the
Secretary's designee, to hold such certificate(s) and Assignment Separate from
Certificate 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.
Purchaser hereby acknowledges that the Secretary of the Company, or the
Secretary's 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.
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party). 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. Purchaser agrees that if the Secretary of the Company, or the
Secretary's designee, resigns as escrow holder for any or no reason, the Board
of Directors of the Company shall have the power to appoint a successor to serve
as escrow holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that
-5-
<PAGE>
Purchaser has consulted any tax consultants Purchaser deems advisable in
connection the purchase or disposition of the Shares and that Purchaser is not
relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
-6-
<PAGE>
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
-----------
Shares pursuant to the Repurchase Option set forth in Section 3(a) of this
Agreement. Purchaser understands that Purchaser may elect to be taxed at the
time the Shares are purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
--------------
Code with the Internal Revenue Service within 30 days from the date of purchase.
Even if the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit D. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit E,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
-7-
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
BEATNIK, INC.
By:________________________________
Title:_____________________________
Address:
2600 S. El Camino Real
San Mateo, CA 94403
PURCHASER:
___________________________
___________________________________
(Signature)
Address:
___________________________________
___________________________________
Vesting Commencement
Date: ________________
I, ________________________________, spouse of ________________, have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or other such interest shall be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
___________________________________
Spouse of _________________
-9-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$_________ San Mateo, California
_________________________
For value received, the undersigned promises to pay Beatnik, Inc., a
California corporation (the "Company"), at its principal office the principal
-------
sum of $__________ with interest from the date hereof at a rate of _____% per
annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on __________.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
________________________________
______________
<PAGE>
EXHIBIT B
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
_____ day of ____________ by and between Beatnik, Inc., a California corporation
(the "Company") and __________________ ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's purchase of certain shares of the Company's
Common Stock (the "Shares") pursuant to a Restricted Stock Purchase Agreement
------
dated _________________ between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares on the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or involuntary
termination or cessation of employment of Purchaser with the Company, for any
reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the securities
laws affecting sale of the Shares make a public sale of the Shares commercially
unreasonable. The parties further agree that the repurchasing of such Shares by
the Company, or by any person to whom the Company may have assigned its rights
under this Agreement, is commercially reasonable if made at a price determined
by the Board of Directors in its discretion, fairly exercised, representing what
would be the fair market value of the Shares reduced by any limitation on
transferability, whether due to the size of the block of shares or the
restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
BEATNIK, INC.
By:___________________________
Name:_________________________
(print)
Title:
Address:
2600 S. El Camino Real
San Mateo, CA 94403
PURCHASER:
___________________
______________________________
(Signature)
______________________________
(Print Name)
Address:
______________________________
______________________________
-3-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Beatnik, Inc., dated
---------
_____________, (the "Agreement"), Purchaser hereby sells, assigns and transfers
---------
unto _______________________________ (________) shares of the Common Stock of
Beatnik, Inc., standing in Purchaser's name on the books of said corporation
represented by Certificate No. C- ____ herewith and hereby irrevocably
appoints_____________________________ to transfer said stock on the books of
the within-named corporation with full power of substitution in the premises.
THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
___________________________________________
_________________________
___________________________________________
Spouse of ______________ (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and Beatnik, Inc., dated
---------
_______________, ____ (the "Agreement"), Purchaser hereby sells, assigns and
---------
transfers unto _________________________________ (________) shares of the Common
Stock of Beatnik, Inc., standing in Purchaser's name on the books of said
corporation represented by Certificate No. CS-____ herewith and does hereby
irrevocably constitute and appoint _________________________________________ to
transfer said stock on the books of the within-named corporation with full power
of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED
BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: _______________
Signature:
_____________________________________________
___________________
_____________________________________________
Spouse of ________________ (if applicable)
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 option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
EXHIBIT D
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ______________ shares of Common Stock of Beatnik, Inc., a California
corporation (the "Company") by exercise of stock purchase right (the "Right")
------- -----
granted pursuant to the Company's 1997 Stock Plan (the "Plan"), hereby states as
----
follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan
and the stock purchase agreement pursuant to which the Right was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended (the "Code")
----
and pursuant to the corresponding provisions, if any, of applicable
state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Restricted Stock Purchase Agreement, an executed form entitled
"Election Under Section 83(b) of the Internal Revenue Code of 1986;"
or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: ____________________ ___________________________
____________
Date: ____________________ ___________________________
Spouse of ____________
-2-
<PAGE>
EXHIBIT E
---------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: _______________
NAME OF SPOUSE: _______________
ADDRESS: ________________________________
________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: ____________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.01 par value, of Beatnik, Inc.,
a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________.
6. The amount (if any) paid for such property: $_____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________ ___________________________________
__________________
Dated: ___________________ ___________________________________
Spouse of ________________
<PAGE>
RECEIPT
-------
Beatnik, Inc. hereby acknowledges receipt of (check as applicable):
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
_____ A promissory note in the amount of $__________
given by __________________ as consideration for Certificate No. CS-____ for
______________ shares of Common Stock of Beatnik, Inc.
Dated: ________________
Beatnik, Inc.
By:___________________________
Title:________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. CS-____ for ______________ shares of Common Stock of Beatnik, Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
______________________________
_______________
<PAGE>
EXHIBIT 10.2
FORM OF
BEATNIK, INC.
2000 STOCK INCENTIVE PLAN
(Adopted by the Board on March 10, 2000)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE.................................. 1
SECTION 2. DEFINITIONS................................................ 1
(a) "Affiliate"................................................ 1
(b) "Award".................................................... 1
(c) "Board of Directors"....................................... 1
(d) "Change in Control"........................................ 1
(e) "Code"..................................................... 2
(f) "Committee"................................................ 2
(g) "Company".................................................. 2
(h) "Consultant"............................................... 2
(i) "Employee"................................................. 2
(j) "Exchange Act"............................................. 2
(k) "Exercise Price"........................................... 3
(l) "Fair Market Value"........................................ 3
(m) "ISO"...................................................... 3
(n) "Nonstatutory Option"...................................... 3
(o) "Offeree".................................................. 3
(p) "Option"................................................... 3
(q) "Optionee"................................................. 3
(r) "Outside Director"......................................... 3
(s) "Parent"................................................... 4
(t) "Participant".............................................. 4
(u) "Plan"..................................................... 4
(v) "Purchase Price"........................................... 4
(w) "Restricted Share"......................................... 4
(x) "Restricted Share Agreement ".............................. 4
(y) "SAR"...................................................... 4
(z) "SAR Agreement"............................................ 4
(aa) "Service".................................................. 4
(bb) "Share".................................................... 4
(cc) "Stock".................................................... 4
(dd) "Stock Option Agreement"................................... 4
(ee) "Stock Purchase Agreement"................................. 4
(ff) "Stock Unit"............................................... 4
(gg) "Stock Unit Agreement"..................................... 4
(hh) "Subsidiary"............................................... 4
(ii) "Total and Permanent Disability"........................... 4
SECTION 3. ADMINISTRATION............................................. 4
(a) Committee Procedures....................................... 4
(b) Committee Responsibilities................................. 4
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <S>
SECTION 4. ELIGIBILITY................................................ 6
(a) General Rule............................................... 6
(b) Outside Directors.......................................... 6
(c) Limitation On Grants....................................... 6
(d) Ten-Percent Stockholders................................... 6
(e) Attribution Rules.......................................... 7
(f) Outstanding Stock.......................................... 7
SECTION 5. STOCK SUBJECT TO PLAN...................................... 7
(a) Basic Limitation........................................... 7
(b) Annual Increase in Shares.................................. 7
(c) Additional Shares.......................................... 7
(d) Dividend Equivalents....................................... 7
SECTION 6. RESTRICTED SHARES.......................................... 8
(a) Restricted Stock Agreement................................. 8
(b) Payment for Awards......................................... 8
(c) Vesting.................................................... 8
(d) Voting and Dividend Rights................................. 8
SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.............. 8
(a) Duration of Offers and Nontransferability of Rights........ 8
(b) Purchase Price............................................. 9
(c) Withholding Taxes.......................................... 9
(d) Restrictions on Transfer of Shares......................... 9
SECTION 8. TERMS AND CONDITIONS OF OPTIONS............................ 9
(a) Stock Option Agreement..................................... 9
(b) Number of Shares........................................... 9
(c) Exercise Price............................................. 9
(d) Withholding Taxes.......................................... 9
(e) Exercisability and Term.................................... 9
(f) Nontransferability......................................... 10
(g) Exercise of Options Upon Termination of Service............ 10
(h) Effect of Change in Control................................ 10
(i) Leaves of Absence.......................................... 10
(j) No Rights as a Stockholder................................. 11
(k) Modification, Extension and Renewal of Options............. 11
(l) Restrictions on Transfer of Shares......................... 11
(m) Buyout Provisions.......................................... 11
SECTION 9. PAYMENT FOR SHARES......................................... 11
(a) General Rule............................................... 11
(b) Surrender of Stock......................................... 11
(c) Services Rendered.......................................... 11
(d) Cashless Exercise.......................................... 12
(e) Exercise/Pledge............................................ 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<C> <S> <S>
(f) Promissory Note............................................ 12
(g) Other Forms of Payment..................................... 12
SECTION 10 STOCK APPRECIATION RIGHTS.................................. 12
(a) SAR Agreement.............................................. 12
(b) Number of Shares........................................... 12
(c) Exercise Price............................................. 12
(d) Exercisability and Term.................................... 12
(e) Effect of Change in Control................................ 13
(f) Exercise of SARs........................................... 13
(g) Modification or Assumption of SARs......................... 13
SECTION 11 STOCK UNITS................................................ 13
(a) Stock Unit Agreement....................................... 13
(b) Payment for Awards......................................... 13
(c) Vesting Conditions......................................... 14
(d) Voting and Dividend Rights................................. 14
(e) Form and Time of Settlement of Stock Units................. 14
(f) Death of Recipient......................................... 14
(g) Creditors' Rights.......................................... 15
SECTION 12. PROTECTION AGAINST DILUTION................................. 15
(a) Adjustments................................................ 15
(b) Dissolution or Liquidation................................. 15
(c) Reorganizations............................................ 15
SECTION 13 DEFERRAL OF AWARDS........................................... 16
SECTION 14 AWARDS UNDER OTHER PLANS..................................... 16
SECTION 15 PAYMENT OF DIRECTOR'S FEES IN SECURITIES..................... 17
(a) Effective Date............................................. 17
(b) Elections to Receive NSOs, Restricted Shares or Stock Units 17
(c) Number and Terms of NSOs, Restricted Shares or Stock Units. 17
SECTION 16 ADJUSTMENT OF SHARES......................................... 17
(a) General.................................................... 17
(b) Reorganizations............................................ 17
(c) Reservation of Rights...................................... 17
SECTION 17 LEGAL AND REGULATORY REQUIREMENTS............................ 18
SECTION 18 WITHHOLDING TAXES............................................ 18
(a) General.................................................... 18
(b) Share Withholding.......................................... 18
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 19 LIMITATION ON PARACHUTE PAYMENTS........ 18
(a) Scope of Limitation................. 18
(b) Supersedes Other Provisions......... 18
SECTION 20 NO EMPLOYMENT RIGHTS..................... 19
SECTION 21 DURATION AND AMENDMENTS.................. 19
(a) Term of the Plan.................... 19
(b) Right to Amend or Terminate the Plan 19
(c) Effect of Amendment or Termination.. 19
SECTION 22 EXECUTION................................ 19
</TABLE>
-iv-
<PAGE>
BEATNIK, INC.
--------------
2000 STOCK INCENTIVE PLAN
-------------------------
(Adopted by the Board on March 10, 2000)
SECTION 1. ESTABLISHMENT AND PURPOSE.
- -------------------------------------
The Plan was adopted by the Board of Directors effective March 10, 2000.
The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b)
encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
SECTION 2. DEFINITIONS.
- ------------------------
(a) "Affiliate" shall mean any entity other than a Subsidiary, if the
---------
Company and/or one of more Subsidiaries own not less than fifty percent (50%) of
such entity.
(b) "Award" shall mean any award of an Option, a SAR, a Restricted Share
-----
or a Stock Unit under the Plan.
(c) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
(d) "Change in Control" shall mean the occurrence of either of the
-----------------
following events:
(i) A change in the composition of the Board of Directors, as a
result of which fewer than one-half of the incumbent directors are
directors who either:
(A) Had been directors of the Company twenty-four (24) months
prior to such change; or
(B) Were elected, or nominated for election, to the Board of
Directors with the affirmative votes of at least a majority of the
directors who had been directors of the Company twenty-four (24)
months prior to such change and who were still in office at the time
of the election or nomination; or
(ii) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) who by the acquisition or aggregation of securities, is
or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing twenty percent (20%) or more of the combined
voting power of the Company's then outstanding securities ordinarily (and
apart from rights accruing under special circumstances) having
-1-
<PAGE>
the right to vote at elections of directors (the "Base Capital Stock");
except that any change in the relative beneficial ownership of the
Company's securities by any person resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of the
Company. For purposes of this Subsection (ii), the term "person" shall not
include an employee benefit plan maintained by the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the committee designated by the Board of
---------
Directors, which is authorized to administer the Plan under Section 3 hereof.
The Committee shall have membership composition which enables the Options or
other rights granted under the Plan to qualify for exemption under Rule 16b-3
with respect to persons who are subject to Section 16 of the Exchange Act.
(g) "Company" shall mean Beatnik, Inc., a Delaware corporation.
-------
(h) "Consultant" shall mean a consultant or advisor who provides bona fide
----------
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in the second sentence of
Section 4(a) and Section 4(b).
(i) "Employee" shall mean (i) any individual who is a common-law employee
--------
of the Company or of a Subsidiary; (ii) a member of the Board of Directors,
including (without limitation) an Outside Director, or an affiliate of a member
the Board of Directors; (iii) a member of the board of directors of a
Subsidiary; or (iv) an independent contractor or advisor who performs services
for the Company or a Subsidiary. Service as a member of the Board of Directors,
a member of the board of directors of a Subsidiary or as an independent
contractor or advisor shall be considered employment for all purposes of the
Plan except the second sentence of Section 4(a) and Section 4(b).
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Exercise Price" shall mean, in the case of an Option, the amount for
--------------
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of a SAR, shall mean an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
(l) "Fair Market Value" shall mean (i) the closing price of a Share on the
-----------------
principal exchange which the Shares are trading, on the date on which the Fair
Market Value is determined (if Fair Market Value is determined on a date which
the principal exchange is closed, Fair Market Value shall be determined on the
last immediately preceding trading day), or (ii) if the Shares are not traded on
an exchange but are quoted on the Nasdaq National Market or a successor
quotation system, the closing price on the date on which the Fair Market Value
is determined, or (iii) if the Shares are not traded on an exchange or quoted on
the Nasdaq National
-2-
<PAGE>
Market or a successor quotation system, the fair market
value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(m) "ISO" shall mean an employee incentive stock option described in Code
---
section 422.
(n) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(o) "Offeree" shall mean an individual to whom the Committee has offered
-------
the right to acquire Shares under the Plan (other than upon exercise of an
Option).
(p) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(q) "Optionee" shall mean an individual or estate who holds an Option or
--------
SAR.
(r) "Outside Director" shall mean a member of the Board of Directors who
----------------
is not a common-law employee of the Company or of a Subsidiary. Service as an
Outside Director shall be considered employment for all purposes of the Plan,
except as provided in the second sentence of Section 4(a).
(s) "Parent" shall mean any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be a parent commencing as
of such date.
(t) "Participant" shall mean an individual or estate who holds an Award.
-----------
(u) "Plan" shall mean this 2000 Stock Incentive Plan of Beatnik, Inc., as
----
amended from time to time.
(v) "Purchase Price" shall mean the consideration for which one Share may
--------------
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.
(w) "Restricted Share" shall mean a Common Share awarded under the Plan.
----------------
(x) "Restricted Share Agreement" shall mean the agreement between the
--------------------------
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Shares.
(y) "SAR" shall mean a stock appreciation right granted under the Plan.
---
(z) "SAR Agreement" shall mean the agreement between the Company and an
-------------
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
(aa) "Service" shall mean service as an Employee.
-------
-3-
<PAGE>
(bb) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 (if applicable) .
(cc) "Stock" shall mean the Common Stock of the Company.
-----
(dd) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his Option.
(ee) "Stock Purchase Agreement" shall mean the agreement between the
------------------------
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(ff) "Stock Unit" shall mean a bookkeeping entry representing the
----------
equivalent of one Common Share, as awarded under the Plan.
(gg) "Stock Unit Agreement" shall mean the agreement between the Company
--------------------
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
(hh) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than fifty percent (50%) of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(ii) "Total and Permanent Disability" shall mean that the Optionee is
------------------------------
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than twelve (12) months.
SECTION 3. ADMINISTRATION.
- --------------------------
(a) Committee Procedures. The Plan shall be administered by the Committee.
--------------------
The Committee shall consist exclusively of two or more directors of the Company,
who shall be appointed by the Board of Directors. The Board of Directors shall
designate one of the members of the Committee as chairman. The Committee may
hold meetings at such times and places as it shall determine. The acts of a
majority of the Committee members present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Committee members, shall be
valid acts of the Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan, the
--------------------------
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
-4-
<PAGE>
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under the Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each
Offeree or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or sale of
Shares, including (without limitation) the Purchase Price, the vesting of
the award (including accelerating the vesting of awards) and to specify the
provisions of the Stock Purchase Agreement relating to such award or sale;
(viii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, the vesting or duration
of the Option (including accelerating the vesting of the Option), to
determine whether such Option is to be classified as an ISO or as a
Nonstatutory Option, and to specify the provisions of the Stock Option
Agreement relating to such Option;
(ix) To amend any outstanding Stock Purchase Agreement or Stock
Option Agreement, subject to applicable legal restrictions and to the
consent of the Offeree or Optionee who entered into such agreement;
(x) To prescribe the consideration for the grant of each Option or
other right under the Plan and to determine the sufficiency of such
consideration;
(xi) To determine the disposition of each Option or other right
under the Plan in the event of an Optionee's or Offeree's divorce or
dissolution of marriage;
(xii) To determine whether Options or other rights under the Plan
will be granted in replacement of other grants under an incentive or other
compensation plan of an acquired business;
(xiii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Stock Option Agreement or any Stock Purchase
Agreement; and
(xiv) To take any other actions deemed necessary or advisable for
the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options or other rights under
the Plan to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Offerees, all
-5-
<PAGE>
Optionees, and all persons deriving their rights from an Offeree or Optionee. No
member of the Committee shall be liable for any action that he has taken or has
failed to take in good faith with respect to the Plan, any Option, or any right
to acquire Shares under the Plan.
SECTION 4. ELIGIBILITY.
- ------------------------
(a) General Rule. Only Employees shall be eligible for the grant of
------------
Restricted Shares, Stock Units, NSOs or SARs. In addition, only individuals who
are employed as common-law employees by the Company, a Parent or a Subsidiary
shall be eligible for the grant of ISOs. In addition, an Employee who owns more
than ten percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company or any of its Parents or Subsidiaries shall not
be eligible for the grant of an ISO unless the requirements set forth in section
422(c)(6) of the Code are satisfied.
(b) Outside Directors. Any other provision of the Plan notwithstanding,
-----------------
the participation of Outside Directors in the Plan shall be subject to the
following restrictions:
(i) Outside Directors shall only be eligible for the grant of
Restricted Shares, Stock Units, Nonstatutory Options and SARs.
(ii) Each Outside Director shall automatically be granted a
Nonstatutory Option to purchase ________ Shares (subject to adjustment
under Section 16) as a result of their appointment as an Outside Director
on, if after, the effectiveness of the Company's initial public offering of
the Stocks. In addition, upon the conclusion of each regular annual meeting
of the Company's stockholders occurring after 1999 and following the
meeting at which they were appointed, each Outside Director who will
continue serving as a member of the Board thereafter shall receive a
Nonstatutory Option to purchase ___________ Shares (subject to adjustment
under Section 16). All such Nonstatutory Options shall vest and become
exercisable at the date of grant;
(iii) The Exercise Price of all Nonstatutory Options granted to an
Outside Director under this Section 4(b) shall be equal to one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant,
payable in one of the forms described in Section 9(a), (b) and (d).
(iv) All Nonstatutory Options granted to an Outside Director under
this Section 4(b) shall terminate on the earliest of (A) the tenth (10th)
anniversary of the date of grant of such Options or (B) the date twelve
(12) months after the termination of such Outside Director's service for
any reason.
(c) Limitation On Grants. No Employee shall be granted Options to purchase
--------------------
more than __________ (________) Shares in any fiscal year of the Company.
(d) Ten-Percent Stockholders. An Employee who owns more than ten percent
------------------------
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless such grant satisfies the requirements of Code section 422(c)(6).
-6-
<PAGE>
(e) Attribution Rules. For purposes of Subsection (d) above, in
-----------------
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries.
(f) Outstanding Stock. For purposes of Subsection (d) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- ---------------------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares or treasury Shares. The maximum aggregate number of Options,
SARs, Stock Units and Restricted Shares awarded under the Plan shall not exceed
(a) ______________________ (________) Shares, plus the additional Common Shares
described in Sections (b) and (c). The limitation of this Section 5(a) shall be
subject to adjustment pursuant to Section 12.
(b) Annual Increase in Shares. As of January 1 of each year, commencing
-------------------------
with the year 2001, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (i) ___________ (__________) shares,
(ii) 5% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. The aggregate number of Shares which may be issued
under the Plan shall at all times be subject to adjustment pursuant to Section
16. The number of Shares which are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
which then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(c) Additional Shares. If Restricted Shares or Common Shares issued upon
-----------------
the exercise of Options are forfeited, then such Common Shares shall again
become available for Awards under the Plan. If Stock Units, Options or SARs are
forfeited or terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan. If Stock Units are settled, then only the number of Common Shares (if any)
actually issued in settlement of such Stock Units shall reduce the number
available under Section 5(a) and the balance shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of Common
Shares (if any) actually issued in settlement of such SARs shall reduce the
number available in Section 5(a) and the balance shall again become available
for Awards under the Plan. The foregoing notwithstanding, the aggregate number
of Common Shares that may be issued under the Plan upon the exercise of ISOs
shall not be increased when Restricted Shares or other Common Shares are
forfeited.
(d) Dividend Equivalents. Any dividend equivalents paid or credited under
--------------------
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
-7-
<PAGE>
SECTION 6. RESTRICTED SHARES
- -----------------------------
(a) Restricted Stock Agreement. Each grant of Restricted Shares under the
--------------------------
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical.
(b) Payment for Awards. Subject to the following sentence, Restricted
------------------
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents, or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.
(c) Vesting. Each Award of Restricted Shares may or may not be subject to
-------
vesting. Vesting shall occur, in full or in installments, upon satisfaction of
the conditions specified in the Restricted Stock Agreement. The Committee may
include among such conditions the requirement that the performance of the
Company or a business unit of the Company for a specified period of one or more
years equal or exceed a target determined in advance by the Committee. Such
performance shall be determined by the Company's independent auditors. Such
target shall be based on one or more of the criteria set forth in Appendix A.
The Committee shall determine such target not later than the 90th day of such
period. In no event shall the number of Restricted Shares which are subject to
performance based vesting conditions exceed ____________, subject to adjustment
in accordance with Section 16. A Restricted Stock Agreement may provide for
accelerated vesting in the event of the Participant's death, disability or
retirement or other events. The Committee may determine, at the time of granting
Restricted Shares of thereafter, that all or part of such Restricted Shares
shall become vested in the event that a Change in Control occurs with respect to
the Company.
(d) Voting and Dividend Rights. The holders of Restricted Shares awarded
--------------------------
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.
- ---------------------------------------------------------
(a) Duration of Offers and Nontransferability of Rights. Any right to
---------------------------------------------------
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within thirty (30) days after the grant of such
right was communicated to him by the Committee. Such right shall not be
transferable and shall be exercisable only by the Offeree to whom such right was
granted.
-8-
<PAGE>
(b) Purchase Price. The Purchase Price shall be determined by the
--------------
Committee at its sole discretion. The Purchase Price shall be payable in one of
the forms described in Sections 9(a), (b) or (c).
(c) Withholding Taxes. As a condition to the purchase of Shares, the
-----------------
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such purchase.
(d) Restrictions on Transfer of Shares. Any Shares awarded or sold under
----------------------------------
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 8. TERMS AND CONDITIONS OF OPTIONS.
- -------------------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The Stock Option Agreement shall specify whether the Option is
an ISO or an NSO. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. Options may be granted in
consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in a form described in Section 9.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
----------------
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 16. Options granted to an Optionee in a
single fiscal year of the Company shall not cover more than _________ Shares.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
--------------
Price. The Exercise Price of an ISO shall not be less than 100 percent (100%) of
the Fair Market Value of a Share on the date of grant, except as otherwise
provided in Section 4(d). Subject to the foregoing in this Section 8(c), the
Exercise Price under any Option shall be determined by the Committee at its sole
discretion. The Exercise Price shall be payable in one of the forms described in
Sections 9.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Stock Option Agreement shall specify the
-----------------------
date when all or any installment of the Option is to become exercisable. The
Stock Option
-9-
<PAGE>
Agreement shall also specify the term of the Option; provided that the term of
an ISO shall in no event exceed ten (10) years from the date of grant (five (5)
years for Employees described in Section 4(d)). A Stock Option Agreement may
provide for accelerated exercisability in the event of the Optionee's death,
disability, or retirement or other events and may provide for expiration prior
to the end of its term in the event of the termination of the Optionee's
service. Options may be awarded in combination with SARs, and such an Award may
provide that the Options will not be exercisable unless the related SARs are
forfeited. Subject to the foregoing in this Section 8(e), the Committee at its
sole discretion shall determine when all or any installment of an Option is to
become exercisable and when an Option is to expire.
(f) Nontransferability. During an Optionee's lifetime, his Option(s) shall
------------------
be exercisable only by him and shall not be transferable. In the event of an
Optionee's death, his Option(s) shall not be transferable other than by will or
by the laws of descent and distribution.
(g) Exercise of Options Upon Termination of Service. Each Stock Option
-----------------------------------------------
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with the
Company and its Subsidiaries, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Such provisions shall be determined in the sole discretion of the Committee,
need not be uniform among all Options issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of Service.
(h) Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company, subject to the following
limitations:
(i) In the case of an ISO, the acceleration of exercisability shall
not occur without the Optionee's written consent.
(ii) If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be
treated as a :pooling of interests" for financial reporting purposes, and
if such transaction in fact is so treated, then the acceleration of
exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately
determine in good faith that such acceleration would preclude the use of
"pooling of interests" accounting.
(i) Leaves of Absence. An Employee's Service shall cease when such
-----------------
Employee ceases to be actively employed by, or a consultant or adviser to, the
Company (or any subsidiary) as determined in the sole discretion of the Board of
Directors. For purposes of Options, Service does not terminate when an Employee
goes on a bona fide leave of absence, that was approved by the Company in
writing, if the terms of the leave provide for continued service crediting, or
when continued service crediting is required by applicable law. However, for
purposes of determining whether an Option is entitled to ISO status, an
Employee's Service will be treated as terminating ninety (90) days after such
Employee went on leave, unless such Employee's right to
-10-
<PAGE>
return to active work is guaranteed by law or by a contract. Service terminates
in any event when the approved leave ends, unless such Employee immediately
returns to active work. The Company determines which leaves count toward
Service, and when Service terminates for all purposes under the Plan.
(j) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made, except as provided in Section 9.
(k) Modification, Extension and Renewal of Options. Within the limitations
----------------------------------------------
of the Plan, the Committee may modify, extend or renew outstanding options or
may accept the cancellation of outstanding options (to the extent not previously
exercised), whether or not granted hereunder, in return for the grant of new
Options for the same or a different number of Shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his rights or increase
his obligations under such Option.
(l) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
----------------------------------
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
(m) Buyout Provisions. The Committee may at any time (a) offer to buy out
-----------------
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
SECTION 9. PAYMENT FOR SHARES.
- ------------------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b)
through (g) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part by surrendering, or attesting to
the ownership of, Shares which have already been owned by the Optionee or his
representative for more than twelve (12) months. Such Shares shall be valued at
their Fair Market Value on the date when the new Shares are purchased under the
Plan. . The Optionee shall not surrender, or attest to the ownership of, Shares
in payment of the Exercise Price if such action would cause the Company to
recognize compensation expense (or additional compensation expense) with respect
to the Option for financial reporting purposes.
(c) Services Rendered. At the discretion of the Committee, Shares may be
-----------------
awarded under the Plan in consideration of services rendered to the Company or a
Subsidiary prior to the award. If Shares are awarded without the payment of a
Purchase Price in cash, the Committee
-11-
<PAGE>
shall make a determination (at the time of the award) of the value of the
services rendered by the Offeree and the sufficiency of the consideration to
meet the requirements of Section 6(c).
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
-----------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.
(e) Exercise/Pledge. To the extent that a Stock Option Agreement so
---------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker or lender
to pledge Shares, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of the aggregate Exercise Price.
(f) Promissory Note. To the extent that a Stock Option Agreement so
---------------
provides, payment may be made all or in part by delivering (on a form prescribed
by the Company) a full-recourse promissory note. However, the par value of the
Common Shares being purchased under the Plan, if newly issued, shall be paid in
cash or cash equivalents.
(g) Other Forms of Payment. To the extent that a Stock Option Agreement so
----------------------
provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
SECTION 10. STOCK APPRECIATION RIGHTS.
- --------------------------------------
(a) SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
-------------
by a SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
(b) Number of Shares. Each SAR Agreement shall specify the number of
----------------
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Section 12. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than _______ Common
Shares, except that SARs granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
pertain to more than _________ Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Section 12.
(c) Exercise Price. Each SAR Agreement shall specify the Exercise Price. A
--------------
SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
(d) Exercisability and Term. Each SAR Agreement shall specify the date
-----------------------
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration
-12-
<PAGE>
prior to the end of its term in the event of the termination of the Optionee's
service. SARs may be awarded in combination with Options, and such an Award may
provide that the SARs will not be exercisable unless the related Options are
forfeited. A SAR may be included in an ISO only at the time of grant but may be
included in an NSO at the time of grant or thereafter. A SAR granted under the
Plan may provide that it will be exercisable only in the event of a Change in
Control.
(e) Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting a SAR or thereafter, that such SAR shall become fully exercisable as
to all Common Shares subject to such SAR in the event that a Change in Control
occurs with respect to the Company, subject to the following sentence. If the
Company and the other party to the transaction constituting a Change in Control
agree that such transaction is to be treated as a "pooling of interests" for
financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of exercisability shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
(f) Exercise of SARs. Upon exercise of a SAR, the Optionee (or any person
----------------
having the right to exercise the SAR after his or her death) shall receive from
the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares
and cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Common Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date of
surrender) of the Common Shares subject to the SARs exceeds the Exercise Price.
If, on the date when a SAR expires, the Exercise Price under such SAR is less
than the Fair Market Value on such date but any portion of such SAR has not been
exercised or surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion.
(g) Modification or Assumption of SARs. Within the limitations of the
----------------------------------
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the
Optionee, may alter or impair his or her rights or obligations under such SAR.
SECTION 11. STOCK UNITS.
- ------------------------
(a) Stock Unit Agreement. Each grant of Stock Units under the Plan shall
--------------------
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.
(b) Payment for Awards. To the extent that an Award is granted in the form
------------------
of Stock Units, no cash consideration shall be required of the Award recipients.
-13-
<PAGE>
(c) Vesting Conditions. Each Award of Stock Units may or may not be
------------------
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company, except as provided in the next following
sentence. If the Company and the other party to the transaction constituting a
Change in Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of vesting shall not occur to the extent that
the Company's independent accountants and such other party's independent
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
(d) Voting and Dividend Rights. The holders of Stock Units shall have no
--------------------------
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.
(e) Form and Time of Settlement of Stock Units. Settlement of vested Stock
-----------------------------------------
Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Section 12.
(f) Death of Recipient. Any Stock Units Award that becomes payable after
------------------
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
-14-
<PAGE>
(g) Creditors' Rights. A holder of Stock Units shall have no rights other
-----------------
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
SECTION 12. PROTECTION AGAINST DILUTION.
- ----------------------------------------
(a) Adjustments. In the event of a subdivision of the outstanding Common
-----------
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(i) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Section 5;
(ii) The limitations set forth in Sections 8(b) and 10(b);
(iii) The number of NSOs to be granted to Outside Directors under
Section 4(b);
(iv) The number of Common Shares covered by each outstanding Option
and SAR;
(v) The Exercise Price under each outstanding Option and SAR; or
(vi) The number of Stock Units included in any prior Award which has
not yet been settled.
Except as provided in this Section 12, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
(b) Dissolution or Liquidation. To the extent not previously exercised or
--------------------------
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company.
(c) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for:
(i) The continuation of the outstanding Awards by the Company, if the
Company is a surviving corporation;
(ii) The assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary;
-15-
<PAGE>
(iii) The substitution by the surviving corporation or its parent or
subsidiary of its own awards for the outstanding Awards;
(iv) Full exercisability or vesting and accelerated expiration of the
outstanding Awards; or
(v) Settlement of the full value of the outstanding Awards in cash or
cash equivalents followed by cancellation of such Awards.
SECTION 13. DEFERRAL OF AWARDS.
- -------------------------------
The Committee (in its sole discretion) may permit or require a Participant
to:
a) Have cash that otherwise would be paid to such Participant as a result
of the exercise of a SAR or the settlement of Stock Units credited to a
deferred compensation account established for such Participant by the
Committee as an entry on the Company's books;
b) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
c) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee
as an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date
when they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Section 13 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Section 13.
SECTION 14. AWARDS UNDER OTHER PLANS.
- -------------------------------------
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Section 5.
-16-
<PAGE>
SECTION 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
- ------------------------------------------------------
(a) Effective Date. No provision of this Section 15 shall be effective
--------------
unless and until the Board has determined to implement such provision.
(b) Elections to Receive NSOs, Restricted Shares or Stock Units.
-----------------------------------------------------------
An Outside Director may elect to receive his or her annual retainer payments
and/or meeting fees from the Company in the form of cash, NSOs, Restricted
Shares or Stock Units, or a combination thereof, as determined by the Board.
Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Section 15 shall be filed with the Company on the prescribed
form.
(c) Number and Terms of NSOs, Restricted Shares or Stock Units.
----------------------------------------------------------
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
SECTION 16. ADJUSTMENT OF SHARES.
- ----------------------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares available for grants under
Section 4(c), (iii) the number of Shares covered by each outstanding Option,
(iv) the Exercise Price under each outstanding Option, (v) the number of shares
covered by each outstanding award or (vi) the Purchase Price of each outstanding
award.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is a surviving corporation);
provided, however, that if assumption or continuation of the outstanding Options
is not provided by such agreement then the Committee shall have the option of
offering the payment of a cash settlement equal to the difference between the
amount to be paid for one Share under such agreement and the Exercise Price, in
all cases without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 16, an
---------------------
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the
-17-
<PAGE>
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 17. LEGAL AND REGULATORY REQUIREMENTS.
- ----------------------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.
SECTION 18. WITHHOLDING TAXES.
- -------------------------------
(a) General. To the extent required by applicable federal, state, local or
-------
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
(b) Share Withholding. The Committee may permit a Participant to satisfy
-----------------
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
SECTION 19. LIMITATION ON PARACHUTE PAYMENTS.
- ---------------------------------------------
(a) Scope of Limitation. This Section 19 shall apply to an Award only if:
(i) The independent auditors most recently selected by the Board (the
"Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under section 4999 of the Code), will
be greater after the application of this Section 19 than it was before the
application of this Section 19; or
(ii) The Committee, at the time of making an Award under the Plan or
at any time thereafter, specifies in writing that such Award shall be
subject to this Section 19 (regardless of the after-tax value of such Award
to the Participant).
(b) Supersedes Other Provisions. If this Section 19 applies to an Award,
it shall supersede any contrary provision of the Plan or of any Award granted
under the Plan.
-18-
<PAGE>
SECTION 20. NO EMPLOYMENT RIGHTS.
- ---------------------------------
No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason, with or without
notice.
SECTION 21. DURATION AND AMENDMENTS.
- ------------------------------------
(a) Term of the Plan. The amended and restated Plan, as set forth herein,
----------------
shall terminate automatically on _____________, ________ and may be terminated
on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend
------------------------------------
the Plan at any time and from time to time. Rights and obligations under any
Option granted before amendment of the Plan shall not be materially impaired by
such amendment, except with consent of the person to whom the Option was
granted. An amendment of the Plan shall be subject to the approval of the
Company's stockholders only to the extent required by applicable laws,
regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
SECTION 22. EXECUTION.
- ----------------------
To record the adoption of the amended and restated Plan by the Board of
Directors effective as of March 10, 2000, the Company has caused its authorized
officer to execute the same.
BEATNIK, INC.
By_______________________________
Lorraine Hariton
Chief Executive Officer
-19-
<PAGE>
NOTICE OF STOCK OPTION GRANT
THE BEATNIK, INC. 2000 STOCK INCENTIVE PLAN
You have been granted the following option to purchase Common Stock of
Beatnik, Inc. (the "Company") under the Beatnik, Inc. 2000 Stock Incentive Plan
(the "Plan"):
Name of Optionee:
-----------------
Total Number of Option Shares Granted:
-----------------
Type of Option: [ ] Incentive Stock Option [ ] Nonstatutory Stock Option
Exercise Price Per Share: $
-----------------
Grant Date:
---------------
Vesting Commencement Date:
----------------------
Vesting Schedule: [Check only one box]
[ ] Full vesting: This option is fully vested and exercisable as of the
date of grant.
[ ] Two-Year Vesting: Subject to the following terms and conditions set
forth in this Notice of Stock Option Grant, this option shall vest as
to 12/24ths of the shares on the first anniversary of the Vesting
Commencement Date and 1/24ths of the shares each full month
thereafter.
[ ] Three-Year Vesting: Subject to the following terms and conditions set
forth in this Notice of Stock Option Grant, this option shall vest as
to 12/36ths of the shares on the first anniversary of the Vesting
Commencement Date and 1/36th of the shares each full month thereafter.
[ ] Four-Year Vesting: Subject to the following terms and conditions set
forth in this Notice of Stock Option Grant, this option shall vest as
to 12/48ths of the shares on the first anniversary of the Vesting
Commencement Date and 1/48th of the shares each full month thereafter.
Accelerated Vesting: [Check only one box]
[ ] Your option is not subject to accelerated vesting.
Your option will become fully vested and exercisable if:
<PAGE>
[ ] The Company is subject to a Change in Control (as defined in
Section 2(b) of the Plan) prior to the date your service
terminates.
[ ] The Company involuntarily terminates your employment without good
cause.
[ ] You experience a Total and Permanent Disability (as defined in
Section 2(ii) of the Plan).
Post-Termination Exercise Period: [Check only one box]
If your service with the Company terminates for any reason other than Total and
Permanent Disability or death, then your option expires on:
[ ] the date of your termination.
[ ] the date 90 days after your termination date.
[ ] the date 6 months after your termination date.
[ ] the date 12 months after your termination date.
[ ] the date 24 months after your termination date.
[ ] the Expiration Date of your option.
Form of Payment: [Check one or more boxes]
Payment may be made in the following form(s):
[ ] Your personal check, a cashier's check or a money order.
[ ] In shares of Company stock which have been owned by you or your
representative for more than 12 months and which are surrendered to
the Company in good form for transfer.
[ ] By delivering on a form approved by the Committee of an irrevocable
direction to a securities broker approved by the Company to sell all
or part of your option shares and to deliver to the Company from the
sale proceeds in an amount sufficient to pay the option exercise price
and any withholding taxes. The balance of the sale proceeds, if any,
will be delivered to you.
Expiration Date:
--------------
-2-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
term and conditions of the Plan and this Stock Option Agreement, both of which
are attached to and made a part of this document.
<TABLE>
<CAPTION>
OPTIONEE: BEATNIK, INC.
<S> <C>
By:
- --------------------------------------------------- ------------------------------------------
Title:
- --------------------------------------------------- ---------------------------------------
Please Print Name
</TABLE>
-3-
<PAGE>
STOCK OPTION AGREEMENT
FOR THE BEATNIK, INC.
2000 STOCK INCENTIVE PLAN
Tax Treatment This option is intended to be an incentive stock option
under Section 422 of the Internal Revenue Code or a
nonstatutory option, as provided in the Notice of Stock
Option Grant.
Vesting This option becomes exercisable in accordance with the
vesting schedule set forth in the Notice of Stock Option
Grant
Term This option expires on the date shown in the Notice of
Stock Option Grant, but in no event later than the 10th
anniversary of the Grant Date.
Regular If your service as an employee, consultant or director of
Termination the Company or a subsidiary of the Company terminates for
any reason excluding death or total and permanent
disability, then this option will expire on the date
specified in the Notice of Stock Option Grant under the
heading "Post-Termination Exercise Period."
Death or Disability If you become Totally and Permanently Disabled (as defined
in Section 2(ii) of the Plan) or die as an employee,
consultant or director of the Company or a subsidiary of
the Company, then this option will expire at the close of
business at Company headquarters on the date 12 months
after the date of your termination of employment.
Leaves of Absence For purposes of this option, your service does not
terminate when you go on a military leave, a sick leave or
another bona fide leave of absence, if the leave was
approved by the Company in writing and if continued
crediting of service is required by the terms of the leave
or by applicable law. But your service terminates when the
approved leave ends, unless you immediately return to
active work.
Restrictions on The Company will not permit you to exercise this option if
Exercise the issuance of shares at that time would violate any law
or regulation.
Notice of Exercise When you wish to exercise this option you must notify the
Company by completing the attached "Notice of Exercise of
Stock Option" form and filing it with the Human Resources
Department of the Company. The notice will be effective
when it is received by the Company. If someone else wants
to exercise this option after your death, that person must
prove to the Company's satisfaction that he or she is
entitled to do so.
-1-
<PAGE>
Form of Payment When you submit your notice of exercise, you must include
payment of the option exercise price for the shares you are
purchasing. Payment may be made in the form specified on
your Notice of Stock Option Grant.
Withholding Taxes You will not be allowed to exercise this option unless you
and Stock make arrangements acceptable to the Company to pay any
Withholding withholding taxes that may be due as a result of the option
exercise. These arrangements may include withholding shares
of Company stock that otherwise would be issued to you when
you exercise this option. The value of these shares,
determined as of the effective date of the option exercise,
will be applied to the withholding taxes.
Restrictions on By signing this Agreement, you agree not to sell any option
Resale shares at a time when applicable laws, Company policies or
an agreement between the Company and its underwriters
prohibit a sale (e.g., a lock-up period after the Company
goes public). This restriction will apply as long as you
are an employee, consultant or director of the Company or a
subsidiary of the Company.
Transfer of Option Prior to your death, only you can exercise this option. You
cannot transfer or assign this option. For instance, you
may not sell this option or use it as security for a loan.
If you attempt to do any of these things, this option will
immediately become invalid. You may in any event dispose of
this option in your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a notice of exercise
from your former spouse, nor is the Company obligated to
recognize your former spouse's interest in your option in
any other way.
Retention Rights Neither your option nor this Agreement give you the right
to be retained by the Company or a subsidiary of the
Company in any capacity. The Company and its subsidiaries
reserve the right to terminate your service at any time,
with or without cause.
Stockholder Rights You, or your estate or heirs, have no rights as a
stockholder of the Company until you have exercised this
option by giving the required notice to the Company and
paying the exercise price. No adjustments are made for
dividends or other rights if the applicable record date
occurs before you exercise this option, except as described
in the Plan.
Adjustments In the event of a stock split, a stock dividend or a
similar change in Company stock, the number of shares
covered by this option and the exercise price per share may
be adjusted pursuant to the Plan.
Applicable Law This Agreement will be interpreted and enforced under the
laws of the State of California (without regard to their
choice-of-law provisions).
-2-
<PAGE>
The Plan and The text of the Plan is incorporated in this Agreement by
reference. This Agreement and the Plan constitute the
entire understanding between you and the Company regarding
this option. Any prior agreements, commitments or
negotiations concerning this option are superseded. This
Agreement may be amended only by another written agreement,
signed by both parties.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT,
YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED ABOVE AND IN THE PLAN.
-3-
<PAGE>
NOTICE OF EXERCISE
(exercise by check)
Beatnik, Inc.
______________________________
______________________________
Attn: Chief Financial Officer
Re: Exercise of Stock Option
Dear Sir or Madam:
Pursuant to the Stock Option Agreement dated __________, 200__ (the "Stock
Option Agreement") and the Company's 2000 Stock Incentive Plan (the "Plan"), I
hereby elect to purchase _____________ shares of the Common Stock of the Company
at aggregate exercise price of $__________. I enclose payment and other
documents (check all that are applicable):
[ ] My check in the amount of $___________.
The Common Stock is to be issued and registered in the name(s) of:
__________________________
__________________________
I understand that there may be tax consequences as a result of the purchase or
disposition of the Common Stock, and I have consulted with any tax consultants I
wished to consult and I am not relying on the Company for any tax advice. I
understand that my exercise is governed by my Stock Option Agreement and the
Plan and agree to abide by and be bound by their terms and conditions. I
represent that the Common Stock is being acquired solely for my own account and
not as a nominee for any other party, or for investment, and that I will not
offer, sell or otherwise dispose of any such Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Dated: __________, _____.
___________________________________
(Signature)
___________________________________
(Please Print Name)
___________________________________
___________________________________
(Address)
<PAGE>
TAX CONSEQUENCES RELATED TO YOUR INCENTIVE STOCK OPTION
-------------------------------------------------------
This memorandum is provided to you merely as a service and is not meant to
advise you as to your personal tax situation. You should contact your personal
legal or tax advisers with respect to the state and federal income tax treatment
of purchasing and disposing of your stock.
Internal Revenue Code Sections
Section 421 of the Internal Revenue Code (the "Code") provides rules for
the tax treatment of "incentive stock options"("ISOs"), as that term is defined
by Section 422 of the Code.
ISO Tax Treatment - Usually No Tax Until You Sell Your Stock
Your option is intended to be an ISO. If you hold the stock you are
purchasing under your option for more than two (2) years from the date of grant
and more than one (1) year from the date of exercise, upon any subsequent sale
- ---
or other disposition of such shares you will have capital gains or loss. Capital
gains are taxed at reduced rates if you held the shares for more than 1 year
(20% federal rate).
If you sell or dispose of the stock within two (2) years from the date of
grant or within 1 year from the date of exercise (a "disqualifying
--
disposition"), the special capital gains tax treatment of Code Section 421 will
not apply. Generally, in that event, you will recognize taxable ordinary income
in an amount equal to the lesser of: (i) the excess of the fair market value of
the shares at the time of exercise over the exercise price of the option, or
(ii) your actual gain on the purchase and sale. The gain (if any) in excess of
the amount of ordinary income recognized, or the loss (if any) will be a capital
gain or loss. An exception to this general rule applies if your stock is
subject to the company's repurchase right (see "Early Exercise" below).
Alternative Minimum Tax - Potential Tax at Exercise
The alternative minimum tax is a separately computed tax that is imposed
only if and to the extent it exceeds your regular tax for the taxable year.
Basically, the alternative minimum tax is an amount equal to twenty-six percent
(26%) of your "alternative minimum taxable income" for the year of up to
$175,000 and twenty-eight percent (28%) of any excess ($87,500 in the case of a
married individual filing a separate return). "Alternative minimum taxable
income" generally is determined by (i) reducing adjusted gross income by an
exemption amount ($45,000 for joint declarations and $33,750 for single
taxpayers, less $0.25 for each dollar of alternative minimum taxable income in
excess of $150,000 or $112,500, respectively) and certain specifically defined
deductions, and (ii) by adding to the amount so calculated certain tax
preference items and other adjustments.
As a general rule, when you exercise an ISO, the excess of the (1) fair
market value of the stock acquired on the date of exercise over (2) the exercise
price (the "spread") is added to your alternative minimum taxable income.
-1-
<PAGE>
BEATNIK, INC.
2000 STOCK INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK AWARD
You have been granted restricted shares of Common Stock of Beatnik, Inc.
(the "Company") on the following terms:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name of Recipient: _________________________
- --------------------------------------------------------------------------------
<S> <C>
Total Number of Shares Granted: _________________________
- --------------------------------------------------------------------------------
Fair Market Value per Share: $_________________________
- --------------------------------------------------------------------------------
Total Fair Market Value of Award: $_________________________
- --------------------------------------------------------------------------------
Date of Grant: _______ __, ____
- --------------------------------------------------------------------------------
Vesting Commencement Date: _______ __, ____
- --------------------------------------------------------------------------------
Vesting Schedule: The first __% of the total number of
shares granted vest when you complete
__ months of continuous service from
the Vesting Commencement Date. An
additional __% of the shares vest when
you complete each month of continuous
service thereafter.
- --------------------------------------------------------------------------------
</TABLE>
By your signature and the signature of the Company's representative below, you
and the Company agree that these shares are granted under and governed by the
terms and conditions of the 2000 Stock Incentive Plan (the "Plan") and the
Restricted Stock Agreement, both of which are attached to and made a part of
this document.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Recipient: Beatnik, Inc.
- --------------------------------------------------------------------------------
<S> <C>
_________________________ By:_______________________
- --------------------------------------------------------------------------------
_________________________ Title:______________________
Print Name
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
BEATNIK, INC.
2000 STOCK INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
_____________, 2000 by and between Beatnik, Inc., a Delaware corporation (the
"Company"), and ________________ ("Purchaser") pursuant to the Company's 2000
- -------- ---------
Stock Incentive Plan. To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
2000 Stock Incentive Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, _______ shares of
the Company's Common Stock (the "Shares") at a purchase price of $____ per Share
------
for a total purchase price of $______. The per share purchase price of the
Shares shall be not less than 100% of the Fair Market Value of the Shares as of
the date of the offer of such Shares to the Purchaser, or, in the case of any
person owning stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (or any affiliated
company), the per share purchase price shall be not less than 110% of the Fair
Market Value of the Shares as of such date. The term "Shares" refers to the
------
purchased Shares and all securities received in replacement of or in connection
with the Shares pursuant to stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution of this Agreement by the parties, or on such other date as
the Company and Purchaser shall agree (the "Purchase Date"). On the Purchase
-------------
Date, the Company will deliver to Purchaser a certificate representing the
Shares to be purchased by Purchaser (which shall be issued in Purchaser's name)
against payment of the purchase price therefor by Purchaser by (a) check made
payable to the Company, (b) cancellation of indebtedness of the Company to
Purchaser, or (c) by a combination of the foregoing.
3. Restrictions on Resale. By signing this Agreement, you agree not to
-----------------------
sell any Shares acquired pursuant to the Plan, the Restricted Stock Agreement
and this Agreement at a time when applicable laws, regulations or Company or
underwriter trading policies prohibit exercise or sale. This restriction will
apply as long as you are an Employee, director or Consultant of the Company or a
Subsidiary of the Company.
<PAGE>
4. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legend (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE STOCKHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
5. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
6. Market Standoff Agreement. Upon request of the Company or the
-------------------------
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) The Plan and Other Agreements; Enforcement of Rights. The text of
----------------------------------------------------
the Plan and the Restricted Stock Agreement are incorporated into this Agreement
by reference.
<PAGE>
This Agreement, the Plan and the Restricted Stock Agreement constitute the
entire agreement and understanding of the parties relating to the subject matter
herein and merges all prior discussions between them. Any prior agreements,
commitments or negotiations concerning the purchase of the Restricted Shares
hereunder are superseded. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, shall be effective unless in
writing signed by the parties to this Agreement. The failure by either party to
enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice to be given under the terms of the Plan shall
-------
be addressed to the Company in care or its principal office, and any notice to
be given to the Purchaser shall be addressed to such Purchaser at the address
maintained by the Company for such person or at such other address as the
Purchaser may specify in writing to the Company.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
BEATNIK, INC.
By:
----------------------------------
Title:
-------------------------------
Address:
-----------------------------
-----------------------------
PURCHASER:
-------------------------------------
(Signature)
Address:
-----------------------------
-----------------------------
I, ________________________________, spouse of ___________, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to
any amendment or exercise of any rights under the Agreement.
-------------------------------------
Spouse of
----------------------------
<PAGE>
RECEIPT
-------
Beatnik, Inc. hereby acknowledges receipt of (check as applicable):
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
given by ________________ as consideration for Certificate No. CS-____ for
_______ shares of Common Stock of Beatnik, Inc.
Dated: ________________
Beatnik, Inc.
By:
----------------------------------
Title:
-------------------------------
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. CS-____ for _________ shares of Common Stock of Beatnik, Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
----------------------------
Name
<PAGE>
EXHIBIT 10.3
FORM OF
BEATNIK, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
(Adopted by the Board on March 10, 2000)
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 Purpose Of The Plan.............................................. 1
SECTION 2 Definitions...................................................... 1
(a) "Accumulation Period"............................................ 1
(b) "Board".......................................................... 1
(c) "Code"........................................................... 1
(d) "Committee"...................................................... 1
(e) "Company"........................................................ 1
(f) "Compensation"................................................... 1
(g) "Corporate Reorganization"....................................... 1
(h) "Eligible Employee".............................................. 2
(i) "Exchange Act"................................................... 2
(j) "Fair Market Value".............................................. 2
(k) "IPO"............................................................ 2
(l) "Offering Period"................................................ 2
(m) "Participant".................................................... 2
(n) "Participating Company".......................................... 2
(o) "Plan"........................................................... 3
(p) "Plan Account"................................................... 3
(q) "Purchase Price"................................................. 3
(r) "Stock".......................................................... 3
(s) "Subsidiary"..................................................... 3
SECTION 3 Administration Of The Plan....................................... 3
(a) Committee Composition............................................ 3
(b) Committee Responsibilities....................................... 3
SECTION 4 Enrollment And Participation..................................... 3
(a) Offering Periods................................................. 3
(b) Accumulation Periods............................................. 3
(c) Enrollment....................................................... 3
(d) Duration of Participation........................................ 3
(e) Applicable Offering Period....................................... 4
SECTION 5 Employee Contributions........................................... 4
(a) Frequency of Payroll Deductions.................................. 4
(b) Amount of Payroll Deductions..................................... 4
(c) Changing Withholding Rate........................................ 4
(d) Discontinuing Payroll Deductions................................. 4
(e) Limit on Number of Elections..................................... 5
SECTION 6 Withdrawal From The Plan......................................... 5
(a) Withdrawal....................................................... 5
(b) Re-enrollment After Withdrawal................................... 5
SECTION 7 Change In Employment Status...................................... 5
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(a) Termination of Employment........................................ 5
(b) Leave of Absence................................................. 5
(c) Death............................................................ 5
SECTION 8 Plan Accounts And Purchase Of Shares............................. 5
(a) Plan Accounts.................................................... 5
(b) Purchase Price................................................... 6
(c) Number of Shares Purchased....................................... 6
(d) Available Shares Insufficient.................................... 6
(e) Issuance of Stock................................................ 6
(f) Unused Cash Balances............................................. 6
(g) Stockholder Approval............................................. 7
SECTION 9 Limitations On Stock Ownership................................... 7
(a) Five Percent Limit............................................... 7
(b) Dollar Limit..................................................... 7
SECTION 10 Rights Not Transferable.......................................... 7
SECTION 11 No Rights As An Employee......................................... 8
SECTION 12 No Rights As A Stockholder....................................... 8
SECTION 13 Securities Law Requirements...................................... 8
SECTION 14 Stock Offered Under The Plan..................................... 8
(a) Authorized Shares................................................ 8
(b) Antidilution Adjustments......................................... 8
(c) Reorganizations.................................................. 8
SECTION 15 Amendment Or Discontinuance...................................... 9
SECTION 16 Execution........................................................ 9
</TABLE>
-ii-
<PAGE>
BEATNIK, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1 Purpose Of The Plan.
- -----------------------------
The Plan was adopted by the Board on March 10, 2000, effective as of the
date of the IPO. The purpose of the Plan is to provide Eligible Employees with
an opportunity to increase their proprietary interest in the success of the
Company by purchasing Stock from the Company on favorable terms and to pay for
such purchases through payroll deductions. The Plan is intended to qualify
under section 423 of the Code.
SECTION 2 Definitions.
- ---------------------
(a) "Accumulation Period" means a six-month period during which
-------------------
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 4(b).
(b) "Board" means the Board of Directors of the Company, as constituted
-----
from time to time.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a committee of the Board, as described in Section 3.
---------
(e) "Company" means Beatnik, Inc., a Delaware Corporation.
-------
(f) "Compensation" means (i) the total compensation paid in cash to a
------------
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "Corporate Reorganization" means:
------------------------
(i) The consummation of a merger or consolidation of the Company
with or into another entity, or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets or the complete liquidation or dissolution of
the Company.
-1-
<PAGE>
(h) "Eligible Employee" means any employee of a Participating Company who
-----------------
meets both of the following requirements:
(i) His or her customary employment is for more than five months
per calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a Participating Company for
not less than ___ consecutive months.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(j) "Fair Market Value" means the market price of Stock, determined by the
-----------------
Committee as follows:
(i) If Stock was traded on The Nasdaq National Market on the date
in question, then the Fair Market Value shall be equal to the last-
transaction price quoted for such date by The Nasdaq National Market;
(ii) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to a
---
registration statement filed by the Company with the Securities and Exchange
Commission.
(l) "Offering Period" means a 24-month period with respect to which the
---------------
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 4(a).
(m) "Participant" means an Eligible Employee who elects to participate in
-----------
the Plan, as provided in Section 4(c).
(n) "Participating Company" means (i) the Company and (ii) each present or
---------------------
future Subsidiary designated by the Committee as a Participating Company.
-2-
<PAGE>
(o) "Plan" means this Beatnik, Inc. 2000 Employee Stock Purchase Plan, as
----
it may be amended from time to time.
(p) "Plan Account" means the account established for each Participant
------------
pursuant to Section 8(a).
(q) "Purchase Price" means the price at which Participants may purchase
--------------
Stock under the Plan, as determined pursuant to Section 8(b).
(r) "Stock" means the Common Stock of the Company.
-----
(s) "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 3 Administration Of The Plan.
- -------------------------------------
(a) Committee Composition. The Plan shall be administered by the
---------------------
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) Committee Responsibilities. The Committee shall interpret the Plan
--------------------------
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 4 Enrollment And Participation.
- ---------------------------------------
(a) Offering Periods. While the Plan is in effect, two Offering Periods
----------------
shall commence in each calendar year. The Offering Periods shall consist of the
24-month periods commencing on each ____________________ and _______________,
except that the first Offering Period shall commence on the date of the IPO and
end on ________________ .
(b) Accumulation Periods. While the Plan is in effect, two Accumulation
--------------------
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six month periods commencing on _________ and ___________, except
that the first Accumulation Period shall commence on the dated of the IPO and
end on _____________.
(c) Enrollment. Any individual who, on the day preceding the first day of
----------
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 15 days prior
to the commencement of such Offering Period.
(d) Duration of Participation. Once enrolled in the Plan, a Participant
-------------------------
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Offering Period in which his or her employee
-3-
<PAGE>
contributions were discontinued under Section 5(d) or 9(b). A Participant who
discontinued employee contributions under Section 5(d) or 9(b) or withdrew from
the Plan under Section 6(a) may again become a Participant, if he or she then is
an Eligible Employee, by following the procedure described in Subsection (c)
above. A Participant whose employee contributions were discontinued
automatically under Section 9(b) shall automatically resume participation at the
beginning of the earliest Offering Period ending in the next calendar year, if
he or she then is an Eligible Employee.
(e) Applicable Offering Period. For purposes of calculating the purchase
--------------------------
price under Section 8(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of: (A) the end of such Offering Period; (B) the end of his or
her participation under Subsection (d) above; or (C) re-enrollment in a
subsequent Offering Period under Paragraph (ii) below.
(ii) In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period in which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the Participant shall
automatically be re-enrolled for such subsequent Offering Period.
(iii) When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 5 Employee Contributions.
- ---------------------------------
(a) Frequency of Payroll Deductions. A Participant may purchase shares of
-------------------------------
Stock under the Plan solely by means of payroll deductions. Payroll deductions,
as designated by the Participant pursuant to Subsection (b) below, shall occur
on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate on
----------------------------
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than ____% nor
more than __%.
(c) Changing Withholding Rate. If a Participant wishes to change the rate
-------------------------
of payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be effective as soon as reasonably practicable after such form has been
received by the Company. The new withholding rate shall be a whole percentage of
the Eligible Employee's Compensation, but not less than __% nor more than __%.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
--------------------------------
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the
-4-
<PAGE>
Company at the prescribed location at any time. Payroll withholding shall cease
as soon as reasonably practicable after such form has been received by the
Company. (In addition, employee contributions may be discontinued automatically
pursuant to Section 9(b).) A Participant who has discontinued employee
contributions may resume such contributions by filing a new enrollment form with
the Company at the prescribed location. Payroll withholding shall resume as soon
as reasonably practicable after such form has been received by the Company.
(e) Limit on Number of Elections. No Participant shall make more than __
----------------------------
elections under Subsection (c) or (d) above during any Offering Period.
SECTION 6 Withdrawal From The Plan.
- -----------------------------------
(a) Withdrawal. A Participant may elect to withdraw from the Plan by
----------
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) Re-enrollment After Withdrawal. A former Participant who has
------------------------------
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 4(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 7 Change In Employment Status.
- --------------------------------------
(a) Termination of Employment. Termination of employment as an Eligible
-------------------------
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 6(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) Leave of Absence. For purposes of the Plan, employment shall not be
----------------
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) Death. In the event of the Participant's death, the amount credited
-----
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
SECTION 8 Plan Accounts And Purchase Of Shares.
- -----------------------------------------------
(a) Plan Accounts. The Company shall maintain a Plan Account on its books
-------------
in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's
-5-
<PAGE>
general assets and applied to general corporate purposes. No interest shall be
credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased
--------------
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last trading
day before the commencement of the applicable Offering Period (as
determined under Section 4(e) or, in the case of the first Offering Period
under the Plan, 85% of the price at which one share of Stock is offered to
the public in the IPO.
(c) Number of Shares Purchased. As of the last day of each Accumulation
--------------------------
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 6(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than _____ shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 9(b) and 14(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) Available Shares Insufficient. In the event that the aggregate number
-----------------------------
of shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 14(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) Issuance of Stock. Certificates representing the shares of Stock
-----------------
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) Unused Cash Balances. An amount remaining in the Participant's Plan
--------------------
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be
-6-
<PAGE>
purchased by reason of Subsection (c) above, Section 9(b) or Section 14(a) shall
be refunded to the Participant in cash, without interest.
(g) Stockholder Approval. Any other provision of the Plan
--------------------
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 9 Limitations On Stock Ownership.
- -----------------------------------------
(a) Five Percent Limit. Any other provision of the Plan notwithstanding,
------------------
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase _____ shares of Stock under this Plan with respect to each
Accumulation Period.
(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
------------
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
Any other provision of the Plan notwithstanding, no Participant shall
purchase Stock with a Fair Market Value in excess of $25,000 per calendar year
(under this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
For purposes of this Subsection (b), the Fair Market Value of Stock shall
be determined in each case as of the beginning of the Offering Period in which
such Stock is purchased. Employee stock purchase plans not described in section
423 of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 10 Rights Not Transferable.
- -----------------------------------
The rights of any Participant under the Plan, or any Participant's interest
in any Stock or moneys to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan,
-7-
<PAGE>
other than by beneficiary designation or the laws of descent and distribution,
then such act shall be treated as an election by the Participant to withdraw
from the Plan under Section 6(a).
SECTION 11 No Rights As An Employee.
- ------------------------------------
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 12 No Rights As A Stockholder.
- --------------------------------------
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.
SECTION 13 Securities Law Requirements.
- ---------------------------------------
Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 14 Stock Offered Under The Plan.
- ----------------------------------------
(a) Authorized Shares. The maximum aggregate number of shares of Stock
-----------------
available for purchase under the Plan is ______________________ (________), plus
an annual increase to be added on the first day of the Company's fiscal year
beginning in 2001 equal to the lesser of (i) ___________ (__________) shares,
(ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. The aggregate number of Shares available for purchase
under the Plan shall at all times be subject to adjustment pursuant to Section
14.
(b) Antidilution Adjustments. The aggregate number of shares of Stock
------------------------
offered under the Plan, the _____ share limitation described in Section 8(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
---------------
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 8, unless the Plan is assumed by the surviving corporation
or its parent corporation pursuant to the plan of merger or consolidation. The
Plan shall in no event be construed to restrict in any way the Company's right
to undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
-8-
<PAGE>
SECTION 15 Amendment Or Discontinuance.
- ---------------------------------------
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 14, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 16 Execution.
- ---------------------
To record the adoption of the Plan by the Board on March 10, 2000, the
Company has caused its authorized officer to execute the same.
Beatnik, Inc.
By: ____________________________
Title: __________________________
Title: __________________________
-9-
<PAGE>
EXHIBIT 10.4
BEATNIK, INC.
------------
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement"), effective as of _____, by
and between, BEATNIK, INC., a Delaware corporation (the "Company"), and
-------------
_____________________ (the "Indemnitee").
1. Indemnification. The Company shall indemnify Indemnitee to the fullest
---------------
extent permitted by section 145 of the Delaware General Corporation Law, as
amended (the "Delaware Law"), the Certificate of Incorporation (the
"Certificate") and the Bylaws of the Company (the "Bylaws") in effect on the
date hereof or as such Law, Certificate, and Bylaws may from time to time be
amended (but, in the case of any such amendment, only to the extent such
amendment permits the Company to provide broader indemnification rights than the
Law, Certificate or Bylaws permitted the Company to provide before such
amendment), if and whenever he is or was a party or is threatened to be made a
party to any Proceeding, against Expenses and Liabilities actually and
reasonably incurred by Indemnitee or on his behalf in connection with the
investigation, defense, settlement or appeal of such Proceeding. The right to
indemnification conferred herein shall be presumed to have been relied upon by
Indemnitee in serving or continuing to serve the Company as an officer or
director and shall be enforceable as a contract right. Without in any way
diminishing the scope of the indemnification provided by this Section 1, the
Company will indemnify Indemnitee if Indemnitee:
(a) was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company to procure a
judgment in its favor) by reason of the fact Indemnitee is or was an Agent,
against Expenses and Liabilities actually and reasonably incurred in connection
with such Proceeding if Indemnitee acted in good faith and in a manner
reasonably believed to be in the best interests of the Company and, in the case
of a criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in the best interests of the
Company or that Indemnitee had reasonable cause to believe that Indemnitee's
conduct was unlawful, or
(b) was or is a party or is threatened to be made a party to any
threatened, pending or completed action by or in the right of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or was
an agent of the Company, against Expenses and Liabilities actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action if Indemnitee acted in good faith, in a manner Indemnitee
believed to be in the best interests of the Company and its shareholders.
(c) To the extent that Indemnitee has been successful on the merits in
defense of any Proceeding referred to in clause (a) or (b) above or in defense
of any action, claim, issue or matter therein, Indemnitee shall be indemnified
against Expenses actually and reasonably incurred by Indemnitee in connection
therewith.
-1-
<PAGE>
In addition to, and not as a limitation of, the foregoing, the rights of
indemnification of Indemnitee provided under this Agreement shall include those
rights set forth below.
2. Advancement of Expenses and Costs. All reasonable Expenses incurred by
---------------------------------
or on behalf of Indemnitee shall be advanced by the Company to Indemnitee within
thirty (30) calendar days after the receipt by the Company of a statement or
statements from Indemnitee requiring an advance or advances of Expenses from
time to time, whether prior to or after final disposition of such Proceeding.
The statement or statements shall reasonably evidence the Expenses incurred or
to be incurred by him in connection therewith. If required by law at the time of
such advance, Indemnitee hereby undertakes to repay the amounts advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
pursuant to the terms of this Agreement.
3. Other Rights to Indemnification. Indemnitee's rights of indemnification
-------------------------------
and advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may now or in the future be
entitled under applicable law, the Certificate, Bylaws, agreement, vote of
stockholders, resolution of directors, or otherwise.
4. Limitations on Indemnity. Any provision herein to the contrary
------------------------
notwithstanding, the Company shall not be obligated pursuant to this Agreement:
(a) Insured Claims. To make any payment to Indemnitee to the extent that
--------------
Indemnitee is indemnified other than pursuant to this Agreement or to the extent
that Indemnitee is reimbursed pursuant to any D&O or other insurance the Company
may maintain for Indemnitee's benefit; provided, however, that notwithstanding
the availability of such insurance, Indemnitee may claim indemnification
pursuant to this Agreement by assigning to the Company, at its request, any
claims under such insurance to the extent Indemnitee is paid by the Company.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
------------------------------
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Delaware Law, but such indemnification or advancement of Expenses may be
provided by the Company in specific cases if the Board of Directors has approved
the initiation or bringing of such suit.
(c) Claims Under Section 16(b). To indemnify Indemnitee for Expenses and
--------------------------
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
5. Duration of Agreement. This Agreement shall continue so long as
---------------------
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that he is or was an Agent. This Agreement shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Indemnitee and his
spouse, assigns, heirs, devisees, executors, administrators or other legal
representatives.
-2-
<PAGE>
6. Miscellaneous.
-------------
(a) Procedure. Any indemnification and advances provided for in Sections 1
---------
and 2 shall be made no later than thirty (30) calendar days, respectively, after
receipt of a written request therefor of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate or Bylaws providing for indemnification, is not paid in full by the
Company within such period, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 6(l) of this Agreement, Indemnitee shall also be
entitled to be paid for the Expenses (including attorney's fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for Expenses incurred in connection with any action
or proceeding in advance of its final disposition) that Indemnitee has not met
the standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Section 2 unless
and until such defense is finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that if
the Company contests Indemnitee's right to indemnification, the Company shall be
entitled to select the forum in which Indemnitee's entitlement to
indemnification will be heard. The Company shall notify the Indemnitee in
writing as to the forum selected, which selection shall be from among the
following:
(i) The stockholders of the Company;
(ii) A quorum of the Board consisting of Disinterested Directors;
(iii) Independent Counsel selected by Indemnitee, and reasonably
approved by the Board, which counsel shall make the determination in a
written opinion; or
(iv) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or if for any reason
three arbitrators are not selected within 30 days after the appointment of
the first arbitrator, then selection of additional arbitrators to complete
the three person panel shall be made by the American Arbitration
Association under its commercial arbitration rules now in effect.
Neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholder) to have made a determination that indemnification of Indemnitee
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct required by applicable law, nor an actual determination by
the Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
-3-
<PAGE>
(b) Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal or state law or applicable public policy may
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
(c) Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever: (i)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any provision held to be invalid, illegal or unenforceable,
that are not themselves invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (ii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any provision held to be invalid, illegal
or unenforceable, that are not themselves invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
(d) Identical Counterparts. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
(e) Interpretation of Agreement. It is understood that the parties hereto
---------------------------
intend this Agreement to be interpreted and enforced so as to provide
indemnification to Indemnitee to the fullest extent now or hereafter permitted
by law.
(f) Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
(g) Definitions. For purposes of this Agreement:
-----------
(i) "Agent" shall mean any person who is or was a director, officer,
-----
employee, agent, fiduciary or other official of the Company or a subsidiary of
the Company; or is or was serving at the request of, for the convenience of, or
to represent the interests of the Company or a subsidiary of the Company as a
director, officer, foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise; or was a director, officer,
employee, agent, fiduciary or other official of a foreign or domestic
corporation which was a predecessor corporation of the Company or a subsidiary
of the Company, or was a director, officer, employee, agent, fiduciary or other
official of another enterprise at the request of, for the convenience of, or to
represent the interests of such predecessor corporation.
-4-
<PAGE>
(ii) "Expenses" shall include all direct and indirect costs
--------
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery
service fees, all other disbursements or out-of-pocket expenses and
reasonable compensation for time spent by Indemnitee for which he is
otherwise not compensated by the Company or any third party) actually and
reasonably incurred in connection with either the investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a right
to indemnification under this Agreement, applicable law or otherwise;
provided,however, that expenses shall not include any judgments, fines,
ERISA excise taxes or penalties or amounts paid in settlement of a
Proceeding.
(iii) "Liabilities" shall mean liabilities of any type whatsoever,
-----------
including, but not limited to, judgments, fines, ERISA excise taxes and
penalties and amounts paid in settlement of a Proceeding.
(iv) "Proceeding" shall mean any action, suit arbitration, alternate
----------
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative
to which Indemnitee is or was a party or is threatened to be a party by
reason of the fact that he is or was an Agent or by reason of anything done
or not done by Indemnitee in such capacity.
(v) "Delaware Law" shall mean Title 8 of the Delaware Code as
------------
amended and in effect from time to time or any successor or other statutes
of Delaware having similar import and effect.
(h) Pronouns. Use of the masculine pronoun shall be deemed to include
--------
usage of the feminine pronoun where appropriate.
(i) Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties to this Agreement. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
(j) Notice by Indemnitee and Defense of Claims. Indemnitee agrees promptly
------------------------------------------
to notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter which may be subject to indemnification covered hereunder, either civil,
criminal or investigative; but the omission so to notify the Company will not
relieve it from any liability which it may have to Indemnitee if such omission
does not prejudice the Company's rights and if such omission does prejudice the
Company's rights, it will relieve the Company from liability only to the extent
of such prejudice; nor will such omission, in any event, relieve the Company
from any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
-5-
<PAGE>
(i) The Company will be entitled to participate therein at its own
expense; and
(ii) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election so to assume the defense thereof, the Company
will not be liable to Indemnitee under this Agreement for any legal or
other expenses subsequently incurred by Indemnitee in connection with the
defense thereof except as otherwise provided below. Indemnitee shall have
the right to employ his counsel in such action, suit or proceeding but the
fees and expenses of such counsel incurred after notice from the Company of
its assumption of the defense thereof shall be at the expense of Indemnitee
unless (A) the employment of counsel by Indemnitee has been authorized by
the Company, or (B) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the Company, or (C)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense.
(iii) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold their consent to any proposed
settlement.
(k) Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (ii) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee: _____________________
_____________________
_____________________
If to Company: BEATNIK, INC.
2600 El Camino Real
San Mateo, CA 94403
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
-6-
<PAGE>
(l) Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
(m) Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
(n) Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any Proceeding, but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such expenses, judgments, fines or penalties to
which Indemnitee is entitled.
-7-
<PAGE>
(o) Governing Law; Binding Effect. The parties agree that this Agreement
-----------------------------
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware, as applied to contracts between Delaware residents
entered into and to be performed entirely within Delaware. This Agreement shall
be binding upon Indemnitee and upon the Company, its successors and assigns, and
shall inure to the benefit of Indemnitee, his heirs, personal representatives
and assigns and to the benefit of the Company, its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BEATNIK, INC., a Delaware corporation
By____________________________________
Its___________________________________
______________________________________
Indemnitee
-8-
<PAGE>
EXHIBIT 10.5
OFFICE LEASE
------------
2600 S. EL CAMINO REAL
SAN MATEO, CALIFORNIA
LAMBEAU INVESTORS LLC,
a California limited liability company,
as Landlord,
and
BEATNIK, INC.,
a California corporation
as Tenant
<PAGE>
2600 S. EL CAMINO REAL
----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 Real Property, Building and Premises....................... 1
ARTICLE 2 Lease Term................................................. 3
ARTICLE 3 Base Rent.................................................. 3
ARTICLE 4 Additional Rent............................................ 3
ARTICLE 5 Use of Premises............................................ 8
ARTICLE 6 Services and Utilities..................................... 8
ARTICLE 7 Repairs.................................................... 9
ARTICLE 8 Additions and Alterations.................................. 9
ARTICLE 9 Covenant Against Liens..................................... 10
ARTICLE 10 Indemnification and Insurance.............................. 10
ARTICLE 11 Damage and Destruction..................................... 11
ARTICLE 12 Condemnation............................................... 12
ARTICLE 13 Covenant of Quiet Enjoyment................................ 13
ARTICLE 14 Assignment and Subletting.................................. 13
ARTICLE 15 Surrender; Ownership and Removal of Trade Fixtures......... 14
ARTICLE 16 Holding Over............................................... 15
ARTICLE 17 Estoppel Certificates...................................... 15
ARTICLE 18 Subordination.............................................. 15
ARTICLE 19 Tenant's Defaults; Landlord's Remedies..................... 15
ARTICLE 20 Security Deposit........................................... 17
ARTICLE 21 Compliance with Law........................................ 17
ARTICLE 22 Entry by Landlord.......................................... 18
ARTICLE 23 Miscellaneous Provisions................................... 18
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
B [INTENTIONALLY OMITTED]
C AMENDMENT TO LEASE
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F WARRANT CERTIFICATE
G INVENTORY OF LANDLORD'S FURNITURE
-i-
<PAGE>
2600 S. EL CAMINO REAL
----------------------
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
This Summary of Basic Lease Information ("Summary") is hereby incorporated
into and made a part of the attached Office Lease. Each reference in the Office
Lease to any term of this Summary shall have the meaning as set forth in this
Summary for such term. In the event of a conflict between the terms of this
Summary and the Office Lease, the terms of the Office Lease shall prevail. Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning as set forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE DESCRIPTION
(References are to the Office Lease)
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1. Date: June 17, 1999
2. Landlord: LAMBEAU INVESTORS LLC, a California limited liability
company
3. Address of Landlord (Section 23.19): Lambeau Investors LLC
c/o Orvick Management Group
1887 O'Toole Avenue, Suite C208
San Jose, California 95131
Attn: Mr. Ken Orvick
with copies to:
Lambeau Investors LLC
c/o Worthing Capital
845 Oak Grove Avenue, Suite 105
Menlo Park, California 94025
Attn: Mr. Vincent Sakowski
and
Allen, Matkins, Leck, Gamble & Mallory LLP
333 Bush Street, Suite 1700
San Francisco, California 94104
Attn: Richard C. Mallory, Esq.
4. Tenant: BEATNIK, INC., a California corporation
5. Address of Tenant (Section 23.19): Beatnik, Inc.
217 South B Street
San Mateo, California 94401
Attn: Chief Financial Officer
(Prior to Lease Commencement Date)
and
Beatnik, Inc.
2600 S. El Camino Real, Suite 300
San Mateo, California 94403
Attention: Chief Financial Officer
(After Lease Commencement Date)
6. Premises (Article 1): Approximately 7,679 rentable square feet of space located
on the third (3rd) floor of the Building, as set Forth in
Exhibit A attached hereto.
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7. Term (Article 2):
7.1 Lease Term: Three (3) years.
7.2 Lease Commencement Date: The earlier of (i) the date Tenant commences business in
the Premises, or (ii) June 18, 1999.
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7.3 Lease Expiration Date: If the Lease Commencement Date shall be the first day of a
calendar month, then the day immediately preceding the
third (3rd) anniversary of the Lease Commencement Date;
or, if the Lease Commencement Date shall be other than the
first day of a calendar month, then the last day of the
month in which the third (3rd) anniversary of the Lease
Commencement Date occurs.
7.4 Lease Amendment: Landlord and Tenant shall confirm the Lease Commencement
Date and the Lease Expiration Date in an Amendment to
Lease (Exhibit C) to be executed pursuant to Article 2 of
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the Office Lease.
8. Base Rent (Article 3):
Annual Monthly Installment Annual Rental Rate per
Lease Year Base Rent of Base Rent Rentable Square Foot
------------- --------------------- ------------------------- ----------------------------
1 $281,051.40 $23,420.95 $36.60
2 $290,266.20 $24,188.85 $37.80
3 $299,481.00 $24,956.75 $39.00
9. Additional Rent (Article 4):
9.1 Base Year Calendar year 1999.
9.2 Tenant's Share of Direct Approximately 31.93%.
Expenses:
10. Security Deposit (Article 20): $149,740.50
11. Brokers (Section 23.25): BT Commercial Real Estate
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2600 S. EL CAMINO REAL
----------------------
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary attached hereto and
incorporated herein by this reference (the Office Lease and Summary to be known
sometimes collectively hereafter as the "Lease"), dated as of the date set forth
in Section 1 of the Summary, is made by and between LAMBEAU INVESTORS LLC, a
California limited liability company ("Landlord"), and BEATNIK, INC., a
California corporation ("Tenant").
ARTICLE 1
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REAL PROPERTY, BUILDING AND PREMISES
------------------------------------
1.1 Real Property, Building and Premises. Upon and subject to the terms,
------------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases front Landlord the premises set forth
in Section 6 of the Summary (the "Premises"), which Premises are part of the
building (the "Building") located at 2600 S. El Camino Real, San Mateo,
California. The outline of the floor plan of the Premises is set forth in
Exhibit A attached hereto. The Building, any outside plaza areas, land and other
improvements surrounding the Building which are designated from time to time by
Landlord as common areas appurtenant to or servicing the Building, the apartment
building adjacent to the Building (the "Apartment Building"), the parking
facility serving the Building and the Apartment Building, and the land upon
which any of the foregoing are situated, are herein sometimes collectively
referred to as the "Real Property." Tenant is hereby granted the right to the
nonexclusive use of the common corridors and hallways, stairwells, elevators,
restrooms and other public or common areas located on the Real Property
(exclusive of the Apartment Building); provided, however, that the manner in
which such public and common areas are maintained and operated shall be at the
reasonable discretion of Landlord and the use thereof shall be subject to such
reasonable rules, regulations and restrictions as Landlord may make from time to
time. Landlord reserves the right to make alterations or additions to or to
change the location of elements of the Real Property and the common areas
thereof; provided such changes do not materially adversely affect Tenant's
ingress to or egress from the Real Property, the Building or the Premises.
1.2 Condition of Premises. Except as expressly set forth in this Section
---------------------
1.2, Landlord shall not be obligated to provide or pay for any improvement,
remodeling or refurbishment work or services related to the improvement,
remodeling or refurbishment of the Premises, and Tenant shall accept the
Premises in its "As Is" condition on the Lease Commencement Date. Landlord shall
perform the following work prior to delivery of the Premises to Tenant
("Landlord's Work"): (a) patch and paint (in a color selected by Tenant not
later than five (5) days following the execution of this Lease and reasonably
approved by Landlord) the walls of the Premises; (b) shampoo the carpeting in
the Premises; (c) replace any stained or broken ceiling tiles in the Premises;
(d) clean all air conditioning duct vents in file Premises; (e) replace the
existing drapes in the Premises with Building standard blinds on the exterior
windows; and (f) paint the common area walls (including those in the restrooms)
on the third (3rd) floor of the Building. Landlord shall deliver the Premises
free of debris used to perform Landlord's Work.
1.3 Right of First Offer. During the initial term of this Lease, Tenant
--------------------
shall have a one-time right of first offer to lease the entire ground floor of
the Building (the "First Offer Space"), which consists of 4,868 rentable square
feet and which becomes available for lease as provided hereinbelow as determined
by Landlord. For purposes hereof, the First Offer Space shall become available
for lease following the expiration or earlier termination of the current
tenant's lease therefor (including renewals whether or not such renewal is
pursuant to an express written provision in such lease and regardless of whether
any such renewal is consummated pursuant to a new lease or lease amendment), and
after the tenant thereunder has vacated such space. Notwithstanding anything
herein to the contrary, Tenant's right of first offer set forth herein shall be
subject and subordinate to all expansion, first offer and similar rights
currently set forth in any lease for space in the Building which has beef)
executed as of the date of execution or this Lease (collectively, the "Superior
Rights").
1.3.1 Procedure for Offer. Landlord shall give Tenant written notice
-------------------
(the "First Offer Notice") that the First Offer Space will or has become
available for lease by Tenant as provided above (its such availability is
determined by Landlord) pursuant to the terms of Tenant's right of first offer,
as set forth in this Section ).3, provided that no holder of Superior Rights
desires to lease all or any portion of such space. Any such Landlord's First
Offer Notice delivered by Landlord in accordance with the provisions of Section
1.3 above shall set forth the terms upon which Landlord would lease the First
Offer Space to Tenant, including, without limitation (i) the anticipated date
upon which the First Offer Space will be available for lease by Tenant and the
commencement date therefor, (ii) a schedule of construction of tenant
improvements for the First Offer Space, if any, (iii) the Base Rent payable for
the First Offer Space which shall be equal to the Fair Market Rental Rate for
the First Offer Space (as defined ill Section 1.3.3 below and as determined by
Landlord), including tenant improvements and tenant improvement allowance for
such First Offer Space, (iv) the term of the lease for such space (which may or
may not be coterminus with the Lease Term for the initial Premises); (v) the
Security Deposit shall be increased by the amount of the First Offer Space Rent
payable by Tenant for the last month of the term of the lease for the First
Offer Space; and (vi) any additional collateral as security for Tenant's rental
and other obligations with respect to the First Offer Space, in such amounts and
of such types (e.g., cash security deposit, letter of credit and/or stock
warrants in Tenant), if any, as shall be determined as part of the Fair Market
Rental Rate calculation.
1.3.2 Procedure for Acceptance. If Tenant wishes to exercise Tenant's
------------------------
right of first offer with respect to the space described in the First Offer
Notice, then within five (5) business days of Tenant's receipt of the First
Offer Notice, Tenant shall deliver written notice to Landlord ("Tenant's
Election Notice") pursuant to which Tenant shall elect either to: (i) lease the
entire First Offer Space described in the First Offer Notice at the First Offer
Rent and upon the terms contained in such notice, or (ii) refuse to lease the
First Offer Space, specifying that Tenant is not interested in exercising its
right of first offer for the First Offer Space, in which event Tenant's right of
first offer shall terminate and be of no further force or effect and Landlord
shall be free
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to lease the First Offer Space or any portion thereof to anyone to whom Landlord
desires on any terms Landlord desires. If Tenant does not notify Landlord of its
election of any of the options in clauses (i) or (ii) hereinabove, Tenant shall
be deemed to have elected the option in clause (ii). Notwithstanding anything in
this Section 1.3.2 to the contrary, concurrently with Tenant's delivery of
Tenant's Election Notice exercising such right of first offer, Tenant may object
in writing to Landlord's determination of the Fair Market Rental Rate set forth
in Landlord's First Offer Notice, in which case the Fair Market Rental Rate
shall be determined in accordance with the appraisal procedures set forth in
Section 1.3.4 below. If Tenant does not timely object in writing to Landlord's
determination of the Fair Market Rental Rate, then Tenant shall be deemed to
have accepted such determination and the appraisal procedures in Section 1.3.4
below shall not apply.
1.3.3 The "Fair Market Rental Rate for the First Offer Space" shall
be equal to the Base Rent at which tenants, as of the commencement of the lease
for the First Offer Space, are leasing non-sublease space comparable in size,
location and quality to the First Offer Space for a comparable term, which
comparable space is located in the Building or in comparable office buildings
which are located in the City of San Mateo and to the west of Highway 101,
taking into consideration all concessions and inducements generally being
granted at such time, as determined by Landlord.
1.3.4 Determination of Fair Market Rental Rate. If Tenant timely
----------------------------------------
objects to the Fair Market Rental Rate submitted by Landlord in the First Offer
Notice, Landlord and Tenant shall thereafter attempt in good faith to agree upon
such Fair Market Rental Rate, using their best good faith efforts. If Landlord
and Tenant fail to reach agreement on such Fair Market Rental Rate within
fifteen (15) days following Tenant's objection to such Fair Market Rental Rate
(the "Outside Agreement Date") then the Fair Market Rental Rate shall be
submitted to appraisal in accordance with Sections 1.3.4.1 through 1.3.4.7
below.
1.3.4.1 Landlord and Tenant shall each appoint one (1)
"appraiser" who shall by profession be a real estate broker who shall have been
active over the five (5) year period ending on the date of such appointment in
the brokerage of office buildings in the City of San Mateo which are located
west of Highway 101 which are comparable to the Building. The determination of
the appraisers shall be limited solely to the issue of whether Landlord's or
Tenant's submitted Fair Market Rental Rate is the closer to the actual Fair
Market Rental Rate as determined by the appraisers, taking into account the
requirements with respect thereto set forth in Section 1.3.3 above. Each such
appraiser shall be appointed within ten (10) days after the Outside Agreement
Date.
1.3.4.2 The two (2) appraisers so appointed shall, within ten
(10) days of the date of the appointment of the last appointed appraiser, agree
upon and appoint a third appraiser who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two (2)
appraisers.
1.3.4.3 The three (3) appraisers shall, within ten (10) days
of the appointment of the third appraiser, reach a decision as to which of
Landlord's or Tenant's submitted Fair Market Rental Rate is closer to the actual
Fair Market Rental Rate and shall select such closer determination as the Fair
Market Rental Rate and notify Landlord and Tenant thereof.
1.3.4.4 The decision of the majority of the three (3)
appraisers shall be binding upon Landlord and Tenant.
1.3.4.5 If either Landlord or Tenant fails to appoint an
appraiser within the time period specified in Section 1.3.4.3 above, the
appraiser appointed by one of them shall reach a decision, notify Landlord and
Tenant thereof, and such appraiser's decision shall be binding upon Landlord and
Tenant.
1.3.4.6 If the two (2) appraisers fail to agree upon and
appoint a third appraiser, a third appraiser shall be appointed by the Superior
Court of San Mateo County, California.
1.3.4.7 Each party shall pay the fees and expenses of the
appraiser appointed by or on behalf of it, and each shall pay one-half of the
fees and expenses of the third appraiser, if any.
1.3.5 Construction In First Offer Space. If Tenant leases the First
---------------------------------
Offer Space pursuant to the terms of this Section 1.3, Tenant shall take the
First Offer Space in its "as is" condition as of the date of delivery of such
space by Landlord to Tenant, and Tenant may construct, at Tenant's sole cost and
expense, improvements in the First Offer Space pursuant to the terms of Article
8 of this Lease; provided, however, Tenant may receive a tenant improvement
allowance to construct tenant improvements in the First Offer Space to the
extent, if any, included in the definition of "First Offer Rent", as set forth
in Section 1.3.3.
1.3.6 Amendment to Lease. If Tenant leases any First Offer Space
------------------
pursuant to this Section 1.3, Landlord and Tenant shall promptly execute an
amendment to this Lease covering the First Offer Space and the lease terms
thereof. Notwithstanding anything to the contrary contained herein, Tenant must
elect to exercise its right of first offer provided herein, if at all, with
respect to all of the space offered by Landlord to Tenant in Landlord's First
Offer Notice at any particular time, and Tenant may not elect to lease only a
portion thereof.
1.3.7 Suspension of Right of First Offer. Notwithstanding anything in
----------------------------------
the foregoing to the contrary, at Landlord's option, and in addition to all of
Landlord's remedies under this Lease, at law or in equity, the right of first
offer herein above granted to Tenant shall not be deemed to be properly
exercised if, as of the date Tenant exercises its right of first offer or on the
scheduled commencement date for the First Offer Space, Tenant is[4~ in default
under this Lease. In addition, Tenant's right of first offer to lease the First
Offer Space is personal to the original Tenant executing 1his Lease, and may not
be assigned or exercised, voluntarily or involuntarily, by or to, any person or
entity other than the original Tenant, and shall only be available to and
exercisable by the Tenant when the original Tenant is in actual and physical
possession of the entire Premises.
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ARTICLE 2
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LEASE TERM
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The terms and provisions of this Lease shall be effective as of the date of
this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "Lease Term") shall be as set forth in
Section 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in Section 7.2 of the Summary (subject, however,
to the terms of the Work Letter), and shall terminate oil the date (the "Lease
Expiration Date") set forth in Section 7.3 of the Summary, unless this Lease is
sooner terminated as hereinafter provided. For purposes of this Lease, the term
"Lease Year" shall mean each consecutive twelve (12) month period during the
Lease Term, provided that the last Lease Year shall end on the Lease Expiration
Date. At any little during the Lease Term, Landlord may deliver to Tenant an
Amendment to Lease in the form as set forth in Exhibit C, attached hereto, which
---------
notice Tenant shall execute and return to Landlord within five (5) days of
receipt thereof.
ARTICLE 3
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BASE RENT
---------
Tenant shall pay, without notice or demand, to Landlord at the address
first set forth in Section 3 of the Summary, or at such other place as Landlord
may from time to time designate in writing, in currency or a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent ("Base Rent") as set forth in Section 8
of the Summary, payable in equal monthly installments as set forth in Section 8
of the Summary in advance on or before the first day of each and every month
during the Lease Term, without any setoff or deduction whatsoever; provided,
however, that Base Rent shall be abated during the period of time which
commences on the Lease Commencement Date and ends on June 30, 1999. The Base
Rent for the first full month of the Lease Term shall be paid at the time of
Tenant's execution of this Lease. If any rental payment date (including the
Lease Commencement Date) falls on a day of the month other than the first day of
such month or if any rental payment is for a period which is shorter than one
month, then the rental for any such fractional month shall be a proportionate
amount of a full calendar month's rental based on the proportion that the number
of days in such fractional month bears to the number of days in the calendar
month during which such fractional month occurs. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
ARTICLE 4
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ADDITIONAL RENT
---------------
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share" of
the annual "Direct Expenses," as those terms are defined in Sections 4.2.8 and
4.2.3 of this Lease, respectively, which are in excess of the amount of Direct
Expenses applicable to the "Base Year," as that term is defined in Section 4.2.1
of this Lease. Such additional rent, together with any and all other amounts
payable by Tenant to Landlord pursuant to the terms of this Lease (including,
without limitation, pursuant to Article 6 and Section 23.34), shall be
hereinafter collectively referred to as the "Additional Rent." The Base Rent and
Additional Rent are herein collectively referred to as the "Rent." All amounts
due under this Article 4 as Additional Rent shall be payable for the same
periods and in the same manner, time and place as the Base Rent. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall have
-----------
the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the year set forth in Section 9.1 of the
Summary.
4.2.2 "Calendar Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.4 "Expense Year" shall mean each Calendar Year, provided that
Landlord, upon notice to Tenant, may change the Expense Year from time to time
to any other twelve (12) consecutive-month period, and, in the event of any such
change, Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.5 "Operating Expenses" shall mean all reasonable and actual
expenses, costs and amounts of every kind and nature which Landlord shall pay
during any Expense Year because of or in connection with the lease or ownership,
management maintenance, repair, replacement, restoration or operation of the
Building and Real Property, including, without limitation, any amounts paid for:
(i) the cost of supplying all utilities, the cost of operating, maintaining,
repairing, renovating and managing the utility systems, mechanical systems,
sanitary and storm drainage systems, any elevator systems and all other "Systems
and Equipment" (as defined in Section 4.2.6 of this Lease), and the cost of
supplies and equipment and maintenance and service contracts in connection
therewith; (ii) the cost of licenses, certificates, permits and inspections, and
the cost of contesting the validity or applicability of any governmental
enactments which may affect Operating Expenses; (iii) the cost of insurance
carried by Landlord, in such amounts as Landlord may reasonably determine or as
may be required by any mortgagees or the lessor of any underlying or ground
lease affecting the Real
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Property and/or the Building; (iv) the cost of landscaping, relamping, supplies,
tools, equipment and materials, and all fees, charges and other costs (including
consulting fees, legal fees and accounting fees) incurred in connection with the
management, operation, repair and maintenance of the Building and Real Property;
(v) any equipment rental agreements or management agreements (including the cost
of any management fee and the fair rental value of any office space provided
thereunder); (vi) wages, salaries and other compensation and benefits of all
persons engaged in the operation, management, maintenance or security of the
Building and Real Property, and employer's Social Security taxes, unemployment
taxes or insurance, and any other taxes which may be levied on such wages,
salaries, compensation and benefits; (vii) payments under any easement, license,
operating agreement, declaration, restrictive covenant, underlying or ground
lease (excluding rent), or instrument pertaining to the sharing of costs by the
Building or Real Property; (viii) the cost of janitorial service, alarm and
security service, window cleaning, trash removal, replacement of wall and floor
coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other
common or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (ix) amortization (including interest
on the unamortized cost) of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Building
and Real Property; and (x) the cost of any capital improvements or other costs
(I) which are intended as a labor-saving device or to effect other economics in
the operation or maintenance of the Building and Real Property, (II) made to the
Building or Real Property after the Lease Commencement Date that are required
under any governmental law or regulation, or (III) which are reasonably
determined by Landlord to be in the best interests of the Building and/or the
Real Property; provided, however, that if any such cost described in (I), (II)
or (III) above is a capital expenditure, such cost shall be amortized (including
interest on the unamortized cost) over its useful life as Landlord shall
reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is not fully occupied during all or a portion of any
Expense Year (including the Base Year), Landlord shall make an appropriate
adjustment to the variable components of Operating Expenses for such year or
applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been fully occupied; and the amount so determined shall be
deemed to have been the amount of Operating Expenses for such year, or
applicable portion thereof. Landlord shall have the right, from time to time, to
equitably allocate, employing sound accounting and management principles, some
or all of the Operating Expenses among different portions or tenants of the Real
Property (the "Cost Pools"). Such Cost Pools may include, without limitation,
the tenants of the Building and the tenants of the Apartment Building. The
Operating Expenses allocable to each such Cost Pool shall be allocated to such
Cost Pool and charged to the tenants within such Cost Pool in an equitable
manner. Notwithstanding anything to the contrary set forth in this Article 4,
when calculating Direct Expenses for the Base Year, Operating Expenses shall
exclude market-wide labor-rate increases due to extraordinary circumstances,
including, but not limited to, boycotts and strikes, and utility rate increases
due to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages, and costs relating to
capital improvements.
Notwithstanding the foregoing, Operating Expenses shall not, however,
include:
(A) costs or leasing commissions, attorneys' fees and other costs and
expenses incurred in connection with negotiations or disputes with present or
prospective tenants or other occupants of the Building;
(B) costs (including permit, license and inspection costs) incurred
in renovating or otherwise improving, decorating or redecorating rentable space
for other tenants or vacant rentable space;
(C) costs incurred due to the violation by Landlord of the terms and
conditions of any lease of space in the Building;
(D) costs of overhead or profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for services in or in connection with the
Building to the extent the same exceeds the costs of overhead and profit
increment included in the costs of such services which could be obtained from
third parties on a competitive basis;
(E) except as otherwise specifically provided in this Section 4.2.5,
costs of interest on debt or amortization on any mortgages, and rent payable
under any ground lease of the Real Property;
(F) costs of a capital nature for the Real Property, except as
specifically set forth in subclauses (ix) and (x) hereinabove;
(G) costs of all items and services for which Tenant reimburses
Landlord or pays to third parties or which Landlord provides selectively to one
or more tenants or occupants of the Building (other than Tenant) without
reimbursement;
(H) interest and principal payments, points and fees, on mortgages or
deeds of trust or other debt for borrowed money (except for interest as
described in subclauses (ix) and (x) hereinabove);
(I) specific costs or services billed to and paid by specific tenants
other than Tenant;
(J) costs of repairs and maintenance reimbursed by any other party;
(K) marketing costs including any sale/transfer/leasing commissions,
attorneys' fees in connection with the negotiation and preparation of letters,
deal memos, letters of intent, agreements, leases, subleases and/or assignments,
space planning costs, and other costs and expenses incurred in connection with
sale/transfer/lease, sublease and/or assignment negotiations and transactions
with present or prospective purchasers, tenants or other occupants of the
Building;
(L) attorneys' fees and other costs incurred in attempting to collect
rent or evict tenants for nonpayment of rent;
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(M) depreciation, amortization and interest payments, (except as
provided herein and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
standard real estate accounting practices, consistently applied, and when
depreciation or amortization is permitted or required, the item shall be
amortized over its reasonably anticipated useful life);
(N) costs including penalties, fines and associated legal expenses
incurred due to the violation by Landlord or any other tenant in the Building of
applicable federal, state or local governmental laws, codes and similar
regulations that would not have been incurred but for any such violations by
Landlord or any tenant in the Building, it being intended that each party shall
be responsible for the costs resulting from its own violation of such laws,
codes and regulations (notwithstanding the immediately foregoing, costs incurred
in connection with assessments or taxes which are reasonably contested by
Landlord shall be deemed Operating Expenses);
(O) general overhead and general administrative expenses, advertising
and promotional expenses incurred in leasing the Building;
(P) costs incurred by Landlord for the repair of damage to the
Building, to the extent that Landlord is reimbursed by insurance proceeds;
(Q) expenses in connection with services or other benefits which are
not provided to Tenant or for which Tenant is charged for directly but which are
provided to another tenant or occupant of the Building;
(R) costs incurred by Landlord due to the violation by Landlord of
(1) the terms and conditions of any lease or other occupancy of space in the
Building, (2) this Lease, or (3) any covenants, conditions and restrictions
encumbering the Real Property;
(S) costs of correcting defects in the construction of the Building;
(T) costs incurred in connection with upgrading the Building to
comply with disability, fire and life safety codes in effect (and legally
applicable to the Building) prior to the Lease Commencement Date;
(U) penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments when due;
(V) costs arising from the presence of Hazardous Materials in or
about the Building or the Real Property (including, without limitation,
Hazardous Materials in the ground water or soil) to the extent such Hazardous
Materials are (i) in existence as of the Lease Commencement Date and in
violation of applicable laws, in effect as of the Lease Commencement Date, or
(ii) introduced by Landlord or Landlord's employees, agents or tenants after the
Lease Commencement Date in violation of applicable laws in effect as of the date
of introduction;
(W) costs associated with the operation of the business of the
partnership or entity which constitutes Landlord as the same are distinguished
from the costs of operation of the Real Property, including partnership
accounting and legal matters, costs of defending any lawsuits with any mortgagee
(except actions where the default of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Real Property, costs of any disputes between Landlord and its employees
(if any), disputes of Landlord with Real Property or parking management, or
outside fees paid in connection with disputes with other tenants;
(X) the wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Building unless such wages
and benefits are prorated to reflect time spent on operating and managing the
Building vis-a-vis time spent on matters unrelated to operating and managing the
Building; provided that in no event shall Operating Expenses for purposes of
this Lease include wages and/or benefits attributable to personnel above the
level of Building manager or Building engineer;
(Y) overhead and profit increment paid to Landlord or to subsidiaries
or affiliates of Landlord for services in the Building to the extent the same
exceeds typical costs of such services rendered by qualified unaffiliated third
parties on a competitive basis;
(Z) the cost of any work or service performed for any building or
facility other than the Building or Real Property; and
(AA) any expense for repairs or maintenance that is covered by
warranties or service contracts.
4.2.6 "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.7 "Tax Expenses" shall mean all actual federal, state, county, or
local governmental or municipal taxes, fees, assessments, charges or other
impositions of every kind and nature, whether general, special, ordinary or
extraordinary (including, without limitation, real estate taxes, general and
special assessments, transit assessments, fees and taxes, child care
-5-
<PAGE>
subsidies, fees and/or assessments, job training subsidies, open space fees
and/or assessments, housing subsidies and/or housing fund fees or assessments,
public art fees and/or assessments, leasehold taxes or taxes based upon the
receipt of rent, including gross receipts or sales taxes applicable to the
receipt of rent, personal property taxes imposed upon the fixtures, machinery,
equipment, apparatus, systems and equipment, appurtenances, furniture and other
personal property used in connection with the Real Property), which Landlord
shall pay during any Expense Year because of or in connection with the
ownership, leasing and operation of the Real Property or Landlord's interest
therein. For purposes of this Lease, Tax Expenses shall be calculated as if the
tenant improvements in the Building were fully constructed and the Real
Property, the Building, and all tenant improvements in the Building were fully
assessed for real estate tax purposes.
4.2.7.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or other
income front the Real Property or as against Landlord's business of leasing any
of the Real Property;
(ii) Any assessment, tax, fee, levy or charge in addition
to, or in substitution, partially or totally, of any assessment, tax, fee, levy
or charge previously included within the definition of real property tax, it
being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants. It is the intention of
Tenant and Landlord that all such new and increased assessments, taxes, fees,
levies, and charges and all similar assessments, taxes, fees, levies and charges
be included within the definition of Tax Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge allocable to
or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax upon or with respect to the
possession, leasing, operating, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge, upon this
transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises; and
(v) Any reasonable and actual expenses incurred by
Landlord in attempting to protest, reduce or minimize Tax Expenses.
4.2.7.2 INTENTIONALLY DELETED.
---------------------
4.2.7.3 Notwithstanding anything to the contrary, contained in
this Section 4.2.7, there shall be excluded from Tax Expenses (i) all excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state net income taxes, and other
taxes to the extent applicable to Landlord's net income (as opposed to rents,
receipts or income attributable to operations at the Building or Real Property),
(ii) any items included as Operating Expenses, (iii) any items paid by Tenant
under Section 4.4 of this Lease, and (iv) any lines or penalties incurred as a
result of Landlord's negligence, inability or unwillingness to timely pay Tax
Expenses.
4.2.8 "Tenant's Share" shall mean the percentage set forth in Section
9.2 of the Summary. Tenant's Share was calculated by multiplying the number of
rentable square feet of the Premises by 100 and dividing the product by the
total rentable square feet in the Building. In the event either the rentable
square feet of the Premises and/or the total rentable square feet of the
Building is changed, Tenant's Share shall be appropriately adjusted, and, as to
the Expense Year in which such change occurs, Tenant's Share for such year shall
be determined on the basis of the number of days during such Expense Year that
each such Tenant's Share was in effect. Landlord shall have the right from time
to time to remeasure the Premises in connection with a remeasurement of the
Building to determine the exact amount of rentable area contained therein
pursuant to Landlord's then current method for measuring rentable square
footage. Upon any such remeasurement, the rentable area of the Premises and/or
the Building, as the case may be, shall be appropriately adjusted as of the date
of such remeasurement based upon the written verification by Landlord's space
planner of such revised rentable area. In the event of any such adjustment to
the rentable area of the Premises and/or the Building, all amounts, percentages
and figures appearing or referred to in this Lease based upon such rentable area
(including, without limitation, "Tenant's Share,") shall be modified in
accordance with such determination; provided, however, notwithstanding anything
to the contrary contained here. Landlord represents to Tenant that, to
Landlord's actual knowledge, as of the date of the full execution of this Lease,
the Building and the Premises have been measured in accordance with current BOMA
standards.
4.3 Calculation and Payment of Additional Rent.
------------------------------------------
4.3.1 Calculation of Excess. If for any Expense Year ending or
---------------------
commencing within the Lease Term, Tenant's Share of' Direct Expenses for such
Expense Year exceeds Tenant's Share of Direct Expenses for the Base Year, then
Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2, below,
and as Additional Rent, an amount equal to the excess (the "Excess").
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "Statement") which
shall state the Direct Expenses incurred or accrued for such preceding Expense
Year, and which shall indicate the amount, if any, of any Excess. Upon receipt
of the Statement for each Expense Year ending during the Lease Term, if an
Excess is present, Tenant shall pay, with its next installment of Base Rent due,
the full amount of the Excess for such Expense Year, less the amounts, if any,
paid during such Expense Year as "Estimated Excess," as that term is defined in
Section 4.3.3 of this Lease. The failure
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<PAGE>
of Landlord to timely furnish the Statement for any Expense Year shall not
prejudice Landlord front enforcing its rights under this Article 4. Even though
the Lease Term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's Share of the Direct Expenses for the Expense
Year in which this Lease terminates, if an Excess is present, Tenant shall,
within thirty (30) days after Landlord delivers the Statement to Tenant, pay to
Landlord an amount as calculated pursuant to the provisions of Section 4.3.1 of
this Lease. The provisions of this Section 4.3.2 shall survive the expiration or
earlier termination of the Lease Term.
4.3.3 Statement of Estimated Direct Expenses. In addition,
--------------------------------------
Landlord shall endeavor to give Tenant a yearly expense estimate statement (the
"Estimate Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated Excess (the "Estimated Excess") as
calculated by comparing Tenant's Share of' Direct Expenses, which shall be based
upon the Estimate, to Tenant's Share of Direct Expenses for the Base Year. The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Excess under this Article 4. If pursuant to the Estimate Statement an
Estimated Excess is calculated for the then-current Expense Year, Tenant shall
pay, with its next installment of Base Rent due, a fraction of the Estimated
Excess for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.3.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to one-
twelfth (1/12) of the total Estimated Excess set Forth in the previous Estimate
Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
----------------------------------------------------------------
Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary, or within the contemplation of
the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord (employing sound accounting and
management practices) regardless of whether title to such improvements shall be
vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Real Property; or
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.
4.5 Audit Rights. In the event Tenant disputes the amount of the Direct
------------
Expenses set forth in the Statement for the particular Expense Year delivered by
Landlord to Tenant pursuant to Section 4.3.2 above, Tenant shall have the right,
at Tenant's cost, after reasonable notice to Landlord, to have Tenant's
authorized employees inspect, at Landlord's office during normal business hours,
Landlord's books, records and supporting documents concerning the Direct
Expenses set forth in such Statement; provided, however, Tenant shall have no
right to conduct such inspection, have an audit performed by the Accountant as
described below, or object to or otherwise dispute the amount of file Direct
Expenses set forth in any such Statement, unless Tenant notifies Landlord of
such objection and dispute, completes such inspection, and has the Accountant
commence and complete such audit within one (1) year immediately following
Landlord's delivery of the particular Statement in question (the "Review
Period"); provided, further, that notwithstanding any such timely objection,
dispute, inspection, and/or audit, and as a condition precedent to Tenant's
exercise of its right of objection, dispute, inspection and/or audit as set
forth in this Section 4.5, Tenant shall not be permitted to withhold payment of,
and Tenant shall timely pay to Landlord, the full amounts as required by the
provisions of this Article 4 in accordance with such Statement. However, such
payment may be made under protest pending the outcome of any audit which may be
performed by the Accountant as described below. In connection with any such
inspection by Tenant, Landlord and Tenant shall reasonably cooperate with each
other so that such inspection can be performed pursuant to a mutually acceptable
schedule, in an expeditious manner and without undue interference with
Landlord's operation and management of the Real Property. If after such
inspection and/or request for documentation, Tenant still disputes the amount of
the Direct Expenses set forth in the Statement,Tenant shall have the right,
within the Review Period, to cause an independent certified public accountant
(which is not paid on a commission or contingency basis) mutually approved by
Landlord and tenant (the "Accountant") to complete all audit or Landlord's books
and records to determine the proper amount of the Direct Expenses incured and
amounts payable by Tenant for the Expenses Year which is the subject of such
statement. Such audit by the Accountant shall be final and binding upon Landlord
and Tenant. If Landlord and Tenant cannot mutually agree as to the identity of
the Accountant within thirty (30) days after Tenant notifies Landlord that
Tenant desires an audit to be performed, then the Accountant shall be of the
"Big 5" accounting firms (which is not paid on a commission or contingency
basis), as selected by Tenant and reasonably approved by Landlord. If such audit
reveals that Landlord has over-changed Tenant, then within thirty (30) days
after the results of such audit are made available to Landlord, Landlord shall
reimburse to Tenant the amount of such over-charge. If the audit reveals that
the Tenant was under-charged, then within thirty (30) days after the results of
such audit are made available to Tenant, Tenant shall reimburse to Landlord the
amount of such under-charge. Tenant agrees to pay the cost of such audit unless
it is subsequently determined that Landlord's original statement which was the
subject or such audit was in error to Tenant's disadvantage by five percent (5%)
or more of the total Direct Expenses which was the subject of such audit. The
payment by Tenant of any amounts pursuant to this Article 4 shall not preclude
Tenant from questioning, during the Review Period, the correctness of the
particular Statement in question provided by Landlord, but the failure of Tenant
to object thereto, conduct and complete its inspection and have the Accountant
conduct the audit as described above prior to the expiration of the Review
Period for such Statement shall be conclusively deemed Tenant's approval of the
Statement in question and the amount of Direct Expenses shown thereon.
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<PAGE>
4.6 Late Charges. If any installment of Rent or any other sum due from
------------
Tenant shall not be received by Landlord or Landlord's designee by the due date
therefor, then Tenant shall pay to Landlord a late charge equal to five percent
(5%) of the amount due plus any attorneys' fees incurred by Landlord by reason
of Tenant's failure to pay Rent and/or other charges when due hereunder. The
late charge shall be deemed Additional Rent and the right to require it shall be
in addition to all of Landlord's other rights and remedies hereunder, at law
and/or in equity and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner. In addition to the late charge described
above, any Rent or other amounts owing hereunder which are not paid by the date
they are due shall thereafter bear interest until paid at a rate (the "Interest
Rate") equal to the "Prime Rate" or "Reference Rate" announced from time to time
by the Bank of America (or such reasonable comparable national banking
institution as selected by Landlord in the event Bank of America ceases to exist
or publish a Prime Rate or Reference Rate), plus two percent (2%), but in no
event shall the Interest Rate be higher than the highest rate permitted by
applicable law.
ARTICLE 5
---------
USE OF PREMISES
---------------
Tenant shall use the Premises solely for general office purposes consistent
with the character of the Building, and Tenant shall not use or permit the
Premises to be used for any other purpose or purposes whatsoever. Tenant further
covenants and agrees that it shall not use, or suffer or permit my person or
persons to use, the Premises or any part thereof for any use or purpose contrary
to the provisions of Exhibit D, attached hereto, or in violation of the laws of
---------
the United States of America, the state in which the Building is located, or the
ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the
Building. Tenant shall comply with all recorded covenants, conditions, and
restrictions, and the provisions of all ground or underlying leases, now or
hereafter affecting the Real Property. Tenant shall not use or allow another
person or entity to use my part of the Premises for the storage, use, treatment,
manufacture or sale of "Hazardous Material," as that term is defined below. As
used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the state in which the Building is located or the United
States Government.
ARTICLE 6
---------
SERVICES AND UTILITIES
----------------------
6.1 Standard Tenant Services. Landlord shall provide the following
------------------------
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to reasonable changes implemented by Landlord and to
all governmental rules, regulations and guidelines applicable thereto, Landlord
shall provide heating and air conditioning when necessary for normal comfort for
normal office use in the Premises, from Monday through Friday, during the period
from 8:00 a.m. to 6:00 p.m., except for the date of observation of New Year's
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day and other locally or nationally recognized holidays
(collectively, the "Holidays").
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall bear the cost of replacement of lamps, starters and ballasts for
lighting fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services in a manner consistent with other comparable
buildings in the vicinity of the Building,
6.1.5 Landlord shall provide nonexclusive automatic passenger
elevator service at all times.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
-----------------------
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of Section
6.1 of this Lease. If Tenant uses water or heat or air conditioning in excess
of that supplied by Landlord pursuant to Section 6.1 of this Lease, or if
Tenant's consumption of electricity shall exceed four (4) watts per usable
square foot of the Premises, calculated on an annualized basis for the hours
described in Section 6.1.1 above, Tenant shall pay, to Landlord, within ten (10)
days after billing, the cost of such excess consumption, the cost of the
installation, operation, and maintenance of equipment which is installed in
order to supply such excess consumption, and the cost of the increased wear and
tear on existing equipment caused by such excess consumption; and Landlord may
install devices to separately meter any increased use and in such event Tenant
shall pay the increased cost directly to Landlord, within ten (10) days after
demand, including the cost of such additional metering devices. If Tenant
desires to use heat, ventilation or air conditioning during hours other than
those for which Landlord is obligated to supply such utilities pursuant to the
terms of Section 6.1 of this Lease, (i) Tenant shall give Landlord such prior
notice, as Landlord shall from time to time establish as appropriate, of
Tenant's desired use, (ii) Landlord shall supply such utilities to Tenant at a
charge equal to Landlord's "actual cost" of such services (which "actual cost"
shall not include any profit to Landlord but may include reasonable overhead,
administration and depreciation charges), and (iii) Tenant shall pay such cost
within ten (10) days after billing.
-8-
<PAGE>
(including designating specific contractors to perform such work). Tenant shall
construct such Alterations and perform such repairs in conformance with any and
all applicable rules and regulations of any federal, state, county or municipal
code or ordinance and pursuant to a valid building permit, issued by the city in
which the Building is located, and in conformance with Landlord's construction
rules and regulations. Landlord's approval of the plans, specifications and
working drawings for Tenant's Alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules and regulations of governmental agencies or
authorities. All work with respect to any Alterations must be done in a good
and workmanlike manner and diligently prosecuted to completion to the end that
the Premises shall at all times be a complete unit except during the period of
work. In performing the work of any such Alterations, Tenant shall have the
work performed in such manner as not to obstruct access to the Building or the
common areas for any other tenant of the Building, and as not to obstruct the
business of Landlord or other tenants in the Building, or interfere with the
labor force working in the Building. If Tenant makes any Alterations, Tenant
agrees to carry "Builder's All Risk" insurance in an amount approved by Landlord
covering the construction of such Alterations, and such other reasonable
insurance as Landlord may require, it being understood and agreed that all of
such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a co-
obligee. Upon completion of any Alterations, Tenant shall (i) cause a Notice of
Completion to be recorded in the office of the Recorder of the county in which
the Building is located in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, (ii) deliver to the Building
management office a reproducible copy of the "as built" drawings of the
Alterations, and (iii) deliver to Landlord evidence of payment, contractors'
affidavits and full and final waivers of all liens for labor, services or
materials.
8.3 Landlord's Property. All Alterations, improvements, fixtures and/or
-------------------
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord.
Furthermore, if, as a condition of its consent to such Alterations, Landlord has
required that Tenant remove any improvement or Alteration upon the expiration or
early termination of the Lease Term, Tenant shall do so and repair any damage to
the Premises and Building caused by such removal. If Tenant fails to complete
such removal and/or to repair any damage caused by the removal of any
Alterations, Landlord may do so and may charge the cost thereof to Tenant.
ARTICLE 9
---------
COVENANT AGAINST LIENS
----------------------
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems
necessary for protection from such liens. Tenant covenants and agrees not to
suffer or permit any lien of mechanics or materialmen or others to be placed
against the Real Property, the Building or the Premises with respect to work or
services claimed to have been performed for or materials claimed to have been
furnished to Tenant or the Premises, and, in case of any such lien attaching or
notice of any lien, Tenant covenants and agrees to cause it to be immediately
released and removed of record. Notwithstanding anything to the contrary set
forth in this Lease, if any such lien is not released and removed on or before
the date notice of such lien is delivered by Landlord to Tenant, Landlord, at
its sole option, may immediately take all action necessary to release and remove
such lien, without any duty to investigate the validity thereof, and all sums,
costs and expenses, including reasonable attorneys' fees and costs, incurred by
Landlord in connection with such lien shall be deemed Additional Rent tinder
this Lease and shall immediately be due and payable by Tenant.
ARTICLE 10
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
10.1 Indemnification and Waiver. Tenant hereby assumes all risk of damage
--------------------------
to property and injury to persons, in, on, or about the Premises from any cause
whatsoever and agrees that Landlord, and its partners and subpartners, and their
respective officers, agents, property managers, servants, employees, and
independent contractors (collectively, "LANDLORD PARTIES") shall not be liable
for, and are hereby released from any responsibility for, any damage to property
or injury to persons or resulting from the loss of use thereof, which damage or
injury is sustained by Tenant or by other persons claiming through Tenant.
Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties
from any and all loss, cost, damage, expense and liability (including without
limitation court costs and reasonable attorneys' fees) incurred in connection
with or arising from any cause in, on or about the Premises (including, without
limitation, Tenant's installation, placement and removal of Alterations,
improvements, fixtures and/or equipment in, on or about the Premises), and any
acts, omissions or negligence of Tenant or of any person claiming by, through or
under Tenant, or of the contractors, agents, servants, employees, licensees or
invitees of Tenant or any such person, in, on or about the Premises, Building
and Real Property; provided, however, that the terms of the foregoing indemnity
shall not apply to the gross negligence or willful misconduct of Landlord. The
provisions of this Section 10.1 shall survive the expiration or sooner
termination of this Lease.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
---------------------------------------------------------------
Landlord shall insure the Building during the Lease Term against loss or damage
due to fire and other casualties covered within the classification of fire and
extended coverage, vandalism coverage and malicious mischief, sprinkler leakage,
water damage and special extended coverage. Such coverage shall be in such
amounts, from such companies, and on such other terms and conditions, as
Landlord may from time to time reasonably determine. Additionally, at the option
of Landlord, such insurance coverage may include the risks of earthquakes and/or
flood damage and additional hazards, a rental loss endorsement and one or more
loss payee endorsements in favor of the holders of any mortgages or deeds of
trust encumbering the interest of Landlord in the Building or the ground or
-9-
<PAGE>
underlying lessors of the Building, or any portion thereof. Tenant shall, at
Tenant's expense, comply as to the Premises with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies,
then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and any similar body.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
------------------
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, including a
Broad Form Commercial General Liability endorsement covering the insuring
provisions of this Lease and the performance by Tenant of the indemnity
agreements set Forth in Section 10.1 of this Lease, for limits of liability not
less than:
Bodily Injury and $3,000,000 each occurrence
Property Damage Liability $3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises installed by, for, or at the expense of Tenant
(collectively, "Tenant's Property"), (ii) the Tenant Improvements, including any
Tenant Improvements which Landlord permits to be installed above the ceiling of
the Premises or below the floor of the Premises, and (iii) all other
improvements, alterations and additions to the Premises, including any
improvements, alterations or additions installed at Tenant's request above the
ceiling of the Premises or below the floor of the Premises. Such insurance shall
be written on an "all risks" of physical loss or damage basis, for the full
replacement cost value new without deduction for depreciation of the covered
items and in amounts that meet any co-insurance clauses of the policies of
insurance and shall include a vandalism and malicious mischief endorsement,
sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of
----------------
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord,
and any other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to, Tenant's obligations under Section 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the state in which the Building is located; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) provide that said insurance shall not be canceled or coverage
changed unless thirty (30) days' prior written notice shall have been given to
Landlord and any mortgagee or ground or underlying lessor of Landlord; and (vi)
contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and at
least thirty (30) days before the expiration dates thereof. If Tenant shall fail
to procure such insurance, or to deliver such policies or certificate, within
such time periods, Landlord may, at its option, in addition to all of its other
rights and remedies under this Lease, and without regard to any notice and cure
periods set forth in Section 19.1, procure such policies for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within
ten (10) days after delivery of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, public liability,
or other similar insurance.
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord.
ARTICLE 11
----------
DAMAGE AND DESTRUCTION
----------------------
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
----------------------------------------
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the Premises and such
common areas; provided, however, that in no event shall Landlord be required to
repair, replace or restore any of Tenant's Property. Such restoration shall be
to substantially the same condition of the Premises and common areas prior to
the casualty, except for modifications required by zoning and building codes and
other laws or by the holder of a mortgage on the Building, or the lessor of a
ground or underlying lease with respect to the Real Property and/or the
Building, or my other modifications to the common areas deemed desirable by
Landlord, provided access to the Premises and any common restrooms serving the
Premises shall not be materially impaired. Notwithstanding any other provision
of this Lease, upon the occurrence of any damage to the Premises, Tenant shall
assign to Landlord (or to any party designated by Landlord) all
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<PAGE>
insurance proceeds payable to Tenant under Tenant's insurance required under
Section 10.3 of this Lease (other than those payable with respect to Tenant's
Property), and Landlord shall repair any injury or damage to the tenant
improvements and alterations installed in the Premises and shall return such
tenant improvements and alterations to their original condition; provided that
if the cost of such repair by Landlord exceeds the amount of insurance proceeds
received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the
cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's
repair of the damage. In connection with such repairs and replacements, Tenant
shall, prior to the commencement of construction, submit to Landlord, for
Landlord's review and approval, all plans, specifications and working drawings
relating thereto, and Landlord shall select the contractors to perform such
improvements work. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
my way from such damage or the repair thereof; provided however, that if such
fire or other casualty shall have damaged the Premises or common areas necessary
to Tenant's occupancy, and if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's employees, contractors, licensees, or
invitees, Landlord shall allow Tenant a proportionate abatement of Base Rent and
Tenant's Share of Direct Expenses, during the time and to the extent the
Premises are unfit for occupancy for the purposes permitted under this Lease,
and not occupied by Tenant as a result thereof.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
---------------------------
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing or such termination within sixty (60) days after the date of damage,
such notice to include a termination date giving Tenant sixty (60) days to
vacate the Premises, but Landlord may so elect only if the Building shall be
damaged by fire or other casualty or cause, whether or not the Premises are
affected, and one or more of the following conditions is present: (i) repairs
cannot reasonably be completed within one hundred twenty (120) days of the date
of damage (when such repairs are made without the payment of overtime or other
premiums); (ii) the holder of any mortgage on the Building or ground or
underlying lessor with respect to the Real Property and/or the Building shall
require that the insurance proceeds or any portion thereof be used to retire the
mortgage debt, or shall terminate the ground or underlying lease, as the case
may be; or (iii) the damage is not fully covered, except for deductible amounts,
by Landlord's insurance policies. In addition, if the Premises or the Building
is destroyed or damaged to any substantial extent during the last twelve (12)
months of the Lease Term, then notwithstanding anything contained in this
Article 11, Landlord shall have the option to terminate this Lease by giving
written notice to Tenant of the exercise of such option within thirty (30) days
after such damage or destruction, in which event this Lease shall cease and
terminate as of the date of such notice. Upon any such termination of this Lease
pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional
Rent, properly apportioned up to such date of termination, and both parties
hereto shall thereafter be freed and discharged of all further obligations
hereunder, except as provided for in provisions of this Lease which by their
terms survive the expiration or earlier termination of the Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion or the Real Property, and my
statute or regulation of the state in which the Building is located, including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Real Property.
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<PAGE>
ARTICLE 12
----------
CONDEMNATION
------------
12.1 Permanent Taking. If the whole or any part of the Premises or
----------------
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than twenty-five percent (25%) of
the rentable square feet of the Premises is taken, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this Lease
upon sixty (60) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to receive the entire award or payment in connection therewith, except
that Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's personal property and fixtures belonging to Tenant
and removable by Tenant upon expiration of the Lease Term pursuant to the terms
of this Lease, and for moving expenses, so long as such claim does not diminish
the award available to Landlord, its ground lessor with respect to the Real
Property or its mortgagee, and such claim is payable separately to Tenant. All
Rent shall be apportioned as of the dale of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil
Procedure.
12.2 Temporary Taking. Notwithstanding anything to the contrary contained
----------------
in this Article 12, in the event of a temporary taking of all or any portion of
the Premises for a period of one hundred (100) days or less, then this Lease
shall not terminate but the Base Rent and the Additional Rent shall be abated
for the period of such taking in proportion to the ratio that the amount of
rentable square feet of the Premises taken bears to the total rentable square
feet of the Premises. Landlord shall be entitled to receive the entire award
made in connection with any such temporary taking.
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<PAGE>
ARTICLE 13
----------
COVENANT OF QUIET ENJOYMENT
---------------------------
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 14
----------
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfers. Tenant shall not, without the prior written consent of
---------
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "TRANSFERS" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "TRANSFEREE"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "TRANSFER NOTICE") shall include (i) the
proposed effective date of the Transfer, which shall not be less than thirty
(30) days nor more than one hundred eighty (180) days after the date of delivery
of the Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "SUBJECT SPACE"), (iii) all of the terms of the proposed
Transfer, the name and address of the proposed Transferee, and a copy of all
existing and/or proposed documentation pertaining to the proposed Transfer,
including all existing operative documents to be executed to evidence such
Transfer or the agreements incidental or related to such Transfer, (iv) current
financial statements of the proposed Transferee certified by an officer, partner
or owner thereof, and (v) such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under this Lease. Whether or not Landlord
shall grant consent, Tenant shall pay Landlord's reasonable legal fees (up to,
but no more than $1,000.00) incurred by Landlord, within thirty (30) days after
written request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold,
------------------
condition or delay its consent to any proposed Transfer of the Subject Space to
the Transferee on the terms specified in the Transfer Notice. The parties hereby
agree that it shall be reasonable under this Lease and under any applicable law
for Landlord to withhold consent to any proposed Transfer where one or more of
the following apply, without limitation as to other reasonable grounds for
withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building;
14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;
14.2.6 The proposed Transfer would cause Landlord to be in violation
of another lease or agreement to which Landlord is a party, or would give an
occupant of the Building a right to cancel its lease;
14.2.7 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right); or
14.2.8 Either the proposed Transferee, or any person or entity
which, directly or indirectly controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Building at such time, or (iii) has negotiated with Landlord during
the six (6) month period immediately preceding the Transfer Notice; provided,
however, that this Section 14.2.8 shall not apply to the extent that the
Building is one hundred percent (100%) leased and occupied.
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this Section 14.2, or (ii) which would cause the proposed
Transfer to be more favorable to the Transferee than the terms set forth in
Tenant's original Transfer Notice, Tenant shall again submit the Transfer to
Landlord for its approval and other action under this Article 14 (including
Landlord's right of recapture, if any, under Section 14.4 of this Lease).
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<PAGE>
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord any "Transfer Premium," as that term is defined in this Section 14.3,
received by Tenant from such Transferee. "TRANSFER PREMIUM" shall mean all rent,
additional rent or other consideration payable by such Transferee in excess of
the Rent and Additional Rent payable by Tenant under this Lease, on a per
rentable square foot basis if less than all of the Premises is transferred,
after deducting the reasonable expenses incurred by Tenant for (i) any changes,
alterations and improvements to the Premises in connection with the Transfer,
and (ii) any brokerage commissions and legal fees in connection with the
Transfer (collectively, the "SUBLEASING COSTS"). "Transfer Premium" shall also
include, but not be limited to, key money and bonus money paid by Transferee to
Tenant in connection with such Transfer, and any payment in excess of fair
market value for services rendered by Tenant to Transferee or for assets,
fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee
in connection with such Transfer.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, Landlord shall have the option, by
giving written notice to Tenant within fifteen (15) days after receipt of any
Transfer Notice, to recapture the Subject Space; provided, however, Landlord
shall only have the recapture option described in this Section 14.4 with respect
to (i) any sublease of ten percent (10%) or more of the Premises by Tenant and
(ii) any sublease of the Premises by Tenant, the term of which sublease shall be
equal to the remainder of the Term and/or greater than eighteen (18) months.
Such recapture notice shall cancel and terminate this Lease with respect to the
Subject Space as of the date stated in the Transfer Notice as the effective date
of the proposed Transfer until the last day of the term or the Transfer as set
forth in the Transfer Notice. If this Lease shall be canceled with respect to
less than the entire Premises, the Rent reserved herein shall be prorated on the
basis of the number of rentable square feet retained by Tenant in proportion to
the number of rentable square feet contained in the Premises, and this Lease as
so amended shall continue thereafter in full force and effect, and upon request
of either party, the parties shall execute written confirmation of the same. If
Landlord declines, or fails to elect in a timely manner to recapture the Subject
Space under this Section 14.4, then, provided Landlord has consented to the
proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject
Space to the proposed Transferee, subject to provisions of the last paragraph of
Section 14.2 of this Lease.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
------------------
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, and (iv) no Transfer relating to this Lease or agreement entered into
with respect thereto, whether with or without Landlord's consent, shall relieve
Tenant or any guarantor of the Lease from liability under this Lease. Landlord
or its authorized representatives shall have the right at all reasonable times
to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium respecting
any Transfer shall be found understated, Tenant shall, within thirty (30) days
after demand, pay the deficiency and Landlord's costs of such audit.
14.6 Additional Transfers. For purposes of this Lease, the term
--------------------
"Transfer" shall also include (i) if Tenant is a partnership or limited
liability company, the withdrawal or change, voluntary, involuntary or by
operation of law, of fifty percent (50%) or more of the partners or members, or
transfer of twenty-five percent or more of partnership or membership interests,
within a twelve (12)-month period, or the dissolution of the partnership without
immediate reconstitution thereof, and (ii) if Tenant is a closely held
corporation (i.e., whose stock is not publicly held and not traded through an
exchange or over the counter), (A) the dissolution, merger, consolidation or
other reorganization of Tenant, (B) the sale or other transfer of more than an
aggregate of fifty percent (50%) of the voting shares of Tenant (other than to
immediate family members by reason of gift or death), within a twelve (12)-month
period, or (C) the sale, mortgage, hypothecation or pledge of more than an
aggregate of fifty percent (50%) of the value of the unencumbered assets of
Tenant within a twelve (12) month period.
ARTICLE 15
----------
SURRENDER; OWNERSHIP
--------------------
AND REMOVAL OF TRADE FIXTURES
-----------------------------
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord, and Landlord shall
not unreasonably withhold, condition or delay giving such writing. The delivery
of keys to the Premises to Landlord or any agent or employee of Landlord shall
not constitute a surrender of the Premises or effect a termination of this
Lease, whether or not the keys are thereafter retained by Landlord, and
notwithstanding such delivery Tenant shall be entitled to the return of such
keys at any reasonable time upon request until this Lease shall have been
properly terminated. The voluntary or other surrender of this Lease by Tenant,
whether accepted by Landlord or not, or a mutual termination hereof, shall not
work a merger, and at the option of Landlord shall operate as an assignment to
Landlord of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, all of Tenant's Property, and the personal property (including,
without limitation, furniture, trade fixtures and equipment) of any other
persons claiming under Tenant, and all telephone, computer and data cables and
equipment installed by Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal. In no event shall Tenant
remove Landlord's Furniture (as such term is defined in Section 23.34) at any
time. Tenant's obligations under this Section 15.2 shall survive the expiration
or any earlier termination of this Lease.
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<PAGE>
ARTICLE 16
----------
HOLDING OVER
------------
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent for the first month of such
month-to-month tenancy shall be payable at a monthly rate equal to one hundred
fifty percent (150%) of the Base Rent applicable during the last rental period
of the Lease Term under this Lease and thereafter at a monthly rate equal to two
hundred percent (200%) of the Base Rent applicable during the last rental period
of the Lease Term under this Lease. Such month-to-month tenancy shall be
subject to every other term, covenant and agreement contained herein. Landlord
hereby expressly reserves the right to require Tenant to surrender possession of
the Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender, and any lost profits to Landlord
resulting therefrom.
ARTICLE 17
----------
ESTOPPEL CERTIFICATES
---------------------
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
---------
hereto, (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee, purchaser
or prospective mortgagee or purchaser. Tenant shall execute and deliver
whatever other instruments may be reasonably required for such purposes.
Failure of Tenant to timely execute and deliver such estoppel certificate or
other instruments shall constitute an acceptance of the Premises and an
acknowledgment by Tenant that statements included in the estoppel certificate
are true and correct, without exception.
ARTICLE 18
----------
SUBORDINATION
-------------
This Lease is subject and subordinate to all present and future ground or
underlying leases of the Real Property and to the lien of any mortgages or trust
deeds, now or hereafter in force against the Real Property and the Building, if
any, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds, unless the holders of such mortgages
or trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. Tenant covenants and
agrees in the event any proceedings are brought for the foreclosure of any such
mortgage, or if any ground or underlying lease is terminated, to attorn, without
any deductions or set-offs whatsoever, to the purchaser upon any such
foreclosure sale, or to the lessor of such ground or underlying lease, as the
case may be, if so requested to do so by such purchaser or lessor, and to
recognize such purchaser or lessor as the lessor under this Lease. Tenant
shall, within five (5) business days of request by Landlord, execute such
further instruments or assurances as Landlord may reasonably deem necessary to
evidence or confirm the subordination or superiority of this Lease to any such
mortgages, trust deeds, ground leases or underlying leases, including, without
limitation, a subordination, nondisturbance and attornment agreement in any
commercially reasonable form requested by Landlord's lender or ground lessor.
Tenant hereby irrevocably authorizes Landlord to execute and deliver in the name
of Tenant any such instrument or instruments if Tenant fails to do so, provided
that such authorization shall in no way relieve Tenant from the obligation of
executing such instruments of subordination or superiority. Tenant waives the
provisions of any current or future statute, rule or law which may give or
purport to give Tenant any right or election to terminate or otherwise adversely
affect this Lease and the obligations of the Tenant hereunder in the event of
any foreclosure proceeding or sale.
ARTICLE 19
----------
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
--------------------------------------
19.1 Events of Default by Tenant. All covenants and agreements to be kept
---------------------------
or performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent. The occurrence of any
of the following shall constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for fifteen (15) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a fifteen (15)-day period, Tenant shall not be deemed
to be in default if it diligently commences such cure within such period and
thereafter diligently proceeds to rectify and cure said default as soon as
possible; or
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<PAGE>
19.1.3 Abandonment or vacation of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited to, any absence by
Tenant from the Premises for three (3) business days or longer while in default
of any provision of this Lease; or
19.1.4 The making of a general assignment by Tenant for the benefit
of creditors; the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any or Tenant's creditors seeking the rehabilitation,
liquidation or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing; the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold; Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due; any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets; Tenant's
taking any action toward the dissolution or winding up of Tenant's affairs; the
cessation or suspension of Tenant's use of the Premises; or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold; or
19.1.5 The making of any material misrepresentation or omission by
Tenant or any successor in interest of Tenant in any materials delivered by or
on behalf of Tenant to Landlord or Landlord's lender pursuant to this Lease; or
19.1.6 The occurrence of a default set forth in Sections 19.1.4 or
19.1.5 with respect to any guarantor of this Lease, if applicable.
19.2 Landlord's Remedies Upon Default. Upon the occurrence of any such
--------------------------------
default by Tenant, Landlord shall have, in addition to any other remedies
available to Landlord at law or in equity, the option to pursue any one or more
of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the Interest Rate set forth in Section 4.6 of this Lease. As used
in Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such
payment or perform or otherwise cure any such obligation, provision, covenant or
condition on Tenant's part to be observed or performed (and may enter the
Premises for such purposes). In the event of Tenant's failure to perform any of
its obligations or covenants under this Lease, and such failure to perform poses
a material risk of injury or harm to persons or damage to or loss of property,
then Landlord shall have the right to cure or otherwise perform such covenant or
obligation at any time after such failure to perform by Tenant, whether or not
any such notice or cure period set forth in Section 19.1 above has expired. Any
such actions undertaken by Landlord pursuant to the foregoing provisions of this
Section 19.2.3 shall not be deemed a waiver of Landlord's rights and remedies as
a result of Tenant's failure to perform and shall not release Tenant from any of
its obligations under this Lease.
19.3 Payment by Tenant. Tenant shall pay to Landlord, within fifteen (15)
-----------------
days after delivery by Landlord to Tenant of statements therefor: (i) sums equal
to actual expenditures reasonably made and actual obligations incurred by
Landlord in
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connection with Landlord's performance or cure any of Tenant's obligations
pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or in enforcing or attempting to enforce any
rights of Landlord under this Lease or pursuant to law, including, without
limitation, all legal fees and other amounts so expended. Tenant's obligations
under this Section 19.3 shall survive the expiration or sooner termination of
the Lease Term.
19.4 Sublessees of Tenant. Whether or not Landlord elects to terminate
--------------------
this Lease on account of any default by Tenant, as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.5 Waiver of Default. No waiver by Landlord of any violation or breach
-----------------
by Tenant of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach by Tenant of the same or any other of the terms, provisions, and
covenants herein contained. Forbearance by Landlord in enforcement of one or
more of the remedies herein provided upon a default by Tenant shall not be
deemed or construed to constitute a waiver of such default. The acceptance of
any Rent hereunder by Landlord following the occurrence of any default, whether
or not known to Landlord, shall not be deemed a waiver of any such default,
except only a default in the payment of the Rent so accepted.
19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's
----------------
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
----------
SECURITY DEPOSIT
----------------
Concurrent with Tenant's execution of this Lease, Tenant shall deposit with
Landlord a security deposit (the "SECURITY DEPOSIT") in the amount set forth in
Section 10 of the Summary. The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Lease
Term. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to, the provisions relating to the payment of Rent,
Landlord may, but shall not be required to, use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any amount that Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss or damage that Landlord has suffered by reason of Tenant's default.
Landlord shall deliver an accounting of the amount of the Security Deposit that
Landlord used, applied or retained. If any portion of the Security Deposit is
so used or applied, Tenant shall, within five (5) business days after written
demand therefor, deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount, and Tenant's failure to do so shall
be a default under this Lease. If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the Security Deposit, or
any balance thereof, shall be returned to Tenant, within fifteen (15) days
following the expiration of the Lease Term. Tenant shall not be entitled to any
interest on the Security Deposit, and Landlord shall have no obligation to keep
the Security Deposit separate from Landlord's own funds. Notwithstanding
anything to the contrary contained herein, provided that (a) within the first
twelve (12) months of the Lease Term Tenant has obtained additional financing in
an amount not less than that required to meet Tenant's obligations under this
Lease for the second full year of the Lease Term (including, without limitation,
Base Rent and Additional Rent), and otherwise in a form reasonably satisfactory
to Landlord, and (b) Tenant has not been in default under this Lease during the
first twelve (12) months of the Lease Term, the Security Deposit shall be
reduced to an amount equal to $99,832.00, and Landlord shall refund to Tenant,
on or before the last day of the thirteenth (13th) month of the Lease Term, an
amount equal to $49,908.50.
ARTICLE 21
----------
COMPLIANCE WITH LAW
-------------------
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safely system (collectively
the "EXCLUDED CHANGES") except to the extent such Excluded Changes are required
due to Tenant's alterations to or manner of use of the Premises. In addition,
Tenant shall fully comply with all present or future programs intended to manage
parking, transportation or traffic in and around the Building, and in connection
therewith, Tenant shall take responsible action for the transportation planning
and management of all employees located at the Premises by working directly with
Landlord, any governmental transportation management organization or any other
transportation-related committees or entities. The judgment of any court of
competent jurisdiction or the admission of Tenant in any judicial action,
regardless of whether Landlord is a party thereto, that Tenant has violated any
of said governmental measures, shall be conclusive of that fact as between
Landlord and Tenant.
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ARTICLE 22
----------
ENTRY BY LANDLORD
-----------------
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant to enter the Premises to (i) inspect them; (ii) show the
Premises to prospective purchasers, mortgagees or tenants, or to the ground or
underlying lessors; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building, or as Landlord may otherwise reasonably
desire or deem necessary. Notwithstanding anything to the contrary contained in
this Article 22, Landlord may enter the Premises at any time, without notice to
Tenant, to perform janitorial or other services required of Landlord pursuant to
this Lease. Any such entries shall be without the abatement of Rent and shall
include the right to take such reasonable steps as required to accomplish the
stated purposes. Tenant hereby waives any claims for damages or for my injuries
or inconvenience to or interference with Tenant's business, lost profits, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the above purposes, Landlord shall at all times
have a key with which to unlock all the doors in the Premises, excluding
Tenant's vaults, safes and special security areas designated in advance by
Tenant. In an emergency, Landlord shall have the right to use any means that
Landlord may deem proper to open the doors in and to the Premises. Any entry
into the Premises in the manner hereinbefore described shall not be deemed to be
a forcible or unlawful entry into, or a detainer of, the Premises, or an actual
or constructive eviction of Tenant from any portion of the Premises.
ARTICLE 23
----------
MISCELLANEOUS PROVISIONS
------------------------
23.1 Terms; Captions. The necessary gram matical changes required to make
---------------
the provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be
assumed as though in each case fully expressed. The captions of Articles and
Sections are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Articles and Sections.
23.2 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
23.3 No Waiver. No waiver of any provision of this Lease shall be implied
---------
by any failure of a party to enforce any remedy on account of the violation of
such provision, even if such violation shall continue or be repeated
subsequently, any waiver by a party of any provision of this Lease may only be
in writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.
23.4 Modification of Lease. Should any current or prospective mortgagee
---------------------
or ground lessor for the Building require a modification or modifications of
this Lease, which modification or modifications will not cause an increased cost
or expense to Tenant or in any other way materially and adversely change the
rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are reasonably required therefor and deliver the same to Landlord
within ten (10) business days following the written request therefor. Should
Landlord or any such current or prospective mortgagee or ground lessor require
execution of a short form of Lease for recording, containing, among other
customary provisions, the names of the parties, a description of the Premises
and the Lease Term, Tenant agrees to execute such short form of Lease and to
deliver the same to Landlord within ten (10) days following the request
therefor.
23.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease and Tenant agrees to look solely to such transferee for the
performance of Landlord's obligations hereunder after the date of transfer. The
liability of any transferee of Landlord shall be limited to the interest of such
transferee in the Real Property and Building and such transferee shall be
without personal liability under this Lease, and Tenant hereby expressly waives
and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant. Tenant further acknowledges that Landlord
may assign its interest in this Lease to a mortgage lender as additional
security and agrees that such an assignment shall not release Landlord from its
obligations hereunder and that Tenant shall continue to look to Landlord for the
performance of its obligations hereunder.
23.6 Prohibition Against Recording. Except as provided in Section 23.4 of
-----------------------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
23.7 Landlord's Title; Air Rights. Landlord's title is and always shall
----------------------------
be paramount to the title of Tenant. Nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord. No
rights to any view or to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
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23.8 Tenant's Signs. All signs and graphics of every kind visible in or
--------------
from public view or corridors, the common areas or the exterior or the Premises
(whether located inside or outside the Premises) shall be subject to Landlord's
prior written approval, in Landlord's sole and absolute discretion, and shall be
subject to any applicable governmental laws, ordinances, and regulations and in
compliance with Landlord's signage program. Tenant shall remove all such signs
and graphics prior to the termination of this Lease. Such installations and
removals shall be made at Tenant's sole cost and expense and in such manner as
to avoid injury or defacement of the Premises or the Building, and Tenant shall
repair, at Tenant's sole cost and expense, any injury or defacement, including
without limitation, discoloration caused by such installation or removal.
Subject to all the terms and conditions of this Section 23.8, Tenant shall have
the right to place its sign (including its logo) on the fascia of the Building
and in the third (3rd) floor elevator lobby of the Building and any elevator
lobbies on floors subsequently one hundred percent (100%) leased by Tenant from
Landlord and occupied by Tenant. Any such signs shall be maintained by Tenant in
a neat, clean and professional manner, at Tenant's sole cost and expense.
23.9 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
23.10 Application of Payment. Landlord shall have the right to apply
----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
23.11 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
23.12 Partial Invalidity. If any term, provision or condition contained in
------------------
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
23.13 No Warranty. In executing and delivering this Lease, Tenant has not
-----------
relied on any representation, including, but not limited to, any representation
whatsoever as to the amount of any item comprising Additional Rent or the amount
of the Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the Exhibits attached hereto.
23.14 Landlord Exculpation. It is expressly understood and agreed that
--------------------
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building, and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant.
23.15 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable to
both parties have been merged into and are included herein. There are no other
representations or warranties between the parties, and all reliance with respect
to representations is based totally upon the representations and agreements
contained in this Lease.
23.16 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Building and/or the Real Property as Landlord in the
exercise of its sole business judgment shall determine to best promote the
interests of the Building and/or the Real Property. Tenant does not rely on the
fact, nor does Landlord represent, that any specific tenant or type or number of
tenants shall, during the Lease Term, occupy any space in the Building and/or
the Real Property.
23.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
-------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, "FORCE MAJEURE"), notwithstanding anything
to the contrary contained in this Lease, shall excuse the performance of such
party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
23.18 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and
------------------------------
for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
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23.19 Notices. All notices, demands, statements or communications
-------
(collectively, "NOTICES") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified
or registered mail, postage prepaid, return receipt requested, or delivered
personally (i) o Tenant at the appropriate address set forth in Section 5 of the
Summary, or to such other place as Tenant may from time to time designate in a
Notice to Landlord; or (ii) to Landlord at the addresses of Landlord set forth
in Section 3 of the Summary, or to such other firm or to such other place as
Landlord may from time to time designate in a Notice to Tenant. Any Notice will
be deemed given on the date of receipt indicated on the return receipt as
provided in this Section 23.19 or upon the date personal delivery is made. If
Tenant is notified of the identity and address of Landlord's mortgagee or ground
or underlying lessor, Tenant shall give to such mortgagee or ground or
underlying lessor written notice of any default by Landlord under the terms of
this Lease by registered or certified mail, and such mortgagee or ground or
underlying lessor shall be given a reasonable opportunity to cure such default
prior to Tenant's exercising any remedy available to Tenant.
23.20 Joint and Several. If there is more than one Tenant, the obligations
-----------------
imposed upon Tenant under this Lease shall be joint and several.
23.21 Authority. If Tenant is a corporation, partnership or limited
---------
liability company, each individual executing this Lease on behalf of Tenant
hereby represents and warrants that Tenant is a duly formed and existing wntity
qualified to do business in the state in which the Building is located and that
Tenant has full right and authority to execute and deliver this Lease and that
each person signing on behalf of Tenant is authorized to do so.
23.22 Jury Trial; Attorneys' Fees. IF EITHER PARTY COMMENCES LITIGATION
----------------------------
AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR
THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE
PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY. In
the event of any such commencement of litigation, the prevailing party shall be
entitled to recover from the other party such costs and reasonable attorneys'
fees as may have been incurred, including any and all costs incurred in
enforcing, perfecting and executing such judgment.
23.23 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the state in which the Building is located.
23.24 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
23.25 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 11 of the Summary (the "BROKERS"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent other than
the Brokers.
23.26 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and any holder of a mortgage or deed of trust covering
the Building, Real Property or any portion thereof, or whose address Tenant has
theretofore been notified, and an opportunity is granted to Landlord and such
holder to correct such violations as provided above.
23.27 Building Name and Signage. Landlord shall have the right at any time
-------------------------
to change the name of the Building and to install, affix and maintain any and
all signs on the exterior and on the interior of the Building as Landlord may,
in Landlord's sole discretion, desire. Tenant shall be entitled to one (1) line
on the Building directory to display Tenant's name and location in the Building.
Tenant shall not use the name of the Building or use pictures or illustrations
of the Building in advertising or other publicity, without the prior written
consent of Landlord.
23.28 [INTENTIONALLY DELETED]
23.29 Landlord Renovations. It is specifically understood and agreed that
--------------------
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, Real Property, or any part
thereof and that no representations or warranties respecting the condition of
the Premises, the Building or the Real Property have been made by Landlord to
Tenant, except as specifically set forth in this Lease. However, Tenant
acknowledges that Landlord may from time to time, at Landlord's sole option,
renovate, improve, alter, or modify (collectively, the "RENOVATIONS") the
Building, Premises, and/or Real Property, common areas, systems and equipment,
roof, and structural portions of the same, which Renovations may include,
without limitation, (i) modifying the common areas and tenant spaces to comply
with applicable laws and regulations, including regulations relating to the
physically disabled, seismic conditions, and building safety and security, and
(ii) installing new carpeting, lighting, and wall coverings in the Building
common areas, and in connection with such Renovations, Landlord may, among other
things, erect scaffolding or other necessary structures in the Building, limit
or eliminate access to portions of the Real Property, including portions of the
common areas, or perform work in the Building, which work may create noise, dust
or leave debris in the Building. Tenant hereby agrees that such Renovations and
Landlord's actions in connection with such Renovations shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant to any
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<PAGE>
abatement of Rent. Landlord shall have no responsibility or for any reason be
liable to Tenant for any direct or indirect injury to or interference with
Tenant's business arising from the Renovations, nor shall Tenant be entitled to
any compensation or damages from Landlord for loss of the use of the whole or
any part of the Premises or of Tenant's personal property or improvements
resulting from the Renovations or Landlord's actions in connection with such
Renovations, or for any inconvenience or annoyance occasioned by such
Renovations or Landlord's actions in connection with such Renovations; provided,
however, that Landlord shall use commercially reasonable efforts to minimize
interference with Tenant's use of and access to the Premises as a result of such
Renovations.
23.30 INTENTIONALLY DELETED.
---------------------
23.31 Hazardous Substance Disclosure. California law requires landlords to
------------------------------
disclose to tenants the existence of certain Hazardous Materials. Accordingly,
the existence of gasoline and other automotive fluids, asbestos containing
materials, maintenance fluids, copying fluids and other office supplies and
equipment, certain construction and finish materials, tobacco smoke, cosmetics
and other personal items must be disclosed. Gasoline and other automotive fluids
are found in the garage and parking areas of the Real Property. Cleaning,
lubricating and hydraulic fluids used in the operation and maintenance of the
Building are found in the utility areas of the Building not generally accessible
to Building occupants or the public. Many Building occupants use copy machines
and printers with associated fluids and toners, and pens, markers, inks, and
office equipment that may contain Hazardous Materials. Certain adhesives, paints
and other construction materials and finishes used in portions of the Building
may contain Hazardous Materials (including, without limitation, asbestos-
containing materials). The Building and other areas of the Real Property may
from time to time be exposed to tobacco smoke. Building occupants and other
persons entering the Building from time to time may use or carry prescription
and non-prescription drugs, perfumes, cosmetics and other toiletries, and foods
and beverages, some of which may contain Hazardous Materials. By its execution
of this Lease, Tenant acknowledges that the notice set forth hereinabove shall
constitute the notice required under California Health and Safety Code Section
25915.5.
23.32 Parking. Tenant shall have the right, at no cost or expense to
-------
Tenant, to use twenty-five (25) unreserved parking spaces (i.e., 3.5 unreserved
-----
parking spaces per each one thousand (1,000) rentable square feet of the
Premises) throughout the term of this Lease in the parking facility located on
the Real Property, Tenant's continued right to use the parking spaces is
conditioned upon Tenant's abiding by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the parking
facility and upon Tenant's cooperation in seeing that Tenant's employees and
visitors also comply with such rules and regulations. Landlord specifically
reserves the right to change the size, configuration, design, layout, location
and all other aspects of the parking facility, and Tenant acknowledges and
agrees that Landlord may, without incurring any liability to Tenant and without
any abatement of Rent under this Lease, from time to time, close-off or restrict
access to the parking facility or temporarily relocate Tenant's parking passes
to other parking structures and/or surface parking areas within a reasonable
distance of the Real Property; provided, however, that the period of time for
any one such temporary relocation shall not exceed sixty (60) days and Landlord
shall not exercise such right to temporarily relocate such parking passes more
than one (1) time per Lease Year. Landlord may delegate its responsibilities
hereunder to a parking operator in which case such parking operator shall have
all the rights of control attributed hereby to the Landlord. Notwithstanding
anything to the contrary contained herein, Landlord's obligation to make such
parking spaces available to Tenant is subject to all laws, ordinances, rules,
regulations, codes and statutes concerning off-street parking and loading
facilities applicable to the Real Property, either now existing or hereinafter
enacted.
23.33 Warrants. As additional consideration for Landlord's entering into
--------
this Lease with Tenant, simultaneously with Tenant's execution hereof, Tenant is
issuing and granting to Landlord warrants in Tenant (the "Warrants") pursuant to
and in the form of Exhibit F attached hereto (the "Warrant Certificate").
---------
23.34 Tenant's Lease of Furniture.
---------------------------
23.34.1 Landlord hereby grants Tenant a license to use in the
Premises during the Lease Term the furniture and other personal property more
specifically described in Exhibit G attached hereto ("Landlord's Furniture"). As
---------
soon hereafter as may reasonably practicable, the parties shall jointly conduct
a walk-through inspection of Landlord's furniture, and note on Exhibit G any
---------
pre-existing damage or defective conditions in Landlord's Furniture. Tenant
accepts Landlord's Furniture in its "as is" condition with all faults and
without warranties, express or implied. Landlord disclaims any implied
warranties of merchantability or fitness for a particular purpose. Tenant shall
not remove the furniture from the Premises or assign its right to use Landlord's
Furniture. Tenant expressly assumes all risk and responsibility for any defects
(including latent defects) in Landlord's Furniture, and Tenant shall indemnify
defend and hold Landlord, its agents and employees, harmless from and against
any and all liability, claims, suits, demands, judgments, costs, interest and
expenses (including, but not limited to, attorneys' fees and disbursements)
arising from or in connection with Landlord Furniture or Tenant's use thereof.
Tenant shall maintain Landlord's Furniture in good condition and repair during
the Lease Term. Upon prior notice to Landlord, Tenant may change the location of
Landlord's Furniture within the Premises. Tenant shall keep the Furniture free
from any liens arising out of work performed, materials furnished, or
obligations incurred by Tenant.
23.34.2 In consideration for the rights granted to Tenant under this
Section 23.34, Tenant shall pay to Landlord Two Hundred and 00/100 Dollars
($200.00) per month in the same manner and at the same time that Base Rent is
due as provided in Article 3 above.
-21-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
LAMBEAU INVESTORS LLC,
a California limited liability company
By: /s/ Vincent Sakowski 6/17/99
-----------------------------------------------
Name: Vincent Sakowski, GP Working Capital
------------------------------------------
Its: Managing Member
------------------------------------------
"Tenant":
BEATNIK, INC.,
a California corporation
By: /s/ Alan Beban
-----------------------------------------------
Name: Alan Beban
------------------------------------------
Its: Chief Financial Officer
------------------------------------------
By:____________________________________
Name:_______________________________
Its:________________________________
-22-
<PAGE>
EXHIBIT A
---------
OUTLINE OF FLOOR PLAN OF PREMISES
---------------------------------
EXHIBIT A - Page 1
<PAGE>
EXHIBIT B
---------
[INTENTIONALLY OMITTED]
-----------------------
EXHIBIT B - Page 1
<PAGE>
EXHIBIT C
---------
AMENDMENT TO LEASE
------------------
This AMENDMENT TO LEASE ("Amendment") is made and entered into effective as
of ____________, 19__, by and between LAMBEAU INVESTORS LLC, a California
limited liability company ("Landlord"), and BEATNIK, INC., a California
corporation ("Tenant").
R E C I T A L S :
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as
of __________________ (the "Lease") pursuant to which Landlord leased to Tenant
and Tenant leased from Landlord certain "Premises", as described in the Lease,
known as Suite _______ of the Building located at 2600 S. EI Camino Real, San
Mateo, California 94403.
B. Except as otherwise set forth herein, all capitalized terms used in
this Amendment shall have the same meaning given such terms in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the
commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals 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. Confirmation of Dates. The parties hereby confirm that (a) the
---------------------
Premises are Ready for Occupancy, (b) the Lease Term for the Lease commenced as
of ____________________ (the "Lease Commencement Date"), for a term of _________
years ending on _______________________ (the "Lease Expiration Date") (unless
sooner terminated or extended as provided in the Lease) and (c) in accordance
with the Lease, Rent commenced to accrue on _________________________.
2. No Further Modification. Except as set forth in this Amendment, all of
-----------------------
the terms and provisions of the Lease shall remain unmodified and in full force
and effect.
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day
and year first above written.
"Landlord":
LAMBEAU INVESTORS LLC,
a California limited liability company
By:____________________________________
Name:_______________________________
Its:________________________________
"Tenant":
BEATNIK, INC.,
a California corporation
By:____________________________________
Name:_______________________________
Its:________________________________
By:____________________________________
Name:_______________________________
Its:________________________________
EXHIBIT C - Page 1
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or repairs
required by Tenant. Two keys will be furnished by Landlord for the Premises, and
any additional keys required by Tenant must be obtained from Landlord at a
reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. Landlord and its agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from the Building or carried up or down in the
elevators, except upon prior notice to Landlord, and in such manner, in such
specific elevator, and between such hours as shall be reasonably designated by
Landlord. Tenant shall provide Landlord with not less than 24 hours prior notice
of the need to utilize in elevator for any such purpose, so as to provide
Landlord with a reasonable period to schedule such use and to install such
padding or take such other actions or prescribe such procedures as are
appropriate to protect against damage to the elevators or other parts of the
Building.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7. The requirements of Tenant will be attended to only upon application
at the management office of the Building or at such other location designated by
Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under special instructions from Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the tenant who, or whose employees or agents, shall have caused it.
10. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord .
12. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
13. Tenant shall not use or keep in or on the Premises or the Building any
kerosene, gasoline or other inflammable or combustible fluid or material. Tenant
shall not use, keep or permit to be used or kept, any foul or noxious gas or
substance in or on the Premises, or permit or allow the Premises to be occupied
or used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors, or vibrations, or interfere in any way
with other tenants or those having business therein.
EXHIBIT D - Page 1
<PAGE>
14. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Landlord or
other tenants.
16. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
19. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
23. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills. All electrical ceiling
fixtures hung in offices or spaces along the perimeter of the Building must be
fluorescent and/or of a quality, type, design and bulb color approved by
Landlord.
24. The washing and/or detailing of, or the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
25. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building's management office. Under
no circumstance shall the food vendor display their products in a public or
common area including corridors and elevator lobbies. Any failure to comply with
this rule shall result in immediate permanent withdrawal of the vendor from the
Building.
26. Tenant must comply with requests by Landlord concerning the informing
or Tenant's employees of items of importance to Landlord.
27. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
28. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules or Regulations against any or all tenants of the Building. Landlord
reserves the right at any time to change or rescind any one or more of these
Rules and Regulations, or to make such other and further reasonable Rules and
Regulations as in Landlord's judgment may from time to time be necessary for the
management, safety, care and cleanliness of the Premises and Building, and for
the preservation of good order therein, as well as for the convenience of other
occupants and tenants therein. Landlord shall not be responsible to Tenant or to
any other person for the nonobservance of the Rules and Regulations by another
tenant or other person. Tenant shall be deemed to have read these Rules and
Regulations and to have agreed to abide by them as a condition of its occupancy
of the Premises.
EXHIBIT D - Page 2
<PAGE>
EXHIBIT E
---------
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned, as Tenant under that certain Office Lease (the "LEASE")
made and entered into as of _______________, 19__ and between LAMBEAU INVESTORS
LLC, a California limited liability company, as Landlord, and the undersigned as
Tenant, for Premises on the ______________ floor(s) of the Building located 2600
S. El Camino Real, San Mateo, California hereby certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
---------
and all amendments and modifications thereto. The documents contained in Exhibit
-------
A represent the entire agreement between the parties as to the Premises.
- -
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
____________________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
---------
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or prepay
---------
any amounts owing under the Lease to Landlord in excess of thirty (30) days in
advance without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on __________________.
7. The Lease Term expires on ____________________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets that
the undersigned has which preclude enforcement of the Lease by Landlord.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ___________________. The current monthly installment of Base Rent is
$_______________.
12. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's current or prospective mortgagee, or a prospective
purchaser, and acknowledges that it recognizes that if same is done, said
mortgagee, prospective mortgagee, or prospective purchaser will be relying upon
the statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
13. If Tenant is a corporation, limited liability company or partnership,
each individual executing this Estoppel Certificate on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in the state in which the Building is located and that
Tenant has full right and authority to execute and deliver this Estoppel
Certificate and that each person signing oil behalf of Tenant is authorized to
do so.
Executed at ________________ on the _______ day of __________________,
19___.
"Tenant":
__________________________________,
a ______________________________
By:_______________________________
Name:__________________________
Its:___________________________
By:________________________________
Name:___________________________
Its:____________________________
EXHIBIT E- Page 1
<PAGE>
EXHIBIT F
---------
THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Lambeau Investors LLC,
a limited liability corporation organized under the laws of California (the
"Warrantholder"), the right to subscribe for and purchase front the Company
25,530 validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), at the purchase
price per share of $1.1647316 (the "Exercise Price"). This Warrant shall be
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the date hereof and ending on the earlier of June 30,
2002 or the consummation of an underwritten firm commitment public offering of
the Company with gross proceeds to the Company of at least $10,000,000 and a per
share price of at least $4.00, all subject to the terms, conditions and
adjustments herein set forth.
Section 1. Duration and Exercise of Warrant; Limitation on Exercise;
---------------------------------------------------------
Payment of Taxes.
----------------
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder
-------------
by (i) the surrender of this Warrant to the Company, with a duly executed
Exercise Form specifying the number of Warrant Shares to be purchased, during
normal business hours on any Business Day during the Exercise Period and (ii)
the delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available fluids to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within 10 days, thereafter. The stock certificate or certificates so
delivered shall be in denominations of 100 shares each or such lesser or greater
denominations as may be reasonably specified by the Warrantholder in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of this Warrant pursuant to Section
------------------
1.1(a), this Warrant may be exercised by the Warrantholder by the surrender of
this Warrant to the Company, with a duly executed Exercise Form marked to
reflect net issue exercise and specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day during the Exercise
Period. The Company agrees that such Warrant Shares shall be deemed to be
issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
Y(A-B)
X= ---------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise
purchasable under this Warrant (at the date of
such calculation);
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
EXHIBIT F - Page 1
<PAGE>
(c) Fair Market Value. For purposes of Section 1.1(b) fair market value of
-----------------
one share of the Company's Common Stock shall mean:
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company
to issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has receive an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
EXHIBIT F - Page 2
<PAGE>
such dividend, distribution or right, (ii) the date or expected date on
which any such reorganization, reclassification, recapitalization, Change of
Control, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior to
the date therein specified, in the case of any date referred to in the foregoing
subdivision (i), and at least 20 days prior to the date therein specified, in
the case of the date referred to in the foregoing subdivision (ii).
Section 9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., it California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
Section 10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
EXHIBIT F - Page 5
<PAGE>
EXHIBIT G
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INVENTORY OF LANDLORD'S FURNITURE
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[LANDLORD TO PROVIDE]
EXHIBIT G
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EXHIBIT A
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EXERCISE FORM
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(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for ___________________ of the Warrant Shares
to the order of Beatnik, Inc. in the amount of $_________________ in
accordance with the terms of this Warrant; or
[_] herewith tenders this Warrant for ___________________ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b) of
this Warrant
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: _____________________.
________________________________________
(Signature)
________________________________________
(Print Name)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
EXHIBIT A
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EXHIBIT G
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INVENTORY OF LANDLORD'S FURNITURE
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[LANDLORD TO PROVIDE]
EXHIBIT G
<PAGE>
EXHIBIT A
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EXERCISE FORM
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(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for ___________________ of the Warrant Shares
to the order of Beatnik, Inc. in the amount of $_________________ in
accordance with the terms of this Warrant; or
[_] herewith tenders this Warrant for ___________________ Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b) of
this Warrant
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: _____________________.
________________________________________
(Signature)
________________________________________
(Print Name)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
EXHIBIT A
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FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into
as of the 30th day of November, 1999 by and between LAMBEAU INVESTORS LLC, a
California limited liability company ("Landlord"), and BEATNIK, INC., a
California corporation ("Tenant").
R E C I T A L S:
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as of
June 17, 1999 (the "Lease"), pursuant to which Landlord leased to Tenant and
Tenant leased from Landlord certain premises consisting of approximately 7,679
rentable square feet of Rentable Area (the "Premises"), commonly known as Suite
300 of the building located and addressed at 2600 S. El Camino Real, San Mateo,
California 94403.
B. Landlord and Tenant now desire to amend the Lease to (i) expand the
Premises to include approximately 11,714 rentable square feet located on the
second (2nd) floor of the Building, as more particularly described on Exhibit A
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attached hereto, and commonly known as Suite 200 of the Building (the "Expansion
Space") and (ii) otherwise modify the Lease, all upon the terms and conditions
set forth in this Second Amendment.
C. Except as otherwise expressly provided herein to the contrary, all
capitalized terms used in this Second Amendment shall have the same meanings
given such terms in the Lease.
NOW, THEREFORE, in consideration of the foregoing recitals 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. Addition of Expansion Space. From and after December 1, 1999 (the
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"Expansion Space Commencement Date"), the Premises shall be expanded to include
the Expansion Space for a term of twenty-five (25) months (the "Expansion Space
Lease Term") ending on December 31, 2001, thereby increasing the size of the
Premises to 19,393 rentable square feet. Effective as of the Expansion Space
Commencement Date, the Expansion Space shall be added to the Premises and leased
on the same terms and conditions set forth in the Lease, as amended by this
Second Amendment, and the "Premises" shall be re-defined so as to include the
Expansion Space.
2. Base Rent. During the Expansion Space Lease Term, Tenant shall pay
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Base Rent for the Expansion Space in accordance with the following schedule,
except that Tenant shall pay the monthly installment of Base Rent due for the
Expansion Space for the first full month of the Expansion Space Lease Term
concurrently with Tenant's execution of this Second Amendment:
<PAGE>
<TABLE>
<CAPTION>
Annual Base Rental
Rate per Rentable
Month of Expansion Annual Monthly Installment Square Foot of the
Space Lease Term Base Rent of Base Rent Expansion Space
---------------- --------- ------------ ---------------
<S> <C> <C> <C>
1-2 $245,994.00 $20,499.50 $21.00
3-12 $491,988.00 $40,999.00 $42.00
13-25 $506,044.80 $42,170.40 $43.20
</TABLE>
3. Tenant's Share; Base Year. During the Expansion Space Lease Term,
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Tenant's Share of Direct Expenses for the Expansion Space shall be calculated
separate and apart from Tenant's Share of Direct Expenses for the original
Premises. Tenant's Share of Direct Expenses for the Expansion Space shall be
48.28%. The Base Year used to calculate Tenant's Share of Operating Expenses for
the Expansion Space shall be calendar year 2000.
4. Security Deposit. The last sentence of Article 20 of the Lease is
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hereby deleted and is of no further force or effect.
5. Parking. Due to the addition of the Expansion Space to the Premises,
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during the Expansion Space Lease Term, Tenant shall rent the number of
additional unreserved parking passes at the ratio of the 3.5 unreserved parking
passes for each 1,000 square feet of the Expansion Space (i.e., 41 additional
unreserved parking passes).
6. Construction by Landlord. Landlord shall not be obligated to provide
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or pay for any improvement, remodeling or refurbishment work or services related
to the improvement, remodeling or refurbishment of the Expansion Space and
Tenant shall accept the Expansion Space in its "AS IS" condition except that
Landlord will perform the following work, in accordance with building standards
(collectively, the "Landlord's Work"): (a) cause the Expansion Space to be
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professionally cleaned prior to the Expansion Space Commencement Date, (b)
repaint the interior painted walls of the lobby in the Expansion Space with a
color which matches as closely as commercially reasonably possible the color of
the interior painted walls of the lobby in the original Premises, (c) replace
the carpet in the lobby in the Expansion Space existing in such lobby as of the
date of this Second Amendment with a carpet which matches as closely as
commercially reasonably possible the carpet in the lobby of the original
Premises and (d) accent paint the trim in the Expansion Space. Landlord shall
provide Tenant with an allowance of up to, but not exceeding, Five Thousand
Dollars ($5,000.00) (the "Tenant Improvement Allowance") to pay for the cost of
----------------------------
the design and construction of the portion of Landlord's Work described in
clauses (b), (c) and (d) of the immediately preceding sentence (including,
without limitation, materials, labor, general contractor's fees and overhead and
Landlord's supervision fee of four percent (4%) of the cost of Landlord's Work).
Tenant shall pay for all costs of the portion of Landlord's Work described in
clauses (b), (c) and (d) above in excess of the Tenant Improvement Allowance,
which payment shall be made to Landlord in cash within ten (10) days after
Tenant's receipt of invoice therefor from Landlord. Tenant shall not be entitled
to receive in cash or as a credit against any rental or otherwise any portion of
such Tenant Improvement Allowance not used to pay for Landlord's Work. Except
for the portion of Landlord's Work described in clause (a) above, Landlord shall
perform Landlord's Work after
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Tenant's normal business hours pursuant to a schedule mutually approved by
Landlord and Tenant. Tenant hereby accepts any and all inconveniences associated
with Landlord's Work (including reasonable interference with Tenant's business
operations, paint fumes, noise and dust) and agrees that Landlord's Work shall
not constitute a constructive eviction.
7. Right of First Offer.
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7.1 Sections 1.3.1(ii), (iii), (iv), (v) and (vi) of the Lease are
deleted in their entirety and are of no further force or effect.
7.2 The phrase", specifying that Tenant is not interested in
exercising its right of First Offer for the First Offer Space," where it appears
in Section 1.3.2(ii) of the Lease is hereby deleted and is of no further force
or effect. The last two (2) sentence of Section 1.3.2 of the Lease are hereby
deleted and are of no further force or effect.
7.3 Sections 1.3.3 and 1.3.4 are hereby deleted and are of no further
force or effect.
7.4 The phrase in Section 1.3.5 of the Lease which begins "provided,
however, Tenant" and continues through the end of Section 1.3.5 of the Lease is
hereby deleted and is of no further force or effect.
7.5 Notwithstanding anything to the contrary set forth in Section 1.3
of the Lease, as amended by this Second Amendment, in the event that Tenant
shall lease the First Offer Space pursuant to Section 1.3 of the Lease, the
annual Base Rent payable by Tenant for the First Offer Space shall be $48.00 per
rentable square foot of the First Offer Space, the term of the lease of the
First offer Space shall expire on December 31, 2001, and Tenant shall have the
right to use, free of charge, furniture owned by Landlord currently existing in
the First Offer Space subject to the provisions of Section 7.6 below.
7.6 Landlord hereby grants Tenant a license to use in the First Offer
Space during the term of the lease for the First Offer Space the furniture and
other personal property more specifically described in Exhibit D attached hereto
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("Landlord's First Offer Space Furniture"). Prior to the commencement date of
the term of the lease for the First Offer Space, the parties shall jointly
conduct a walk-through inspection of Landlord's First Offer Space Furniture, and
note on Exhibit D any pre-existing damage or defective conditions in Landlord's
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First Offer Space Furniture. Tenant accepts Landlord's First Offer Space
Furniture in its "as is" condition with all faults and without warranties,
express or implied. Landlord disclaims any implied warranties of merchantability
or fitness for a particular purpose. Tenant shall not remove the furniture from
the First Offer Space or assign its right to use Landlord's First Offer Space
Furniture. Tenant expressly assumes all risk and responsibility for any defects
(including latent defects) in Landlord's First Offer Space Furniture, and Tenant
shall indemnify, defend and hold Landlord, its agents and employees, harmless
from and against any and all liability, claims, suits, demands, judgments,
costs, interest and expenses (including, but not limited to, attorneys' fees and
disbursements) arising from or in connection with Landlord's First Offer Space
Furniture or Tenant's use thereof. Tenant shall maintain Landlord's First Offer
Space Furniture in good condition and repair during the term of the lease for
the First Offer Space. Upon prior
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notice to Landlord, Tenant may change the location of Landlord's First Offer
Space Furniture within the First Offer Space. Tenant shall keep the Landlord's
First Offer Space Furniture free from any liens arising out of work performed,
materials furnished or obligations incurred by Tenant.
8. Warrants. As additional consideration for Landlord's entering into
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this Second Amendment with Tenant, simultaneously with Tenant's execution
hereof, Tenant is issuing and granting to Landlord additional warrants in Tenant
(the "Warrants") pursuant to and in the form of Exhibit B attached hereto (the
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"Warrant Certificate").
9. Tenant's Lease of Furniture in Expansion Space.
----------------------------------------------
9.1 Landlord hereby grants Tenant a license to use in the Expansion
Space during the Lease Term the Expansion Space Furniture and other personal
property more specifically described in Exhibit C attached hereto ("Landlord's
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Expansion Space Furniture"). As soon hereafter as may reasonably practicable,
the parties shall jointly conduct a walk-through inspection of Landlord's
Expansion Space Furniture, and note on Exhibit C any pre-existing damage or
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defective conditions in Landlord's Expansion Space Furniture. Tenant accepts
Landlord's Expansion Space Furniture in its "as is" condition with all faults
and without warranties, express or implied. Landlord disclaims any implied
warranties of merchantability or fitness for a particular purpose. Tenant shall
not remove the Expansion Space Furniture from the Expansion Space or assign its
right to use Landlord's Expansion Space Furniture. Tenant expressly assumes all
risk and responsibility for any defects (including latent defects) in Landlord's
Expansion Space Furniture, and Tenant shall indemnify defend and hold Landlord,
its agents and employees, harmless from and against any and all liability,
claims, suits, demands, judgments, costs, interest and expenses (including, but
not limited to, attorneys' fees and disbursements) arising from or in connection
with Landlord Expansion Space Furniture or Tenant's use thereof. Tenant shall
maintain Landlord's Expansion Space Furniture in good condition and repair
during the Lease Term. Upon prior notice to Landlord, Tenant may change the
location of Landlord's Expansion Space Furniture within the Expansion Space.
Tenant shall keep Landlord's Expansion Space Furniture free from any liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant.
9.2 In consideration for the rights granted to Tenant under this
Section 10, Tenant shall pay to Landlord One Thousand Five Hundred and 00/100
Dollars ($1,500.00) per month in the same manner and at the same time that Base
Rent is due as provided in Article 3 of the Lease.
10. Brokers. Landlord and Tenant hereby warrant to each other that they
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have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only BT Commercial Real Estate (the
"Brokers"), and that they know of no other real estate broker or agent who is
entitled to a commission in connection with this Lease. Each party agrees to
indemnify and defend the other party against and hold the other party harmless
from any and all claims, demands, losses, liabilities, lawsuits, judgments, and
costs and expenses (including without limitation reasonable attorneys' fees)
with respect to any leasing commission or equivalent compensation alleged to be
owing on account of the indemnifying party's dealings with any real estate
broker or agent other than the Brokers.
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11. No Further Modification. Except as set forth in this Second
-----------------------
Amendment, all of the terms and provisions of the Lease shall remain unmodified
and in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
as of the day and year first above written.
LANDLORD: LAMBEAU INVESTORS LLC,
a California limited liability company
By: /s/ John L. Worthing
--------------------------------------
Name: John L. Worthing
---------------------------------
Title: Managing Member
--------------------------------
TENANT: BEATNIK, INC.,
a California corporation
By: /s/ Patrizia Owen
--------------------------------------
Name: Patrizia Owen
---------------------------------
Title: Chief Financial Officer
--------------------------------
By: /s/ Lorraine Hariton
--------------------------------------
Name: Lorraine Hariton
---------------------------------
Title: President and Chief Executive
--------------------------------
Officer
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<PAGE>
EXHIBIT A
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THE EXPANSION SPACE
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EXHIBIT A
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<PAGE>
EXHIBIT B
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THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
BEATNIK, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Beatnik, Inc., a
California corporation (the "Company"), hereby grants to Lambeau Investors LLC,
a limited liability corporation organized under the laws of California (the
"Warrantholder"), the right to subscribe for and purchase from the Company
50,000 validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), at the purchase
price per share of $6.00 (the "Exercise Price"). This Warrant shall be
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the date hereof and ending on the earlier of June 30,
2002 [LANDLORD TO CONFIRM] or the consummation of an underwritten firm
commitment public offering of the Company with gross proceeds to the Company of
at least $10,000,000 [LANDLORD TO CONFIRM] and a per share price of at least
$4.00 [LANDLORD TO CONFIRM], all subject to the terms, conditions and
adjustments herein set forth.
Section 1. Duration and Exercise of Warrant; Limitation on Exercise; Payment
-----------------------------------------------------------------
of Taxes.
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1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the
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Warrantholder by (i) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be purchased,
during normal business hours on any Business Day during the Exercise Period and
(ii) the delivery of payment to the Company, for the account of the Company, by
cash, wire transfer of immediately available funds to a bank account specified
by the Company, or by certified or bank cashier's check, of the Exercise Price
for the number of Warrant Shares specified in the Exercise Form in lawful money
of the United States of America. The Company agrees that such Warrant Shares
shall be deemed to be issued to the Warrantholder as the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for the Warrant Shares as
aforesaid. A stock certificate or certificates for the Warrant Shares specified
in the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within 10 days, thereafter. The stock certificate
or certificates so delivered shall be in denominations of 100 shares each or
such lesser or greater denominations as may be reasonably specified by the
Warrantholder in the Exercise Form. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares,
EXHIBIT B
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<PAGE>
which new Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect net issue exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
(c) Fair Market Value. For purposes of Section 1.1(b) fair market
-----------------
value of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or
(ii) if not listed or traded on any such exchange, the last
reported sales price per share on the Nasdaq National Market or the Nasdaq
Small-Cap Market (collectively, "Nasdaq"), or
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. (the "pink
sheets"), or
EXHIBIT B
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(iv) if such quotations are not available, the fair market value
per share of the Company's Common Stock on the date such notice was
received by the Company as reasonably determined by the Board of Directors
of the Company.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-------------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from a Warrantholder,
-----------
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
Section 2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. The
---------------------------------------------------------
Warrant Shares issued upon the exercise of the Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and transferee (including the delivery
of investment representation letters and legal opinions reasonably satisfactory
to the Company, if such are requested by the Company). The Warrantholder, by
acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be
issued upon exercise hereof are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, and for investment, and
that the Warrantholder will not offer, sell or otherwise dispose of any Warrant
Shares to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Securities Act or any state securities laws.
Upon exercise of this Warrant, the Warrantholder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the Warrantholder's
own account and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued
-------------------
in substitution for this Warrant issued pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT IS NOT TRANSFERABLE. ANY SHARES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
EXHIBIT B
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Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
Section 3. Reservation and Registration of Shares, Etc.
--------------------------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
Section 4. Representations and Covenants of Warrantholder.
----------------------------------------------
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder.
4.1 Investment Purpose. The right to acquire the Warrant Shares 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.
4.2 Private Issue. The Warrantholder understands (i) that the Warrant
-------------
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant 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 4.
EXHIBIT B
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<PAGE>
4.3 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.
4.4 Indefinite Holding Period. The Warrantholder understands that it
-------------------------
may be required to hold the Warrant Shares for an indefinite period. The
Warrantholder also understands that any sale of its rights as the Warrantholder
to purchase the Warrant Shares 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.
4.5 Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
Section 5. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
Section 6. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
Section 7. Certain Adjustments.
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
---------------
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of
--------------------
this Warrant in full the number of shares of Common Stock outstanding shall have
been decreased by a
EXHIBIT B
-5-
<PAGE>
combination of the outstanding shares of Common Stock, then, immediately after
the effective date of such combination, the number of shares of Common Stock to
be delivered upon exercise of this Warrant will be decreased so that the
Warrantholder thereafter will be entitled to receive the number of shares of
Common Stock that such Warrantholder would have owned immediately following such
action had this Warrant been exercised immediately prior thereto, and the
Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of
--------------------
this Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets (whether such
stock, other securities or assets are issued or distributed by the Company or
another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or
-----------------
scrip shall be issued to any Warrantholder in connection with the exercise of
this Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the then current Fair Market Value
per share of Common Stock.
(e) Carryover. Notwithstanding any other provision of this Section
---------
7, no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant
-------------------------
Shares purchasable upon the exercise of the Warrant is adjusted, as herein
provided, the Exercise Price payable upon the exercise of this Warrant shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
EXHIBIT B
-6-
<PAGE>
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 7 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 7 is made by the
Company.
7.2 No Adjustment for Dividends. Except as provided in Section 7.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
Section 8. Notices of Corporate Action.
---------------------------
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 fight, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any Change of
Control, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivision (i), and at least 20 days prior to the date therein
specified, in the case of the date referred to in the foregoing subdivision
(ii).
EXHIBIT B
-7-
<PAGE>
Section 9. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close.
Change of Control: shall mean (i) the acquisition of the Company pursuant
-----------------
to a consolidation of the Company with or merger of the Company with or into any
other person in which the Company is not the surviving corporation (other than a
reincorporation), (ii) the sale of all or substantially all of the assets of the
Company to any other person or (iii) any sale or transfer of any capital stock
of the Company after the date of this Agreement, following which fifty percent
(50%) or more of the Company's outstanding voting stock is transferred to
holders different than those who held the stock immediately prior to such
merger. For purposes of this definition, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Beatnik, Inc., a California corporation.
-------
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit B.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(ii).
------
SEC: the Securities and Exchange Commission or any other federal agency at
---
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 7.
EXHIBIT B
-8-
<PAGE>
Section 10. Miscellaneous.
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
10.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 Amendments and Waivers. This Warrant may not be modified or
----------------------
amended except by an instrument or instruments in writing signed by the Company
and the Warrantholder. Either the Company or the Warrantholder may, by an
instrument in writing, waive compliance by the other party with any term or
provision of this Warrant on the part of such other party hereto to be performed
or complied with. The waiver by any such party of a breach of any term or
provision of this Warrant shall not be construed as a waiver of any subsequent
breach.
10.4 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.5 Further Assurances. Each of the Company and the Warrantholder
------------------
shall do and perform all such further acts and things and execute and deliver
all such other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
10.6 Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or sent by United States mail,
postage prepaid, to the parties hereto at the following addresses or to such
other address as any party hereto shall hereafter specify by notice to the other
party hereto:
(a) if to the Company, addressed to:
Beatnik, Inc.
217 South B Street
San Mateo, CA 94401
Attention: Alan Beban
Telecopier: (650) 696-9400
With a copy to:
EXHIBIT B
-9-
<PAGE>
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Jorge del Calvo
Telecopier: (650) 233-4545
(b) if to the Warrantholder, addressed to:
Lambeau Investors LLC
c/o Orvick Management Group
1887 O'Toole Avenue, Suite C208
San Jose, California 95131
Attn: Mr. Ken Orvick
with copies to:
Lambeau Investors LLC
c/o Worthing Capital
845 Oak Grove Avenue, Suite 105
Menlo Park, California 94025
Attn: Mr. Vincent Sakowski
and
Allen, Matkins, Leck, Gamble & Mallory LLP
333 Bush Street, Suite 1700
San Francisco, California 94104
Attn: Richard C. Mallory, Esq.
Except as otherwise provided herein, all such notices and communications
shall be deemed to have been received on the date of delivery thereof, if
delivered personally, or on the third Business Day after the mailing thereof.
10.7 Counterparts. This Warrant may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same, instrument.
10.8 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.9 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of California.
10.10 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or to
EXHIBIT B
-10-
<PAGE>
impose any liabilities on the Warrantholder to purchase any securities whether
such liabilities are asserted by the Company or by creditors or stockholders of
the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: November __, 1999.
LAMBEAU INVESTORS LLC
By: ___________________________________
Name: _____________________________
Title: ____________________________
BEATNIK, INC.
By: ___________________________________
Name: _____________________________
Title: ____________________________
EXHIBIT B
-11-
<PAGE>
EXHIBIT A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for __________ of the Warrant Shares to the
order of Beatnik, Inc. in the amount of $__________ in accordance with
the terms of this Warrant; or
[_] herewith tenders this Warrant for __________ Warrant Shares pursuant
to the Net Issue Exercise provisions of Section 1.1(b) of this Warrant
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: _______________
_______________________________
(Signature)
_______________________________
(Print Name)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
EXHIBIT A
-1-
<PAGE>
EXHIBIT C
---------
INVENTORY OF LANDLORD'S EXPANSION SPACE FURNITURE
-------------------------------------------------
[LANDLORD TO PROVIDE]
---------------------
EXHIBIT C
-1-
<PAGE>
EXHIBIT D
---------
INVENTORY OF LANDLORD'S FIRST OFFER SPACE FURNITURE
---------------------------------------------------
[LANDLORD TO PROVIDE]
---------------------
EXHIBIT D
-1-
<PAGE>
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE ("Second Amendment") is made and entered
into as of the 30th day of December, 1999 by and between LAMBEAU INVESTORS LLC,
a California limited liability company ("Landlord"), and BEATNIK, INC., a
California corporation ("Tenant").
R E C I T A L S:
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as of
June 17, 1999 (the "Original Lease"), pursuant to which Landlord leased to
Tenant and Tenant leased from Landlord certain premises consisting of
approximately 7,679 rentable square feet of Rentable Area (the "Premises"),
commonly known as Suite 300 of the building located and addressed at 2600 S. El
Camino Real, San Mateo, California 94403 (the "Building").
B. Landlord and Tenant amended the Original Lease by entering into the
First Amendment to Lease dated November 30, 1999 (the "First Amendment"),
whereby the Premises were expanded to include an additional 11,714 rentable
square feet located on the second (2nd) floor of the Building (the "Expansion
Premises"). The Original Lease and the First Amendment shall hereafter
collectively be referred to as the "Lease.")
C. Landlord and Tenant now desire to amend the Lease to (i) memorialize
that Tenant has elected to lease the First Offer Space which consists of
approximately 4,868 rentable square feet located on the ground floor of the
Building, as more particularly described on Exhibit A attached hereto, and
---------
commonly known as Suite 300 of the Building (the "First Offer Space") and (ii)
otherwise modify the Lease, all upon the terms and conditions set forth in this
Second Amendment.
D. Except as otherwise expressly provided herein to the contrary, all
capitalized terms used in this Second Amendment shall have the same meanings
given such terms in the Lease.
NOW, THEREFORE, in consideration of the foregoing recitals 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. Addition of First Offer Space. From and after February 1, 2000 (the
-----------------------------
"First Offer Space Commencement Date"), the Premises shall be expanded to
include the First Offer Space for a term of twenty-three (23) months (the "First
Offer Space Lease Term") ending on December 31, 2001, thereby increasing the
size of the Premises to 24,261 rentable square feet. Effective as of the First
Offer Space Commencement Date, the First Offer Space shall be added to the
Premises and leased on the same terms and conditions set forth in the Lease, as
amended by this Second Amendment, and the "Premises" shall be re-defined so as
to include the First Offer Space.
<PAGE>
2. Base Rent. During the First Offer Space Lease Term, Tenant shall pay
---------
annual Base Rent for the First Offer Space in the amount of $233,664.00 (i.e.,
$48.00 per rentable square foot of the First Offer Space) which shall be payable
in equal monthly installments of $19,472.00.
3. Tenant's Share; Base Year. As a result of the addition of the First
-------------------------
Offer Space to the Premises, during the First Offer Space Lease Term, Tenant's
Share of Direct Expenses for the First Offer Space shall be calculated separate
and apart from Tenant's Share of Direct Expenses for the original Premises but
Tenant's Share of Direct Expenses for the First Offer Space shall be calculated
together with Tenant's Share of Direct Expenses for the Expansion Space. During
the First Offer Space Lease Term, Tenant's Share of Direct Expenses for the
Expansion Space and the First Offer Space shall be 68.35%. The Base Year used to
calculate Tenant's Share of Operating Expenses for the First Offer Space shall
be calendar year 2000. In addition, from and after the date of this Second
Amendment, Tenant's Share of Direct Expenses set forth in Section 9.2 of the
Summary attached to the Original Lease is hereby revised to be approximately
31.65%.
4. Parking. Due to the addition of the First Offer Space to the Premises,
-------
during the First Offer Space Lease Term, Tenant shall rent additional unreserved
parking passes at the ratio of the 3.5 unreserved parking passes for each 1,000
square feet of the First Offer Space (i.e., 17 additional unreserved parking
passes).
5. Construction by Landlord. Landlord shall not be obligated to provide
------------------------
or pay for any improvement, remodeling or refurbishment work or services related
to the improvement, remodeling or refurbishment of the First Offer Space and
Tenant shall accept the First Offer Space in its "AS IS" condition.
6. Deletions. Section 1.3 of the Original Lease, as amended by Section
---------
7 of the First Amendment, is hereby deleted and is of no further force or
effect.
7. Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Second Amendment, excepting only BT Commercial Real Estate
(the "Broker"), and that they know of no other real estate broker or agent who
is entitled to a commission in connection with this Second Amendment. Each
party agrees to indemnify and defend the other party against and hold the other
party harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including without limitation reasonable
attorneys' fees) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than the Broker.
8. No Further Modification. Except as set forth in this Second Amendment,
-----------------------
all of the terms and provisions of the Lease shall remain unmodified and in full
force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
as of the day and year first above written.
LANDLORD: LAMBEAU INVESTORS LLC,
a California limited liability company
By: /s/ Vincent E. Sakowsk
-------------------------------------------
Name: Vincent E. Sakowsk
--------------------------------------
Title: Partner Worthing Capital - Managing
-------------------------------------
Member
------
TENANT: BEATNIK, INC.,
a California corporation
By: /s/ Patrizia Owen
-------------------------------------------
Name: Patrizia Owen
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
By: __________________________________________
Name: _____________________________________
Title: ____________________________________
3
<PAGE>
EXHIBIT A
---------
THE FIRST OFFER SPACE
---------------------
EXHIBIT A
1
<PAGE>
EXHIBIT 10.6
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
NOKIA AGREEMENT NUMBER:
A0SLA9030
OEM LICENSING AGREEMENT
DATED NOVEMBER 17, 1999
BETWEEN
NOKIA MOBILE PHONES ltd.
and
BEATNIK, INC.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<C> <S> <C>
1. DEFINITIONS.............................. 4
2. DEVELOPMENT.............................. 6
3. DELIVERY AND ACCEPTANCE.................. 6
3.1 Testing by the Licensor.................. 6
3.2 Delivery of Deliverables................. 7
3.3 Testing and Acceptance by Nokia.......... 7
3.4 The Right to Terminate by Nokia.......... 7
3.5 Delivery of Development Tools............ 7
4. GRANT OF LICENSES........................ 7
4.1 Reproduction:............................ 7
4.2 Internal Use:............................ 7
4.3 Distribution:............................ 7
4.4 Sub-Licensing:........................... 8
4.5 Adaptation and Modification:............. 8
4.6 Development Tools:....................... 8
4.7 Source Code License:.................... 8
4.8 No Implied Licenses...................... 8
4.9 New Products of the Licensor............. 8
5. PAYMENTS................................. 9
5.1 One Time License Fee..................... 9
5.2 Taxes.................................... 9
5.3 Terms of Payment......................... 9
6. WARRANTY................................. 10
6.1 The Warranties of the Licensor........... 10
6.2 No Implied Warranties.................... 10
7. PROPRIETARY RIGHTS AND PROTECTION........ 11
7.1 The Ownership of the Licensor............ 11
7.2 The Ownership of Nokia................... 11
7.3 Nokia Adaptations........................ 11
7.4 Intellectual Property Rights............. 11
7.5 Proprietary Notices...................... 11
8. INTELLECTUAL PROPERTY RIGHTS INDEMNITY... 11
8.1 The Indemnity of the Licensor............ 11
8.2 The Options of the Licensor.............. 12
9. CONFIDENTIALITY.......................... 12
10. TERM OF AGREEMENT AND TERMINATION........ 13
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.1 Term..................................... 13
10.2 Termination for Breach................... 13
10.3 Bankruptcy............................... 13
10.4 Transfer of Control...................... 13
10.5 Limited Rights After Termination......... 13
11. LIABILITY................................ 14
12. FORCE MAJEURE............................ 15
13. MISCELLANEOUS............................ 15
13.1 Entire Agreement......................... 15
13.2 Assignment and Transfer.................. 15
13.3 Notices.................................. 15
13.4 Remedies and Waivers..................... 16
13.5 Partial Invalidity....................... 16
13.6 Law...................................... 16
13.7 Jurisdiction............................. 16
13.8 Surviving Clauses........................ 16
13.9 Headings................................. 16
</TABLE>
LIST OF APPENDICES
Appendix 1 - Deliverables and Specifications
Appendix 2 - Payments
Appendix 3 - Development Agreement
Appendix 4 - Quality Requirements
Appendix 5 - Year 2000 Conformity Requirements of British Standards Institution
<PAGE>
THIS OEM LICENSING AGREEMENT is dated November 17th, 1999 and made
BETWEEN
(1) Nokia Mobile Phones Ltd. of Keilalahdentie 4, FIN-02150, Espoo,Finland,
including its Affiliates ("Nokia") and
(2) Beatnik, Inc. of 2600 El Camino Real, San Mateo, CA 94403, USA (the
"Licensor").
WHEREAS:-
(A) Nokia is a developer, manufacturer and supplier of sophisticated
telecommunications equipment and terminals, accessories and connectivity
solutions; and
(B) The Licensor is a reputable developer, owner, manufacturer, distributor and
publisher of software technologies; and
(C) The Licensor and Nokia desire that Nokia will license Beatnik Technology
and Nokia will modify that technology to operate in Nokia Products; and
(D) Nokia may request that the Licensor performs certain additional development
work to modify the technologies of the Licensor to operate in Nokia
products; and
(D) The Licensor and Nokia also desire that the Licensor grants to Nokia and
Nokia obtains the right to use and distribute the technologies of the
Licensor to be used in or together with the Nokia products.
NOW IT IS HEREBY AGREED:-
1. DEFINITIONS
For the purposes of this Agreement the following definitions shall govern
(and where the context so admits the singular shall include the plural and
vice versa):
"Acceptance"
shall mean, with respect to each Deliverable, that the Deliverable has been
tested by Nokia and meets the acceptance criteria and the requirements set
forth under the Agreement. The Acceptance shall be indicated by a written
certificate issued by Nokia and may be conditional as indicated in such
certificate.
"Affiliate"
shall mean Nokia Corporation, or any corporation or other entity fifty (50)
percent or more of whose: (i) shares or other securities or equity interests
entitled to vote for the election of directors or other managing authority;
or (ii) interest in the income thereof, is, at the time of determination and
only so long as it remains, held, owned or controlled, directly or
indirectly and individually or in combination with any other Affiliate, by
Nokia Corporation (a Finnish corporation having its principal place of
business at Nokia House, Keilalahdentie 4, Espoo, Finland) in the case of
Nokia.
<PAGE>
"Appendix"
shall mean a document which the Parties shall, by mutual agreement, sign and
attach to this Agreement on the Effective Date or at any time during the
term of this Agreement. All Appendices shall be subject to the terms and
conditions of this Agreement. In the event of a conflict between the terms
of an Appendix and the terms of this Agreement, the terms of this Agreement
shall prevail.
"Deliverable"
shall mean the Licensed Product and the Results of Development, which
consists of any software in the Source Code and/or Object Code form and the
related Documentation and the media procured or prepared by the Licensor for
Nokia under this Agreement. The term Deliverable shall also apply to all
works and services of the Licensor ordered by Nokia under this Agreement.
"Development Agreement"
shall mean the agreement attached to this Agreement as Appendix 3.
"Development Tools"
shall mean the standard tools that Licensor provides, or are commercially
available, for software development, which may include debug tools,
localization tools and automated testing tools as described in more detail
in Appendix 1.
"Documentation"
shall mean any user manuals and other documents related to the Licensed
Product and/or the Results of Development and provided by the Licensor to
Nokia.
"Effective Date"
shall mean November 17th, 1999.
"Error"
shall mean any mistake, problem, defect, malfunction or deficiency, which
causes an incorrect or inadequate functioning or non-functioning of a
Deliverable so that the Deliverable does not meet the requirements set forth
under this Agreement or does not operate in or in connection with the Nokia
Product.
"Intellectual Property Rights"
shall mean patents (including utility models), design patents, and designs
(whether or not capable of registration), chip topography rights and other
like protection, copyright, trademark and any other form of statutory
protection of any kind and applications for any of the foregoing
respectively as well as any trade secrets.
"Licensed Product"
shall mean the standard software product in source code format of the
Licensor and the related Documentation described in Appendix 1, including
any Error corrections thereto, developed and released by the Licensor and
accepted by Nokia during the term of and in accordance with this Agreement.
"Nokia Netting"
<PAGE>
shall mean a centralized payment method under which all payments are made by
Nokia once a week on a predetermined day in accordance with a schedule (sent
to the Licensor from time to time upon request).
"Nokia Product"
shall mean any Nokia Mobile Phone device manufactured or any software or any
software application developed and/or licensed by or for Nokia, provided
that such Nokia Mobile Phone product contains or is used in connection with
the Deliverable.
"Object Code"
shall mean computer-programming code, substantially or entirely in binary
form, which is directly executable by a computer after suitable processing
but without the intervening steps of compilation or assembly.
"Party" and "Parties"
refer to the Licensor and/or Nokia.
"Quality Requirements"
are the requirements for the Licensor's software development process and for
the Deliverables as set forth in Appendix 4.
"Results of Development"
shall mean results of any development performed under the Development
Agreement including related Documentation and any Error corrections thereto
developed by the Licensor and accepted by Nokia during the term of and in
accordance with this Agreement.
"Shipment Date"
shall mean the actual date of shipment on which the Nokia Product or the
Licensed Product unit is shipped by Nokia to a third party customer as
recorded in the internal accounting system of Nokia. If a unit is shipped
from a third party manufacturer to a customer of Nokia, the Shipment Date
shall be the date upon which such shipment occurs.
"Specifications"
shall mean the technical and functional specification of a Deliverable as
described in and/or referred to in Appendix 1.
"Source Code"
shall mean the Deliverable in the form of computer programming code, other
than Object Code, and related to source code level system documentation,
comments and procedural code such as job control language, which may be
printed out or displayed in a form readable and understandable by a
programmer of ordinary skill.
2. DEVELOPMENT
The Licensor will provide Source Code for the Deliverable to Nokia and Nokia
will modify the code to operate in and/or in connection with the Nokia
Product. At Nokia's request, Licensor shall also modify each Licensed
Product to conform to the respective Specifications and to operate in and/or
in connection with the Nokia Product as specified from time to time in
Appendix 1 and
<PAGE>
under the Development Agreement. Each development shall be performed in
compliance with the Development Agreement.
3. DELIVERY AND ACCEPTANCE
3.1 Testing by the Licensor
The Licensor shall test the Deliverables for any Error and compliance with
the Quality Requirements prior to delivery to Nokia. Such testing shall
also ensure that the Deliverables conform to the Specifications.
3.2 Delivery of Deliverables
The Licensor shall in accordance with the Development Agreement in Appendix
3 deliver, on such media as the Parties agree from time to time, the
Deliverables to Nokia for the Acceptance tests of Nokia.
3.3 Testing and Acceptance by Nokia
Nokia will examine and test Deliverables for Error. Within thirty (30) days
of commencement of the Acceptance tests Nokia will provide the Licensor
with written Acceptance certificate of such Deliverable or a statement of
rejection. In the event of rejection, Nokia shall provide to the Licensor a
list of Errors to be corrected before the Deliverable can be accepted by
Nokia. The Licensor shall correct the Errors within thirty (30) days upon
receipt of the statement of rejection of Nokia. Within twenty (20) days of
redelivery, Nokia will provide the Licensor with a written Acceptance or
another statement of rejection with a list of Errors. This procedure will
be repeated until Nokia accepts the Deliverable, unless Nokia chooses to
terminate this Agreement in accordance with Clause 3.4 to this Agreement.
3.4 The Right to Terminate by Nokia
Nokia shall have the right to terminate this Agreement, if a Deliverable
does not meet the Acceptance criteria of Nokia within ninety (90) days from
the first statement of rejection of Nokia.
3.5 Delivery of Development Tools
The Licensor shall make available to Nokia the Development Tools of the
Licensor for the Deliverable.
4. GRANT OF LICENSES
Subject to the terms and conditions hereunder, the Licensor grants to Nokia
and Nokia obtains from the Licensor the following license:
<PAGE>
4.1 Reproduction:
a *** license, for the term of this Agreement (and for the extended period
as defined in Sub-Clause 10.5.2 to make and have made copies of the
Deliverable in object code format and to incorporate and use the
Deliverable in or in connection with the Nokia Product and incorporate into
the Nokia documentation for commercial purposes and for the internal use of
Nokia for the purpose of research, testing, pre-sales and marketing
demonstrations and training;
4.2 Internal Use:
- a *** license to use the Deliverable in source and object code format in
or in connection with Nokia Product for the purpose of maintenance and
support, and
- a *** license, for the term of this Agreement (and for the extended
period as defined in Sub-Clause 10.5.2), to use the Deliverable in
source and object code format in or in connection with Nokia Product for
the internal use of Nokia and for the purpose of research, testing, pre-
sales and marketing demonstrations and training;
4.3 Distribution:
a *** license, for the term of this Agreement (and for the extended period
as defined in Sub-Clause 10.5.2), to market, sell, distribute and make
available the Deliverable in object code format integrated in or to be used
in connection with Nokia Product;
4.4 Sub-Licensing:
a *** license, for the term of this Agreement (and for the extended period
as defined in Sub-Clause 10.5.2), to grant to the end-users of the Nokia
Product a perpetual, irrevocable license to use the Deliverable in object
code format in or in connection with the Nokia Product .
4.5 Adaptation and Modification:
a *** license, for the term of this Agreement, to adapt and modify the
Deliverable to operate in or in connection with the Nokia Product. If Nokia
chooses to support MPEG or other standard formats, then Nokia must obtain
the appropriate licenses from their respective owners;
4.6 Development Tools:
a *** license to use the Development Tools for the Deliverable as defined
in Appendix 1. Nokia's subcontractors shall have the same rights to use the
Development Tools as Nokia have;
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
4.7 Source Code License:
a *** license, for the term of this Agreement to use such Source Code of
the Deliverable, which shall be delivered by the Licensor to Nokia in
order to enable Nokia to develop Nokia proprietary applications and
modules for Nokia Products and a *** license to use the Source Code to
support and maintain the Nokia Products. Nokia shall also have the right
to make the Source Code available to third party software developers doing
development work for Nokia subject to prior consent of the Licensor, which
shall not be unreasonably withheld and shall be deemed to be given within
two (2) weeks from the request, unless the Licensor has rejected the
request within the said two-week period.
4.8 No Implied Licenses
There are no implied licenses under this Agreement, and all rights, save
for those expressly granted to Nokia hereunder, remain with the Licensor.
4.9 New Products of the Licensor
The Licensor agrees to include in this Agreement upon Nokia's request such
new products of the Licensor (such as new software modules) that the
Licensor may develop during the term of this Agreement and is able to
offer on general commercial release, and to offer Nokia reasonable and
competitive prices for such new products. For the avoidance of doubt, this
shall not include any proprietary software developed by the Licensor for
the other licensees of the Licensor, unless such software is regarded by
the Licensor as a general release.
4.10 New Products of Nokia
The Licensor agrees to include in this Agreement upon Nokia's request such
new Nokia Products (other than Nokia Mobile Phone products as defined in
Clause 1 of this agreement) during the term of this Agreement, and to
offer Nokia reasonable and competitive prices for such new products.
5. PAYMENTS
Nokia shall pay to the Licensor a license fee for the Licensed Product in
accordance with Clause 5.1 and as further defined in Appendix 2 for each
Deliverable. The fee for the Results of Development shall be as defined in
Appendix 2.
5.1 One time license fee
5.1.1 The license and development fee payable by Nokia to the Licensor for the
Licensed Product is defined in Appendix 2, and such license fee shall be
the full and only payment to be made by Nokia to the Licensor for the
respective Licensed Product during the term of this Agreement.
5.2 Taxes
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>
5.2.1 All amounts payable are exclusive of any value added or corresponding
taxes (VAT), which shall be payable by Nokia in accordance with the local
legislation.
5.2.2 Each Party shall pay any taxes or levies imposed on it as a result of
this Agreement and payments hereunder (including that required to be
withheld or deducted from payments) and shall furnish suitable evidence
of such payments to the other Party to enable it to obtain any credit
that might be available to it.
5.3 Terms of Payment
5.3.1 All payments under this Agreement shall be made on the Nokia Netting date
following the payment term of forty-five (45) days from the receipt of
invoice. Payment shall be made by direct bank transfer into such bank
account in such country as the Licensor may from time to time nominate.
5.3.2 All payments by Nokia hereunder shall be made in the currency defined in
Appendix 2.
5.3.3 If Nokia is overdue with any payment due under this Agreement then Nokia
shall pay interest on the overdue amount at an annual rate equal to one
(1) percent above the 1 month London Interbank Offered Rate (LIBOR) as
quoted by Financial Times on the date of the due date or the maximum rate
permitted by the applicable law, whichever is the lesser, which interest
shall accrue on a daily basis from the date payment becomes overdue until
the Licensor has received payment of the overdue amount.
6. WARRANTY
6.1 The Warranties of the Licensor
6.1.1 The Licensor warrants that the Deliverables shall have been tested in
accordance with Clause 3.1 and shall conform to the Specifications and
Quality Requirements, and shall, during the period of one hundred and
twenty days (120) days from the Acceptance, be free from Errors. Further
more, the Deliverables and any part thereof shall be fit for the purpose
for which they are intended according to the Appendix 1.
6.1.2 The Licensor warrants that the Licensor has full right and power to grant
to Nokia the rights described in Clause 4 of this Agreement and to enter
into this Agreement.
6.1.3 The Licensor warrants that (i) the Deliverables are developed or validly
acquired by the Licensor, and (ii) the Licensor has not received notice
of or otherwise is aware of any claim or threat of claim that the
Deliverables infringe any patent, trade secret, copyright or any other
Intellectual Property Rights of any third party.
6.1.4 The Licensor warrants that it will keep Nokia informed on a regular basis
of any export and other regulatory restrictions relating to the
Deliverables. Should the export of the Deliverables require an export
license, the Licensor shall obtain it on its own cost and upon request of
Nokia. However,
<PAGE>
it shall be the responsibility of Nokia to obtain an
export license for the Nokia Product. Each Party agrees to give all
reasonable assistance to the other Party in obtaining any export licenses
such other Party is obliged to obtain under this Agreement. The Licensor
further agrees to provide Nokia, upon request, with all information
necessary to accurately classify the Deliverables under any applicable
export regulations, including but not limited to the US Bureau of Export
Administration regulations.
6.1.5 The Licensor warrants that neither the performance nor functionality of
the Deliverables or any part thereof provided to Nokia under the
Agreement is affected by a date, prior to, during or after the year 2000
and, in particular, that (i) no value for current date will cause any
interruption in operation; (ii) date-based functionality will behave
consistently for dates prior to, during and after year 2000; (iii) in all
interfaces and data storage the century in any date is specified either
explicitly or by unambiguous algorithms or inferencing rules; and (iv)
year 2000 is recognized as a leap year, all as provided for in detail in
the DISC PD2000-1, "A Definition of Year 2000 Conformity Requirements",
prepared by a committee of the British Standards Institution, attached
hereto as Appendix 5.
6.2 No Implied Warranties
The express obligations and warranties made by the Parties in this
Agreement are in lieu of and to the exclusion of all other warranties,
conditions or other terms of any kind, express or implied, statutory or
otherwise relating to anything supplied or services provided under or in
connection with this Agreement.
7. PROPRIETARY RIGHTS AND PROTECTION
7.1 The Ownership of the Licensor
The Licensor shall continue to own all rights including the Intellectual
Property Rights in and to the Licensed Product.
7.2 The Ownership of Nokia
Nokia shall own all rights including, but not limited to, the
Intellectual Property Rights in and to the Nokia Product. Nokia shall
also own all rights in and to the software components and applications
developed by Nokia.
All Intellectual Property Rights in and to the Results of Development
under the Development Agreement shall be vested in Nokia and the Licensor
shall upon request without any cost to Nokia promptly do all such things
as may be necessary (if any) to formally effect such vesting.
7.3 Nokia Adaptations
Nokia may adapt the Deliverables to operate in or in connection with the
Nokia Product and Nokia shall own the Intellectual Property Rights in and
to those adaptations.
<PAGE>
7.4 Intellectual Property Rights
The ownership as described in Clauses 7.1-7.3 above shall also determine
the right and obligations of a Party to seek, obtain and maintain
protection of Intellectual Property Rights in such countries as that Party
may consider appropriate.
7.5 Proprietary Notices
The Licensor may provide the Licensed Product with its patent and copyright
notices customary in the software industry, which notices shall not be
removed by Nokia.
8. INTELLECTUAL PROPERTY RIGHTS INDEMNITY
8.1 The Indemnity of the Licensor
Licensor represents and warrants that the Deliverables do not infringe any
patent, copyright, trademark or other Intellectual Property Right of any
third party.
Licensor will settle and/or defend at its own expense and indemnify Nokia
against any cost, loss or damage arising out of any claim, demand, suit or
action against Nokia, its Affiliates and their respective customers to the
extent such claim, demand, suit or action alleges that the Deliverables, or
the use of such Deliverables in or in connection with Nokia Product
infringes upon any Intellectual Property Right of any third party, provided
that (1) Nokia promptly informs Licensor in writing of any such claim,
demand, action or suit, (2) Licensor is given control over the defense
thereof and Nokia cooperates in the defense at Licensor's expense, and (3)
Nokia will not agree to the settlement of any such claim, demand, action or
suit prior to a final judgement thereon without the prior written consent
not be unreasonably withheld. Nokia shall have the right to select its own
counsel to participate in any such defense at Nokia's expense.
The above referenced indemnification shall not apply to any claim, demand,
suit or other action, resulting from a modification to the Deliverables,
made by Nokia, provided that the absence of such modification would not
have caused any such infringement.
8.2 The Options of the Licensor
If a claim, demand, suit or action alleging infringement is brought or
Licensor believes one may be brought, Licensor shall have the option at its
expense to (1) modify the Deliverables to avoid the allegation of
infringement, while at the same time maintaining compliance of the
Deliverables with the Specification, or (2) obtain for Nokia at no cost to
Nokia a license to continue using and exploiting the Deliverables in or in
connection with the Nokia Product in accordance with this Agreement free of
any liability or restriction.
9. CONFIDENTIALITY
9.1 Each Party ("Receiving Party" for the purposes of this Clause 9, shall not
disclose to third parties nor use for any purpose other than for the proper
fulfillment of the purpose of this Agreement any technical or commercial
information ("Information") received from the other Party ("Disclosing
<PAGE>
Party") in whatever form under or in connection with this Agreement without
the prior written permission of the Disclosing Party save for Information
which
(a) was in the possession of the Receiving Party prior to disclosure
hereunder; or
(b) was in the public domain at the time of disclosure or later became
part of the public domain without breach of the confidentiality
obligations herein contained; or
(c) was disclosed by a third party without breach of any obligation of
confidentiality owed to the Disclosing Party; or
(d) was independently developed by personnel of the Receiving Party
having no access to the Information.
9.2 Neither Party shall make any publicity on, press release of or reference to
this Agreement, except as required by law or government regulation. If both
parties agree in advance and in writing to do so, a joint press release may
be used to announce the relationship. The text of any such Press release
must be jointly approved.
9.3 Affiliates of a Party hereto engaged in the performance of this Agreement
shall not be deemed to be third parties for the purposes of this Clause 9
on condition that disclosure of Information may only occur on need to know
basis and that the respective Party ensures full compliance by such
Affiliates of all of the provisions of this Clause 9.
9.4 Each Party shall limit access to Information to those of its personnel for
whom such access is reasonably necessary for the proper performance of this
Agreement and obtain written undertakings of confidentiality from them.
9.5 Notwithstanding the foregoing, neither Party shall be liable to the other
for any unauthorized disclosure of Information if it can be established
that it has exercised the same degree of care in protecting the Information
from such disclosure as it exercises in respect of its own confidential
information and business secrets.
9.6 The provisions of this Clause 9 shall bind the Parties for a period of 5
(five) years from the date of signing of this Agreement or, in respect of
every item of Information later disclosed hereunder, a period of 5 (five)
years from disclosure, whichever period is longer regardless of any
earlier termination, cancellation or completion of this Agreement.
9.7 Without prejudice to the generality of the foregoing, each Party agrees
not to use any of the Information or technology of the other Party for
any use or purposes except those expressly specified herein.
9.8 As to the Source Code Nokia shall treat it in a manner that they would
treat their most confidential information.
<PAGE>
10. TERM OF AGREEMENT AND TERMINATION
10.1 Term
The term of this Agreement shall be a period of five (5) years from the
Effective Date, unless terminated earlier in accordance with this
Agreement.
10.2 Termination For Breach
Each Party shall have the right to terminate this Agreement upon thirty
(30) days prior written notice if the other Party is in breach of any
material obligation under this Agreement and the breaching Party fails to
remedy such breach within such notice period.
10.3 Bankruptcy
10.3.1 Each Party shall have the right to terminate this Agreement immediately
upon written notice in the event that the other Party becomes insolvent,
files for any form of bankruptcy, makes any assignment for the benefit of
creditors, has a receiver, administrative receiver or officer appointed
over the whole or a substantial part of the assets, or ceases to conduct
business or an equivalent act to any of the above occurs under the laws
of the jurisdiction of each Party.
10.4 Transfer of Control
Nokia shall also have the right to terminate this Agreement, if all or
more than ten (10) percent of the shares of the Licensor or the
operational control in the Licensor is acquired by a competitor of Nokia
(specifically companies working in the field of telecommunication and
wireless communication).
10.5 Limited Rights After Termination
Upon termination or expiry of this Agreement, the following rights
granted hereunder, shall terminate, as follows:
10.5.1 If this Agreement is terminated due to breach by Nokia, or under 10.4,
Nokia will immediately discontinue all copying, embedding, production and
distribution of any additional copies of the Licensed Products as of the
termination date and will cause any third parties who obtained from it
the right to manufacture copies of the Licensed Product to do likewise.
10.5.2 If this Agreement is terminated due to any other reason, Nokia may
continue to exploit the Deliverables in accordance with the terms and
conditions of this Agreement until the initial license period defined in
Clause 10.1 has expired.
10.5.3 Any termination or expiry shall not affect any rights of an end-user to
use Deliverables and shall further not affect the right of Nokia to sell
and distribute such units of Nokia Product which have been manufactured
upon or prior to the termination or expiration of this Agreement.
<PAGE>
10.5.4 Upon expiry or termination of this Agreement (or upon the expiry of the
initial license period as specified in Clause 10.5.2) Nokia shall
forthwith destroy all copies of the Licensed Product, including without
limitation all Source Code, master diskettes and tapes, user manuals, and
product materials. Nokia may retain and exploit only such copies of the
Licensed Product as it may reasonably require in providing continued
customer support to its end-user customers, and will certify that that is
the case upon request of the Licensor.
11. LIABILITY
11.1 The Licensor shall indemnify and hold Nokia harmless from and against all
claims, demands, suits, proceedings, damages, costs, expenses and
liabilities, including without limitation reasonable legal fees, brought
against or incurred by Nokia for
(i) injury to persons, including death; and/or
(ii) loss or damage to any property; and/or
(iii) any other liability
resulting from any acts or omissions of the Licensor in the performance
of this Agreement and/or from a defect in the Deliverables. The Licensor
shall maintain in force and upon request give evidence of adequate
insurance covering its potential liability under this Clause 11.1.
11.2 Nokia shall indemnify and hold Licensor harmless from and against all
claims, demands, suits, proceedings, damages, costs, expenses and
liabilities, including without limitation reasonable legal fees, brought
against or incurred by Licensor for
(i) injury to persons, including death; and/or
(ii) loss or damage to any property; and/or
(iii) any other liability
resulting from any acts or omissions by Nokia in the performance of this
Agreement and/or from a defect in the Nokia Product.
11.3 Neither Party shall be liable in contract, tort or otherwise, whatever
the cause thereof, for any indirect, special, punitive or consequential
damage, including but not limited to loss of business or goodwill, loss
of revenue or loss of profits, howsoever arising under or in connection
with this Agreement, except in cases of breach of Clause 9 or in cases of
intentional misconduct or gross negligence.
12. FORCE MAJEURE
12.1.1 Neither Party shall be liable to the other for any delay or non-
performance of its obligations hereunder in the event and to the extent
that such delay or non-performance is due to an event of Force Majeure.
12.1.2 Events of Force Majeure are events beyond the control of the Party which
occur after the date of signing of this Agreement and which were not
reasonably foreseeable at the time of signing of this Agreement and whose
effects are not capable of being overcome without unreasonable expense
and/or loss of time to the Party concerned. Events of Force Majeure shall
include (without being limited to) war, civil unrest, acts of government,
natural disasters, exceptional weather conditions,
<PAGE>
breakdown or general unavailability of transport facilities, accidents,
fire, explosions, and general shortages of energy.
12.1.3 In the event that the delay or non-performance of either Party hereto
continues for a period of four (4) months due to reasons of Force
Majeure, or if the same reason of Force Majeure cumulatively exceeds a
period of four months, then either Party shall have the right to
terminate this Agreement with immediate effect without liability.
13. MISCELLANEOUS
13.1 Entire Agreement
This Agreement and the Appendices hereto state the entire agreement
between the Parties relating to the subject matter hereof and supersede
all prior communications, written or oral, between the Parties. However,
the Non-Disclosure Agreement executed between the Parties shall not be
overridden by this Agreement. All amendments and modifications to this
Agreement shall be made by an instrument in writing signed by both
Parties.
13.2 Assignment and Transfer
Neither Party shall be entitled to assign nor transfer all or any of its
rights, benefits and obligations under this Agreement without the prior
written consent of the other Party, except for the sale or transfer of
the parties entire business.
13.3 Notices
Any notice given by one Party to the other shall be deemed properly given
if specifically acknowledged by the receiving Party in writing or when
delivered to the recipient by registered mail to the following addresses
(or such other address as may be notified in writing from time to time by
either Party):
(a) if to Nokia, to
Nokia Mobile Phones Ltd.
P.O. Box 100
FIN-00045 Nokia Group
Finland
Attn: Ms Pirjo Toivanen
(b) if to the Licensor, to
Beatnik Inc.
2600 El Camino Real
San Mateo, CA
94403
Attn: Mr. Alan Beban
<PAGE>
Each communication and document made or delivered by one Party to another
pursuant to this Agreement shall be in the English language or
accompanied by a translation thereof.
13.4 Remedies and Waivers
No failure to exercise, nor any delay in exercising, on the part of
either Party, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
prevent any further or other exercise thereof or the exercise of any
other right or remedy.
13.5 Partial Invalidity
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither
the legality, validity or enforceability of the remaining provisions
hereof nor the legality, validity or enforceability of such provision
under the law of any other jurisdiction shall in any way be affected or
impaired thereby.
13.6 Law
This Agreement is governed by the laws of New York, New York excluding
its conflict of laws principles.
13.7 Jurisdiction
Any and all disputes that may arise between the Parties (and any claim by
a party against an Affiliate of the other party) under or in connection
with this Agreement, except for claims for injunctive relief, shall be
finally settled (together with any counterclaims and disputes under or in
connection with other agreements between the Parties) in arbitration by a
single arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect unless otherwise
agreed by the parties. The arbitration shall be conducted in New York,
New York, in the English language. The award shall be final and binding
on the parties and enforceable in any court of competent jurisdiction.
13.8 Surviving Clauses
The following clauses shall survive any termination or expiry of this
Agreement: 6, 7, 8, 9, 10.5, 11, 13.6 and 13.7.
13.9 Headings
Headings are used for the purposes of references only and shall not
affect the interpretation of this Agreement.
In witness whereof this agreement has been duly signed and executed by the
parties hereto in two original counterparts as of the Effective Date.
<PAGE>
NOKIA MOBILE PHONES LTD.
By: /s/ Pirjo Toivanen By: /s/ Katrina Ura
---------------------- ----------------------------
Name: Pirjo Toivanen Name: Katrina Ura
-------------------- --------------------------
Title: General Manager Title: Legal Counsel
------------------- -------------------------
Date: November 17, 1999 Date: November 17, 1999
-------------------- -------------------------
BEATNIK, INC.
By: /s/ Lorraine Hariton By: /s/ Alan Beban
----------------------- ----------------------------
Name: Lorraine Hariton Name: Alan Beban
--------------------- --------------------------
Title: President & CEO Title: Secretary
-------------------- -------------------------
Date: November 30, 1999 Date: As of Nov. 17, 1999
--------------------- --------------------------
<PAGE>
Appendix 1
DELIVERABLES AND SPECIFICATIONS
BEATNIK Audio Engine version 2.0 in source code format
The Beatnik Audio Engine enables a device that is running on following operating
systems (OS): Windows 95/NT, WEBTV's OS, BeOS, MagicCap OS, Solaris OS, NaviOS,
and SUN Microsystems' JavaSound to play high-quality sound effects, voices and
music. It does its processing entirely in software, and requires only a DAC
(digital-to-analog converter) to produce audio signal. The Beatnik Audio Engine
also sets you free from the limitations of General MIDI (GM), because in
addition to the 128 melodic and 128 percussion (128+47 instruments in use) GM
sounds, the engine can play custom sounds and samples, including vocals. The
total number of instrument sounds is 2x128 for GM sounds, another 2x128 sounds
for so called special sounds, and the third 2x128 sound set for custom
instrument sounds. This expanded capacity gives composers an unprecedented
variety of sounds to work with. The Beatnik Audio Engine's true strength is its
capability to play RMF (Rich Music Format) files. Though they may contain MIDI
data, WAV audio and MP3-compressed samples, RMF files are compact, and play back
almost instantly when triggered. This innovation makes it possible to create
interactive audio environments on Web pages, allowing users to generate a real-
time soundtrack as they move around the site.
GENERAL SPECIFICATIONS:
. Includes a software MIDI synthesizer, a sample playback device, and a 64-
voice, stereo, 16-bit mixer all done in software
. Capable of mixing 64 stereo voices at any sampling rate. The correct operation
will be verified for following sampling rates 8000Hz, 11025Hz, 16000 Hz,
22050Hz, 24000Hz, 32000 Hz, 40000Hz, 44100Hz, and 48000Hz
. Interprets MIDI files directly and plays sampled instruments of any design.
The engine also supports all General MIDI controllers as of Version 1.0.
. Includes reverb, LFO (for controlling sweeping filters, pitch, amplitude, or
stereo placement) and ADSR volume envelopes (for shaping samples as they are
played)
. Highly optimized code, designed to take advantage of today's high performance
CPU's i.e. the Intel Pentium III Katmai instruction set.
. Maximum of 64 voices are supported. The synthesis load may be varied according
too the given maximum CPU usage and memory availability.
The synthesis engine may be used to playback and trigger sound effects. In this
specification, sound effects refer to sound samples, audio clips, that are
stored as groovoids or instruments into the BAE player or a Sound bank (*.hsb).
Sound effects are used to sonify WEB pages or games with e.g. natural sounds
such as thunder storm, rain, fire etc.
. Support for Apple Sound resources type 1 and 2 for sampled instruments and
sound effects.
. Synthesizer code is compact requiring a minimum of 100kBytes of RAM for 68k,
300kBytes for PowerPC and Pentium.
. The representation of the music is compact. The run-time memory allocation is
comparable to MIDI data. A custom loss-less compression of sound effects and
MIDI data is used to achieve 10-30% savings when the music is stored to a RMF
file.
. Simple programming interface. One call to initialize driver, one call to play
song or sound effect, and one call to stop.
. Intelligent looping support for songs, samples, and sound effects.
. Two times oversampling mode from 11025Hz to 22050Hz and from 22050Hz to
44100Hz for high performance playback and high quality sound. Linear (two point)
Interpolation mode for highest quality
<PAGE>
playback.
. 16 bit output and stereo panning of musical instruments and sound effects.
. Response to volume and velocity.
. MIDI File Format 1.0 support. Keyboard splits. 64 Track capable. 16 MIDI
channel support, responds to program changes.
. General MIDI Sample library included with each license.
. Sample libraries are available from 400 Kbytes to 7.5 Mbytes of sample memory.
. Instrument mixdown and instrument modifiers (such as envelopes, equalization
and amplitude scaling)
. Playback of stereo and monophonic samples or instruments at either 8 or 16
bit.
. 32 bit mixing engine for output of full dynamic range of samples.
. Multiple source streaming API enables up to 64 independent audio streams mixed
together. You can also mix MIDI sequences into the audio streams.
. A single real-time reverb unit may be applied to all outputs. Currently, 5
simple reverb types are available ranging from subtle to large room simulation.
You can selectively mix sound sources into the reverb for more control.
. API calls to control sound effects placement in stereo, reverb type and
embedded MIDI controller callbacks.
. MIDI Sequencer with support for sustain pedal, volume control, stereo pan
control, and reverb control. , all dynamic.
. Flexible ADSR and LFO units for modulating volume, pitch, and stereo position
for instruments.
Nokia requirement for the licensing agreement:
In the development plan Beatnik will modify the Beatnik Audio Engine (BAE)
source code so that the code will be divided into two parts to separate the
development of the *** software and the *** software. In the following list of
requirements this naming convention will be used even though the actual work to
implement the software division and restructuring will be part of the
development plan rather than the licensing agreement. Following list of
requirements specify the Nokia requirements for the licensing agreement. The
different items are labeled using characters A to J corresponding to the
original labeling of items specified in the Nokia-Beatnik workshop 25.10.-
28.10.1999:
B: The *** part of *** is to have two versions (modified by ***) firstly a ***
and secondly a ***. The current Beatnik code has *** options for different
***. Nokia needs *** code bases for *** development. The *** is needed for
the *** evaluation and the *** reference is used as a starting point for
the Nokia *** development. Both of these codes can be *** from the *** of
the ***. Because the task includes basically *** of *** of the *** where
the *** of *** is not *** these *** are considered to be part of the
software development that is required to achieve software quality Level 2
defined in the Appendix 5 of the licensing agreement.
C: The code is to be supplied with clear comments or subroutine level
operation description to aid understanding for implementing engineers, who
are not MIDI experts. Software comments are also considered to be part of
the licensing agreement because basic software commenting practice can be
considered to be a requirement of quality Level 2 software.
D/1: Test sequences (RMF files) are required to be able to ensure and test the
correct operation of the reference source code. RMF content has to be
diverse exercising all parts of the code in order to test all different
operation modes of the synthesis engine. The *** files has to include
*** with *** stored into the ***. The number of instrument
embedded into the RMF file has to range from one to 64 instruments.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
G: Nokia has to be able to verify the creation of corresponding RMF content
with Beatnik Editor Tools running on both Macintosh and Windows platform.
H: Beatnik will test the *** code and the *** tools for the *** of *** from
*** to ***. The *** will be provided to Nokia at least for *** running on
*** and ***.
TOOLS:
1) Beatnik Editor 1.0 Mac
2) Beatnik Converter 2.0 Win
3) Beatnik Editor 2.0 Mac (Available Q2 2000)
4) Beatnik Editor 2.0 Win (Available Q2 2000) - should have the same
functionality as Beatnik Editor 2.0 for Mac
5) A test suite that tests the engine's C interface
6) Some Test content
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix 2
PAYMENTS
1. ONE TIME LICENSE AND DEVELOPMENT FEE
At Contract Signing $ ***
At First shipment of the Nokia
Product or September 30,
2000 whichever occurs first. $ ***
2. DEVELOPMENT FEE
For additional development work for the work done under a separate development
agreement during term of this agreement: to be determined but shall not exceed
$*** per day, per person.
3. CURRENCY US Dollars
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix 3
DEVELOPMENT AGREEMENT
1. OBJECT OF DEVELOPMENT AGREEMENT
1.1 This Development Agreement is an attachment to the OEM License Agreement
between Nokia and the Licensor of (date of agreement) and describes and
defines the responsibilities of the parties and the timetable for the
development work to be undertaken by the Licensor and Nokia to modify and
adapt the Licensor's technologies to operate in or in connection with Nokia
Products (hereafter "Development"). Capitalized terms that are not defined
herein have the same meaning as in the OEM License Agreement. The terms and
conditions of the OEM License Agreement are incorporated by reference.
1.2 Nokia shall have the right to request and the Licensor agrees upon Nokia's
reasonable request to perform additional development work on behalf of
Nokia to develop applications or modifications of Licensed Product for
Nokia Products. Nokia shall own all rights including the Intellectual
Property Rights in and to the results of such additional development work
(Results of Development) , provided that such ownership rights shall not
extend to any underlying technology of the Licensor.
2. PROJECT MANAGEMENT
2.1 The Development work shall be supervised by the Steering Group, which shall
have an equal number of representatives of each Party. In the event that
any or either Party's representatives cannot attend a Steering Group
meeting, such Party may appoint a suitable replacement. The Steering Group
shall have a quorum, when at least one representative of each Party is
present in the meeting. A decision is valid and binding only if the
decision is unanimous. No decision of the Steering Group shall be valid and
binding unless an equal number of representatives of each Party is present.
Each representative shall have one vote on any decision. The decisions
shall be documented in the meeting minutes, which will be reviewed and
signed by each member of Steering Group. Deadlocks shall be reviewed by
senior management until a decision is agreed to by both parties.
2.2 Nokia representatives in the Steering Group shall be:
*** (Nokia Research)
*** (Nokia Mobile Phones)
*** (Nokia Mobile Phones)
The Licensor's representatives in the Steering Group shall be:
***
***
***
2.3 Steering Group meetings are mainly arranged in connection with the
Development milestones defined in the project plan attached hereto as
Exhibit 3.1 (hereinafter referred to as "Project Plan" in this Appendix 3.
At each meeting the next meeting shall be scheduled. The time between the
meetings shall in no case be longer than three (3) months.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
2.4 Steering Group is authorized to decide on Changes to the Project Plan or
Specifications as specified in Clause 5. The decision of the Steering
Group must state the description of change, date and time of decision and
a list of persons who agreed about the decision.
2.5 Each Party shall prior to the commencement of Development nominate an
authorized representative who will be the other party's prime point of
contact. Such representation may only be changed by notice in writing.
2.6 To assist the Parties in communication, a non-exhaustive list of contact
information is set out in Clause 7 of this Development Agreement.
3. PERSONNEL
3.1 The Parties shall provide and dedicate the level and quality of staffing,
project management and physical and personnel resources necessary to
ensure the successful and timely completion of the parties obligations in
accordance with this Development Agreement.
3.2 The Licensor shall assign personnel of appropriate qualification and
experience to perform and fulfill its obligations under this Agreement.
The Licensor is obliged to replace, without unreasonable delay and at no
cost to Nokia, any member of the personnel whom Nokia considers lacking
the necessary competence or with whom Nokia finds it manifestly difficult
to collaborate.
3.3 The Licensor shall use all reasonable endeavors to minimize the
possibilities of changes in the personnel assigned to perform Licensor's
obligations under this Agreement. If for any reason any individual will
cease to be available for the performance of Licensor's obligations under
this Agreement, the Licensor shall notify Nokia thereof without delay and
use all reasonable endeavors to promptly replace such individual with
another person of at least equal competence. The Licensor shall bear all
additional costs incurred as a consequence of any replacements.
3.4 Notwithstanding any degree of supervision exercised by Nokia over
Licensor's personnel assigned to perform development of Deliverable such
personnel at all times shall be deemed to be the employees of the Licensor
and in no circumstances shall the relationship of employer and employee be
deemed to arise between Nokia and Licensor's personnel.
4. PARTIES' DEVELOPMENT RESPONSIBILITIES
4.1 Availability of Resources from Nokia
4.1.1 Nokia shall make available to the Licensor the Nokia specific items
specified to be provided by Nokia in the Project Plan. The Licensor shall
be responsible for the safe custody of the items and insurance of any
computer hardware while they are in its care.
4.1.2 Nokia shall provide, if so separately agreed in writing, on temporary
basis suitable office accommodation and services to employees of the
Licensor that are working at the premises of Nokia in the course of the
Development, including telephone and photocopying facilities required for
the purposes thereof. Employees of the Licensor must observe all
regulations in force and working hours laid down by Nokia while working at
Nokia's premises.
<PAGE>
4.2 Licensor's Development Responsibilities
4.2.1 The Licensor's development responsibilities and the share of work between
Nokia and Licensor shall be set forth in more detail in a Project Plan.
4.2.2 Nokia's product development milestones and requirements shall be followed
in the Development work to be undertaken by the Licensor.
4.2.3 The Licensor agrees to a reasonable extent and with the assistance of
Nokia to develop Development Tools or to enhance the Licensor's existing
Development Tools in order to assist Nokia's product and platform
development and testing. All tools will be defined at the beginning of the
Project Plan and fees for development will be included. If during the
course of the project Nokia requires additional tools that were not
defined at the beginning of the Project Plan, Licensor agrees to use best
efforts to develop them for an additional fee.
4.2.4 The Licensor shall in the Development of the Deliverables comply with any
quality standards and production control procedures that Nokia may
reasonably require. Without prejudice to the aforesaid, the Licensor shall
comply with the quality assurance and production control procedures
specified or referred to in Appendix 4 (Quality Requirements) of the OEM
Licensing Agreement. Nokia shall be entitled to perform or to have its
authorized agent perform audits of the same and the Licensor will correct
any deficiencies found during any such audit.
4.2.5 The Licensor shall upon request provide Nokia with access to all
facilities that may reasonably be required to enable Nokia and/or Nokia's
customers to monitor the progress of Development and afford Nokia and/or
its customers the right to verify at source that a Deliverable conforms to
the Specifications and other specified requirements. Any such monitoring
or verifications shall be without prejudice to any other rights of Nokia
under this Agreement or the OEM Licensing Agreement and shall not relieve
the Licensor from any of its obligations under this Agreement or the OEM
Agreement nor a subsequent rejection of Deliverable and nor shall such
verification be used by the Licensor as evidence of effective control of
quality.
5. CHANGES TO PROJECT PLAN
5.1 Nokia may request and the Licensor may recommend at any time prior to
Acceptance of the last Deliverable to be provided under this Agreement
changes to the Specifications, Project Plan, delivery schedule or delivery
arrangements (hereinafter referred to as "Change"). The Developer
undertakes to make such Changes that may be requested by Nokia. All
Changes shall be defined and agreed in writing with reference to the exact
terms of the Project Plan or Specifications that are affected.
5.2 The Parties will respond in writing or meet to discuss any Change upon
Nokia's request. The Licensor will advise Nokia of the likely impact of
any Change, including any effect on price and/or delivery schedule,
promptly upon request, and submit a written offer accordingly.
5.3 Until such time as any Change is formally agreed, the Licensor will,
unless otherwise agreed or requested by Nokia in writing, continue the
Development as if such Change had not been requested or recommended.
5.4 Notwithstanding anything said in this Clause 5, if a Change becomes
necessary in order to comply with terms and conditions of this Agreement,
the cost of such Change shall be borne by the party to whose action or
omission such Change is attributable.
<PAGE>
6. DEVELOPMENT MILESTONES AND DELIVERY
6.1 The Development shall be divided into various milestones, as specified in
the Project Plan.
6.2 Upon the completion of each milestone the Parties shall review the results
thereof on the basis of a written report submitted by the Developer. Nokia
shall accept or reject in writing the results of the milestone in question
by issuing an Acceptance certificate as specified in Clause 3.3 of the OEM
License Agreement. The Licensor shall upon obtaining an Acceptance
certificate of the respective milestone commence the performance of the
following milestone.
6.3 The Licensor shall deliver the Deliverables (including documentation) to
Nokia on appropriate media and in a condition acceptable to Nokia no later
than by the dates specified in the Project Plan. The actual date of
delivery shall be the date when Nokia issues a certificate of Acceptance
with respect of the whole Development and Deliverables. Time of delivery
shall be of the essence of this Agreement.
6.4 The Licensor shall as soon as the Licensor is or should have been aware of
the delay in respect of a milestone specified in the Project Plan, inform
Nokia thereof in writing stating the reason for the delay and the effect
of the delay on the delivery schedule.
6.5 In the event that the Licensor fails to meet any dates set forth in the
delivery schedule of the Project Plan, then Nokia shall be entitled to
liquidated damages in the amount of *** per cent of the Development Fee
for each week of delay or part thereof up to a maximum of *** per cent of
the Development Fee .
6.6 In case the Licensor fails to notify Nokia of the delay in accordance with
Clause 6.4 above, then the Licensor shall be obliged to pay to Nokia
liquidated damages amounting to *** per cent per each week of delay or
part thereof up to a maximum of *** per cent of the Development
Fee.
6.7 The liquidated damages set forth in Clauses 6.5 and 6.6 shall be without
prejudice to any rights of Nokia in the event of a termination of this
Agreement or in the event the actual direct damages of Nokia exceed the
liquidated damages. Nokia shall not be obliged to show evidence to the
Licensor in respect of having suffered actual damage as a result of the
delay in the delivery schedule in order to claim the liquidated damages.
Nokia shall be entitled to deduct the liquidated damages from any payments
to be made to the Licensor under this Agreement, and the Licensor shall be
obliged, upon request by Nokia, to provide Nokia with a credit note
accordingly.
6.8 In addition to what has been said above in Clauses 6.4-6.7, should a
milestone defined in Project Plan not be met due to reasons attributable
to the Licensor and/or the Parties agree to cut down the number of
applications or in some other way reduce the amount of Development work of
the Licensor in order to meet the milestone to the effect that the Nokia
Product does not have all the functionality as specified in the
Specification (including the situation described in Clause 3.4 of the
Agreement, where a Deliverable has not received Acceptance, but Nokia has
chosen not to terminate the Agreement), the license fees and royalties
payable by Nokia to the Licensor shall be reduced by an amount reflecting
the value of such left out application or functionality to the value of
the Deliverable as a whole, but in any case at least *** per
cent of the applicable Development fee or Development fee rate.
6.9 Notwithstanding the aforesaid, Nokia shall not be entitled to liquidated
damages if and to the extent that the delay in delivery is due to reasons
for which Nokia is solely responsible.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
6.10 After the completion of the Development or any time during the validity of
the Agreement upon Nokia's request, the Licensor shall forward the
Deliverables to Nokia.
6.11 In the event the Agreement is cancelled or terminated, the Licensor shall
promptly deliver to Nokia all the Deliverables existing upon the
cancellation or termination of the Agreement independent of the reasons
for the cancellation or termination.
7. CONTACT INFORMATION OF THE PARTIES
7.1 Commercial Contacts
The Licensor's contact shall be: ***
Nokia's contact shall be: ***
7.2 Technical Contacts
The Licensor's contacts shall be: ***
Nokia's contacts shall be: ***
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix 3.1
DEVELOPMENT AGREEMENT
TOPICS FOR THE DEVELOPMENT PLAN
The following list of topics is was drafted during the Nokia-Beatnik workshop
25.-28.10.1999. This list of topics may be used as a preliminary list of topics
that would have to be solved in order to adapt to Nokia hardware and software
platform. A more detailed description of topics may be developed during the
course of the development project.
A: BAE source code to be properly divided into two threaded entities, cleaned
from all unnecessary additions and hardware dependencies:
. ***
. ***
. ***
. ***
. ***
. ***
. ***
. ***
. ***
. ***
. *** and *** parts
. ***
. ***
. ***
. ***
. ***
. ***
. Common headers
. ***
. ***
. ***
. ***
. ***
Both entities would be needed for development of *** and *** code for Nokia
platform. This is due to the fact that some *** is needed during
operation of BAE. *** will be defined and information about memory required ***
part of structures (depending on the BAE configuration) will be provided.
All further tasks are to be applied to both parts of the source code unless
stated otherwise.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
E: The operation of the entire BAE is to be changed from the existing *** time
frame to *** in order to comply with *** used within ***.
F: MIDI interpreter running on the DSP is to be modified for data word access.
I: Nokia *** is to be developed - for ***
within the ***. This would be a GM bank. In order to take into account
regional requirements some instruments would have to be emphasized. In order
to achieve that GM bank subset selection process will have to be
established. Beatnik will provide sample instruments for evaluation by Nokia
and then region specific subsets will be chosen. *** criteria
will be defined by Nokia.
J: The simultaneous playback of multiple songs is supported by implementing a
prioritization mechanism to ensure a desired prioritization between e.g. UI
sounds and MIDI music.
K: Modification of Beatnik tools (Editor and Converter) to support a plug-in
architecture that enables Nokia a development of RMF file export wizard
tools to ensure the compatibility with the BAE implementation within
different products. The RMF file export plug-in architecture enables Nokia
to support RMF content creation for multiple products with different
implementation constrains so that content creator does not have to be
familiar with these limitations. Beatnik will modify the tools to support
the Nokia plug-in development and creates an example plug-in source code and
the documentation for Nokia development. After the functionality has been
approved Nokia will take the responsibility to develop Nokia specific export
plug-in tools Beatnik Editor and Beatnik Converter. The Beatnik tool
development may be scheduled to follow the synthesizer development. The
documentation of the plug-in architecture and the preliminary versions of
the modified content creation tools and should be available for Nokia
internal use during Q3/2000. The approved software release of the Beatnik
Editor and Beatnik Converter (Pro) tools with a support for Nokia plug-in
development must be tested and available for Nokia at the latest by the end
of the year 2000.
<TABLE>
***
Task Completion Date Resource
- --------------------------------------------------------------------------------------------
CODE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
*** Handoff *** Steve
- --------------------------------------------------------------------------------------------
General Code Production *** Steve, Mark, Andrew
- --------------------------------------------------------------------------------------------
Handoff Code Complete Alpha to QA *** Steve
- --------------------------------------------------------------------------------------------
DOCUMENTATION
- --------------------------------------------------------------------------------------------
Design Specification Complete *** Chris G.
- --------------------------------------------------------------------------------------------
Code Comments Complete *** Chris G.
- --------------------------------------------------------------------------------------------
***
- --------------------------------------------------------------------------------------------
*** Production Complete *** Spencer
- --------------------------------------------------------------------------------------------
Complete Final RMF & Performance Test Cases *** Nokia/Spencer
- --------------------------------------------------------------------------------------------
TESTING
- --------------------------------------------------------------------------------------------
Alpha QA Testing *** Shawn/QA
- --------------------------------------------------------------------------------------------
Beta QA Testing *** Shawn/QA
- --------------------------------------------------------------------------------------------
Testing Complete *** Shawn/QA
- --------------------------------------------------------------------------------------------
Handoff Code with Comments to Nokia *** Steve
- --------------------------------------------------------------------------------------------
Handoff Final API Documentation to Nokia *** Chris G.
- --------------------------------------------------------------------------------------------
</TABLE>
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix 4
QUALITY REQUIREMENTS
1. Purpose
The purpose of this document is to define the Quality Requirements for
Licensor's software development and implementation work.
The Licensor shall aim at complying with the requirements of the
Capability Maturity Model, which is briefly described in this Appendix
4. The target level for the Licensor' development of Deliverables is
Level 2 as set forth in Clause 3 of this Appendix 4.
2. Quality Requirements
The specific Quality Requirements for the Deliverables shall be agreed
between the Licensor and Nokia during the specification phases as
described in the Development Agreement.
3. Capability Maturity Model
The Capability Maturity Model for Software (SW-CMM or CMM version 1.1)
from the Software Engineering Institute (SEI) is a model for judging
the maturity of the software processes of an organization and for
identifying the key practices that are required to increase the
maturity of these processes.
The Software Engineering Institute (SEI) is a federally funded research
and development center sponsored by the U.S. Department of Defense and
operated by Carnegie Mellon University.
The Software CMM has become a de facto standard for assessing and
improving software processes.
The Capability Maturity Model for Software describes the principles and
practices underlying software process maturity and is intended to help
software organizations improve the maturity of their software processes
in terms of an evolutionary path from ad hoc, chaotic processes to
mature, disciplined software processes. The CMM is organized into five
maturity levels:
Level 1: Initial
The software process is characterized as ad hoc, and occasionally even
chaotic. Few processes are defined, and success depends on individual
effort and heroics.
Level 2: Repeatable
Basic project management processes are established to track cost,
schedule, and functionality. The necessary process discipline is in
place to repeat earlier successes on projects with similar
applications.
Level 3: Defined
The software process for both management and engineering activities is
documented, standardized, and integrated into a standard software
process for the organization. All projects use an approved, tailored
version of the organization's standard software process for developing
and maintaining software.
<PAGE>
Level 4: Managed
Detailed measures of the software process and product quality are
collected. Both the software process and products are quantitatively
understood and controlled.
Level 5: Optimizing
Continuous process improvement is enabled by quantitative feedback from
the process and from piloting innovative ideas and technologies.
Predictability, effectiveness, and control of an organization's
software processes are believed to improve as the organization moves up
these five levels. While not rigorous, the empirical evidence to date
supports this belief.
Except for Level 1, each maturity level is decomposed into several key
process areas that indicate the areas an organization should focus on
to improve its software process.
The key process areas at Level 2 focus on the software project's
concerns related to establishing basic project management controls.
They are Requirements Management, Software Project Planning, Software
Project Tracking and Oversight, Software Subcontract Management,
Software Quality Assurance, and Software Configuration Management.
The key process areas at Level 3 address both project and
organizational issues, as the organization establishes an
infrastructure that institutionalizes effective software engineering
and management processes across all projects. They are Organization
Process Focus, Organization Process Definition, Training Program,
Integrated Software Management, Software Product Engineering,
Intergroup Coordination, and Peer Reviews.
The key process areas at Level 4 focus on establishing a quantitative
understanding of both the software process and the software work
products being built. They are Quantitative Process Management and
Software Quality Management.
The key process areas at Level 5 cover the issues that both the
organization and the projects must address to implement continual,
measurable software process improvement. They are Defect Prevention,
Technology Change Management, and Process Change Management.
Each key process area is described in terms of the key practices that
contribute to satisfying its goals. The key practices describe the
infrastructure and activities that contribute most to the effective
implementation and institutionalization of the key process area.
<PAGE>
Appendix 5
YEAR 2000 CONFORMITY REQUIREMENTS OF BRITISH STANDARDS INSTITUTION
A DEFINITION OF YEAR 2000 CONFORMITY REQUIREMENTS
PREAMBLE TO THE SUMMER 1998 AMENDMENT
BSI DISC originally published PD2000-1 in January 1997 and it has been widely
adopted. A review of the document was conducted by the responsible committee
(BDD/1/3) in the spring of 1998 taking into account comments received. The
committee considered that amendments to the fundamental conformity requirements
were neither necessary nor desirable. The Definition and the four Rules are
unchanged but, to add value to the document and aid its interpretation, the
Amplification sections have been amended. This document, PD2000-1:1998, replaces
the previous version of PD2000-1 but does not change its requirements. An
additional document PD2000-4, entitled "PD2000-1 in Action" will provide further
information on PD2000-1:1998 together with information on its use.
Paragraph numbers have been enhanced in the Amplification section to aid
referencing and substantial revisions to the document are indicated by side
lines against the changed text.
Introduction
This document addresses what is commonly known as Year 2000 conformity (also
sometimes known as century or millennium compliance). It provides a definition
of this expression and requirements that must be satisfied in equipment and
products which use dates and times.
It has been prepared by British Standards Institution committee BDD/1/3 in
response to demand from UK industry, commerce and the public sector. It is the
result of work from the following bodies whose contributions are gratefully
acknowledged: BT, Cap Gemini, CCTA, PricewaterhouseCoopers, Halberstam Elias,
ICL, National Health Service, National Westminster Bank. Additionally, BSI DISC
acknowledges the support of the Electronics and Information Industries Forum
(EIIF), Action 2000, Taskforce 2000 and Digital Equipment as well as the
original bodies for their participation in the review of this document.
BSI DISC would also like to thank the following organizations for their support
and encouragement in the development of this definition: Barclays Bank, British
Airways, Cambridgeshire County Council, Computer Software Services Association,
Department of Health, Ernst & Young, Federation of Small Businesses, IBM, ICI,
National Power, Paymaster Agency, Prudential Assurance, Reuters, Tesco Stores.
While every care has been taken in developing this document, the contributing
organizations accept no liability for any loss or damage caused, arising
directly or indirectly, in connection with reliance on its contents except to
the extent that such liability may not be excluded at law. Independent legal
advice should be sought by any person or organization intending to enter into a
contractual commitment relating to Year 2000 conformity requirements.
This entire document or the Definition section (including the four Rules) may be
freely copied provided that the text is reproduced in full, the source
acknowledged and the reference number of this document is quoted. It is
recommended that the Amplification section be included. References to "PD2000-
1:1998" shall be interpreted as meaning the entire document.
THE DEFINITION
Year 2000 conformity shall mean that neither performance nor functionality is
affected by dates prior to, during and after the year 2000.
In particular:
Rule 1 No value for current date will cause any interruption in operation.
Rule 2 Date-based functionality must behave consistently for dates prior to,
during and after year 2000.
<PAGE>
Rule 3 In all interfaces and data storage, the century in any date must be
specified either explicitly or by unambiguous algorithms or inferencing
rules.
Rule 4 Year 2000 must be recognized as a leap year.
AMPLIFICATION OF THE DEFINITION AND RULES
1 General Explanation
1.1 Problems can arise from some means of representing dates in computer
equipment and products and from date-logic embedded in purchased goods or
services, as the year 2000 approaches and during and after that year. As
a result, equipment or products, including embedded control logic, may
fail completely, malfunction or cause data to be corrupted.
1.2 To avoid such problems, organizations must check, and modify if
necessary, internally produced equipment and products and similarly check
externally supplied equipment and products with their suppliers. The
purpose of this document is to allow such checks to be made on a basis of
1.3 Where checks are made with external suppliers, care should be taken to
distinguish between claims of conformity and the ability to demonstrate
conformity.
2 Amplification of the definition
2.1 PD2000-1 (all editions) is solely concerned with the performance and
functionality of a single version, release or system. It does not address
differences in performance or functionality between different versions,
releases or systems.
2.2 Variations in performance immeasurably small in the context of use do not
make a version, release or system non-conformant.
3 Amplification of the Rules
3.1 Rule 1
3.1.1 This rule is sometimes known as general integrity.
3.1.2 If this requirement is satisfied, roll-over between all significant time
demarcations (e.g. days, months, years, centuries) will be performed
correctly.
3.1.3 Current date means today's date as known to the equipment or product,
i.e. the actual date of operation [NOTE - this refers to normal operation
and does not prevent testing.]
3.2 Rule 2
3.2.1 This rule is sometimes known as date integrity.
3.2.2 This rule means that all equipment and products must calculate,
manipulate and represent dates correctly for the purposes for which they
were intended.
3.2.3 The meaning of functionality includes both processes and the results of
those processes.
3.2.4 If desired, a reference point for date values and calculations may be
added by organizations; e.g. as defined by the Gregorian calendar .
3.2.5 No equipment or product shall use particular date values for special
meanings; e.g. "99" to signify "no end value" or "end of file" or "00" to
mean "not applicable" or "beginning of file" unless the values in
question lie outside its possible date range.
3.3 Rule 3
3.3.1 This rule is sometimes known as explicit/implicit century.
3.3.2 It covers two general approaches:
(a) explicit representation of the year in dates: e.g. by using four
digits or by including a century indicator. In this case, a reference may
be inserted (e.g. 4-digit years as allowed by ISO 8601:1988) and it may
be necessary to allow for exceptions where domain-specific standards
(e.g. standards relating to Electronic Data Interchange, Automatic Teller
Machines or Bankers Automated Clearing Services) should have precedence.
(b) the use of inferencing rules: e.g. two-digit years with a value
greater than 50 imply 19xx, those with a value equal to or less than 50
imply 20xx. Rules for century inferencing as a whole must
<PAGE>
apply to all contexts in which the date is used, although different
inferencing rules may apply to different date sets. Where any date
element is represented without a century, the correct century shall be
unambiguous for all manipulations involving that element.
3.4 Rule 4
3.4.1 A leap year is defined in ISO 8601:1988 (amended in 1991) as follows:
"year, leap: In the Gregorian calendar, a year which has 366 days. A leap
year is a year whose number is divisible by four an integral number of
times, except that if it is a centennial year it shall be divisible by
four hundred an integral number of times."
3.4.2 Thus, for example, 2000 is a leap year but 1900 is not.
4 General Notes
4.1 For Rules 1 and 2 in particular, it is recommended that the allowable
ranges for values of current date and dates to be manipulated be
documented, recognizing that all systems have some limitation on the
valid date ranges. The ranges may relate to one or more of the feasible
life-spans of equipment or products or the span of dates required to be
represented by the organization's business processes.
4.2 Tests for specifically critical dates may also be added (e.g. for leap
years, end of year, etc.). Organizations may wish to append additional
material in support of local requirements.
4.3 Where the term "century" is used, clear distinction should be made
between the "value" denoting the century (e.g. 20th) and its
representation in dates (e.g. 19xx); similarly, 21st and 20xx.
<PAGE>
EXHIBIT 10.7
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement"), is entered into this 10th day of
October, 1999, by and between INGRAM MICRO INC. ("Ingram"), a Delaware
-----------------
corporation, having its principal place of business at 1600 E. St. Andrew Place,
Santa Ana, California 92705, and MIXMAN TECHNOLOGIES INC. ("Vendor"), a
------------------------
California corporation, having its principal place of business at 850 Montgomery
Street, Suite 350, San Francisco, California 94133. The parties desire to and
hereby do enter into a distributor/supplier relationship, the governing terms
and mutual promises of which are set out in this Agreement.
1. Distribution Rights.
-------------------
1.1 Territory. Vendor grants to Ingram, including its affiliates for
---------
resale, and Ingram accepts, the non-exclusive right to distribute worldwide all
computer products produced and/or offered by Vendor ("Product") during the term
of this Agreement. Ingram shall have the right to purchase, sell and ship to any
reseller within the territory or to Ingram's affiliate, or at Vendor's option
Ingram's affiliate may purchase direct from Vendor.
1.2 Product. Vendor agrees to make available and to sell to Ingram such
-------
Product as Ingram shall order from Vendor at the prices and subject to the terms
set forth in this Agreement. Ingram shall not be required to purchase any
minimum amount or quantity of the Product.
2. Term and Termination.
--------------------
2.1 Term. The initial term of this Agreement is one (1) year. Thereafter
----
the Agreement will automatically renew for successive one (1) year terms, unless
it is earlier terminated.
2.2 Termination.
-----------
(a) Either party may terminate this Agreement, with or without cause, by
giving thirty (30) days written notice to the other party.
(b) Either party may immediately terminate this Agreement with written notice
if the other party:
(i) materially breaches any term of this Agreement and such breach
continues for thirty (30) business days after written notification thereof,
or
(ii) ceases to conduct business in the normal course, becomes insolvent,
makes a general assignment for the benefit of creditors, suffers or permits
the appointment of a receiver for its business or assets, or avails itself
of or becomes subject to any proceeding under any Bankruptcy Act or any
other federal or state statute relating to insolvency or the protection of
rights of creditors; or
-1-
<PAGE>
(iii) attempts to assign or otherwise transfer its rights hereunder
unless both have agreed in writing to such assignment or transfer.
3. Ingram Obligations.
------------------
3.1 Product Availability. Ingram will list Product in its catalog(s) as
--------------------
appropriate and endeavor to make such Product available to customers.
3.2 Advertising. Ingram will advertise and/or promote Product in a
-----------
commercially reasonable manner and will transmit as reasonably necessary Product
information and promotional materials to its customers.
3.3 Support. Ingram will make its facilities reasonably available for Vendor
-------
and will assist in Product training and support. Ingram will provide
reasonable, general Product technical assistance to its customers, and will
direct all other technical issues directly to Vendor.
3.4 Administration.
--------------
(a) Upon request, Ingram will furnish Vendor with a valid tax exemption
certificate.
(b) Ingram will provide Vendor standard sales-out and inventory reports via
its electronic Bulletin Board System.
(c) Ingram may handle its customers' Product returns by batching them for
return to Vendor at regular intervals.
3.5 Prior Agreement. Ingram agrees that concurrent with the execution of
---------------
this Agreement that the Ingram and Vendor Start-Up Agreement dated September 24,
1997 is terminated and Ingram assumes all outstanding obligations, if any,
including but not limited to any payments due Vendor under the prior Start-Up
Agreement.
4. Vendor Obligations.
------------------
4.1 Shopping/Export.
---------------
(a) Vendor shall ship Product pursuant to Ingram purchase order(s) ("P.O.").
Product shall be shipped F.O.B. Ingram's designated warehouse with risk of loss
or damage to pass to Ingram upon delivery to the warehouse specified in Ingram's
P.O.
(b) Ingram requires concurrent with the execution of this Agreement Export
Administration Regulations product classification and supporting documentation:
Certificate of Origin (General Use and/or NAFTA), Export Commodity Control
Number's (ECCN's); General License and/or Individual Validated License
information and Schedule B/Harmonized Numbers. This applies when distribution
rights granted under Section 1.1 are outside the United States for the initial
Product/s and when additions or changes to these Products occurs.
-2-
<PAGE>
4.2 Invoicing. For each Product shipment to Ingram, Vendor shall issue to
---------
Ingram an invoice showing Ingram's order number, the Product part number,
description, price and any discount. At least monthly, Vendor shall provide
Ingram with a current statement of account, listing all invoices outstanding and
any payments made and credits given since the date of the previous statement.
4.3 Product Availability. Vendor agrees to maintain sufficient Product
--------------------
inventory to fill Ingram's orders. If a shortage of any Product exists, Vendor
agrees to allocate its available inventory of such Product to Ingram in
proportion to Ingram's percentage of all of Vendor's customer orders for such
Product during the previous sixty (60) days.
4.4 Product Marking. Vendor will clearly mark each unit of Product with the
---------------
Product name and computer compatibility. Such packaging will also bear a
machine-readable bar code identifier scannable in standard Uniform Product Code
(UPC) format. The bar code must identify the Product as specified by the
Uniform Code Council (UCC). If the Vendor or Ingram customers' require serial
number tracking the serial number must be clearly marked and bar coded on the
outside of the individual selling unit. The bar code shall fully comply with
all conditions regarding standard product labeling set forth in Exhibit B in the
---------
then-current Ingram Guide to Bar Code: The Product Label. Vendor may be
-------------------------------------
assessed a reasonable per unit charge for all Product not in conformance
herewith.
4.5 TechNotes. Vendor will within thirty (30) days of execution of this
---------
Agreement sign the CIS/Manufacture Product Information Library - TechNotes and
Content Distribution Agreements as shown in Exhibit C and provide the required
---------
product information in the designated template format.
4.6 Support. At no charge to Ingram, Vendor shall support Product and any
-------
reasonable Ingram efforts to sell Product. Vendor shall also provide to Ingram,
its employees, and its customers reasonable amounts of sales literature,
advertising materials, and training and support in Product sales.
4.7 New Product. Vendor shall endeavor to notify Ingram at least thirty
-----------
(30) days before the date any new Product is introduced. Vendor shall make such
Product available for distribution by Ingram no later than the date it is first
offered for sale in the marketplace.
4.8 Insurance. Vendor shall carry insurance coverage for product
---------
liability/completed operations with minimum limits of five million dollars
($5,000,000). Within ten (10) days of the execution of this Agreement, Vendor
shall provide Ingram with a Certificate of Insurance. This Certificate of
Insurance must include: (i) a broad form endorsement naming Ingram as an
additional insured, and (ii) a mandatory thirty (30) day notice to Ingram of
insurance cancellation.
-3-
<PAGE>
4.9 Warranties/Certification.
------------------------
(a) General. Vendor represents and warrants that (i) it has good
-------
transferable title to the Products, (ii) the Product will perform in conformity
with specifications and documentation supplied by Vendor, (iii) the Product or
its use does not infringe any patents, copyrights, trademarks, trade secrets, or
any other intellectual property rights, (iv) that there are no suits or
proceedings pending or threatened which allege any infringement of such
proprietary rights, and (v) the Product sales to Ingram do not in any way
constitute violations of any law, ordinance, rule or regulation in the
distribution territory.
(b) Warranty. Vendor hereby represents and warrants that, any Product
--------
offered for distribution does not contain any obscene, defamatory or libelous
matter or violate any right of publicity or privacy.
(c) End-User Warranty. Vendor shall provide a warranty statement with
----------------
Product for end user benefit. This warranty shall commence upon Product delivery
to end-user.
(d) Millennium Compliance Warranty. Vendor warrants and represents that the
------------------------------
Product will properly (a) record, store, process, calculate or present calendar
dates falling on and after (and if applicable, spans of time including) January
1, 2000 as a result of the occurrence, or use of data consisting of, such dates
and (b) calculate any information dependent on or relating to dates on or after
January 1, 2000 in the same manner, and with the same functionality, data
integrity and performance, as such Product records, stores, processes,
calculates and presents calendar dates on or before December 31, 1999, or
information dependent on or relating to such dates.
(e) Class B Warranty. Vendor hereby represents and warrants that the
----------------
Product has been or will be at the time of shipment certified as a Class B
computing device as required by the rules of the U.S.A. Federal Communications
Commission ("FCC Rules").
(f) EU Warranty. Vendor Rather warrants and represents for Products
-----------
distributed to the European Union ("EU") that the Products will be accepted
under all EU directives, regulations and the EU country's legislation.
(g) Made in America Certification. Vendor by the execution of this
-----------------------------
Agreement certifies that it will not label any of its products as being "Made in
America," "Made in U.S.A.," or with similar wording, unless all components or
elements of such Product is in fact made in the United States of America. Vendor
further agrees to defend, indemnify and hold harmless from and against any and
all claims, demands, liabilities, penalties, damages, judgments or expenses
(including attorney's fees and court costs) arising out of or resulting in any
way from Product that does not conform to the Certification.
-4-
<PAGE>
4.10 Prior Agreement. Vendor agrees that concurrent with the execution of
---------------
this Agreement that the Ingram and Vendor Start-Up Agreement dated September 24,
1997 is terminated and Vendor assumes all outstanding obligations, if any,
including but not limited to any payments due Ingram under the prior Start-Up
Agreement.
5. Pricing.
-------
5.1 Ingram Pricing. The suggested retail price and any Ingram discount for
--------------
Product is set out in Exhibit D. Vendor may modify Exhibit D with a minimum of
--------- ---------
thirty (30) days advance written notice to Ingram. All Ingram orders for
Product will be billed at the price in effect when the order is placed. Ingram
shall have sole discretion as to selling price of Product to its customers.
5.2 Vendor Pricing. Vendor agrees that the prices and terms it offers to
--------------
Ingram are now and will continue to be at least as low as those it offers to any
of its customers. If Vendor offers price discounts, promotional discounts or
other special prices to its other customers, Ingram shall also be entitled to
participate in and receive notice of the same no later than Vendor's other
customers.
5.3 International Pricing. If Vendor offers a better price outside the U.S.
---------------------
and Ingram has distribution rights in that territory then the same price shall
be offered to Ingram for Product sales into that territory.
5.4 Price Agreements. If Vendor reduces any Product price, or offers
----------------
increased discounts to any customers, Vendor will promptly credit Ingram for the
difference between the original Product price and the reduced Product price for
Ingram's and its customers' Product inventory, including: (a) any Customer
Product in-transit from/to Ingram, (b) any unshipped orders, and (c) orders in-
transit to Ingram on the price reduction or increased discount offer date. In
the event that Vendor shall raise the list price of a Product, all orders for
such Product placed prior to the effective date of the price increase shall be
invoiced at the lower price. Vendor shall provide Ingram with thirty (30) days
advance notice of any price increases.
5.5 Payment Terms. Ingram's initial order payment terms shall be net ninety
-------------
(90) days. Subsequent order payment terms shall be five percent (5%) fifteen
(15) days, net sixty (60) days. Payment shall be deemed made on the payment
postmark date.
5.6 Right to Withhold. Notwithstanding any other provision in this
-----------------
Agreement to the contrary, Ingram shall not be deemed in default if it withholds
any specific amount to Vendor because of a legitimate dispute between the
parties as to that specific amount pending the timely resolution of the disputed
amount.
-5-
<PAGE>
6. Marketing.
---------
6.1 Trademarks. Ingram may advertise and promote the Product and/or Vendor,
----------
and may thereby use Vendor's trademarks, service marks and trade names. Neither
party shall acquire any rights in the trademark service marks or trade names of
the other.
6.2 Programs.
--------
(a) Vendor shall provide Ingram a five percent (5%) quarterly rebate based
on gross sales to offset Ingram's handling and channel costs. The rebate will be
paid via a check within thirty (30) days after the quarter end and if no check
is received within that period Ingram shall deduct that amount from its next
check.
(b) Ingram may offer marketing programs to Vendor including but not limited
to launch programs and reseller pass through opportunities. If Vendor elects to
participate, Vendor agrees to pay such funds as may be required for this
purpose.
(c) Vendor may be asked to prepay all marketing activities until a mutually
agreed upon sell through rate is achieved.
6.3 Support Product. Vendor shall consign a reasonable amount of
---------------
demonstration Product to aid Ingram in its support and promotion of Product. All
such consigned Product will be returned to Vendor upon request
7. Returns.
-------
7.1 Stock Balancing. Notwithstanding anything herein to the contrary,
---------------
Ingram may return throughout the term any Products which are in their original
packaging to Vendor for full credit of the Products' purchase price. In the
event that a Return Material Authorization (RMA) for the return of Product is
not issued within five (5) days of the request, Ingram shall have the right to
return any Product(s) to Vendor without an RMA, and Vendor shall be obligated to
accept such return for credit. Vendor will pay all freight charges for returned
Products.
-6-
<PAGE>
7.2 Post-Term/Termination. For one hundred eighty (180) days after the
---------------------
expiration or earlier termination of this Agreement, Ingram may return to Vendor
any Product for credit against outstanding invoices, or if there are no
outstanding invoices for a cash refund. Any credit or refund due Ingram for
returned Product shall be equal to the Product purchase price plus all freight
charges incurred by Ingram in returning the Product.
7.3 Product Discontinuation. Vendor shall give Ingram thirty (30) days'
-----------------------
advance written notice of Product discontinuation. Ingram may return all such
Product to Vendor for full credit of Product purchase price plus all freight
charges incurred by Ingram in returning the Product.
7.4 Defective Product.
-----------------
(a) Ingram may return any Product to Vendor that Ingram or its customer
finds defective. Vendor shall immediately credit Ingram for the Product purchase
price, plus all freight charges incurred by Ingram in returning the defective
Product.
(b) If any Product is recalled by Vendor because of defects, revisions or
upgrades, Ingram will, at Vendor's request, provide reasonable assistance with
the recall. Vendor will pay Ingram's expenses in connection with such recall.
8. Indemnification.
---------------
8.1 Product Indemnity. Vendor shall defend, indemnify, and hold harmless
-----------------
Ingram from and against any claims, demands, liabilities, or expenses (including
attorney's fees and costs) for any injury or damage, including, but not limited
to, any personal or bodily injury or property damage, arising out of or
resulting in any way from any defect in Products. This duty to indemnify Ingram
shall be in addition to the warranty obligations of Vendor.
8.2 General Indemnity. Each party shall indemnify, defend and hold the
-----------------
other harmless from and against any and all claims, actions, damages, demands,
liabilities, costs and expenses, including reasonable attorney's fees and
expenses, resulting from any act or omission of the acting party or its
employees under this Agreement, that causes or results in property damage,
personal injury or death.
8.3 Intellectual Property Rights Indemnity. Vendor shall defend, indemnify
--------------------------------------
and hold Ingram, its resellers and their customers, harmless from and against
all damages and costs incurred by any of them arising from the infringement of
any patent, copyright, trademark, trade secret or other proprietary right by
reason of the manufacture, sale, marketing, or use of Product.
-7-
<PAGE>
8.4 Product Infringement. Upon threat of claim of infringement, Vendor may,
--------------------
at its expense and option (i) procure the right to continue using any part of
Product, (ii) replace the infringing Product with a non-infringing Product of
similar performance, or (iii) modify Product to make it non-infringing. If
Vendor does not so act within ninety (90) days after such claim, Ingram may
return Product to Vendor for a full credit against future purchases or for a
cash refund, at Ingram's option.
8.5 Multi-Media Indemnity. Vendor shall defend, indemnify and hold Ingram,
---------------------
its resellers and their customers, harmless from and against all damages and
costs incurred by any of them to the extent it is based upon a claim that the
Product either (i) violates a third party's right of publicity and/or right of
privacy, or (ii) contains any obscene, defamatory or libelous matter.
8.6 Millennium Compliance Indemnity. Vendor agrees to indemnify and hold
-------------------------------
Ingram and its shareholders, officers, directors, employees, agents, successors,
and assigns harmless from and against any and all claims, suits, actions,
liabilities, losses, costs, reasonable attorney's fees, expenses, judgments or
damages, whether ordinary, special or consequential, resulting from any third
party claim made or suit brought against Ingram or such persons, to the extent
such results from Vendor's breach of the warranty specified in Section 4.9(d).
8.7 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
-----------------------
LOST PROFITS OF BUSINESS, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER
BASED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE, STRICT LIABILITY OR OTHERWISE),
AND WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS LIMITATION IS IN NO WAY MEANT TO LIMIT VENDOR'S LIABILITY FOR PERSONAL
INJURY OR DEATH AS A RESULT OF A DEFECT IN ANY PRODUCT IN THOSE JURISDICTIONS
WHERE THE LAW DOES NOT ALLOW THIS LIMITATION.
9. Compliance with Federal Laws and Regulations.
--------------------------------------------
9.1 Executive Order 11246. Vendor agrees to include the Equal Employment
---------------------
Opportunity Clause by reference in every contract, agreement and purchase order
entered into with subcontractors or suppliers as required by 41 CFR 60-1.4.
9.2 Employer Information Report EEO-1/Written Affirmative Action. Vendor
------------------------------------------------------------
agrees that if the value of any contract or purchase order is fifty thousand
dollars ($50,000) or more and the Vendor has fifty (50) or more employees,
Vendor will (i) file an EEO-l report (Standard Form 100) and comply with and
file such other compliance reports as may be required under Executive Order
11246, as amended, and Rules and Regulations adopted thereunder and (ii) will
develop a written affirmative action compliance program for each of its
establishments as required by Title 41 CFR 60-1.40.
-8-
<PAGE>
9.3 Veterans Employment Clause. Vendor agrees to abide by and comply with
--------------------------
the provisions of the Affirmative Action Clause, 41 CFR 60-250.4.
9.4 Employment of Handicapped Persons. Vendor agrees that it will abide by
---------------------------------
and comply with the provisions of the Affirmative Action Clause, 41 CFR 60-
741.4.
9.5 Small Business Concerns and Small Business Concerns Owned and Controlled
------------------------------------------------------------------------
by Socially and Economically Disadvantaged Individuals. Where a government
- ------------------------------------------------------
contract is expected to exceed five hundred thousand dollars ($500,000), Vendor
agrees to comply with all requirements of P.L. 95-507 and regulations
promulgated thereunder. Vendor shall comply with instructions contained in
Exhibit E.
- ---------
9.6 Women-Owned Business Concerns. Vendor shall comply with instructions
-----------------------------
contained in Exhibit F. Where a government contract is expected to exceed five
---------
hundred thousand dollars ($500,000), Vendor agrees to comply with all
requirements of Executive Order 12138 and all regulations promulgated
thereunder.
10. Government Program.
------------------
10.1 Partnership America. Vendor may, at its sole option, participate in
-------------------
Ingram's government reseller program in which case the provisions of Exhibit F,
---------
Partnership America, shall apply. A draft copy is provided solely for your
information and review.
11. General Provisions.
------------------
11.1 Notices. Any notice which either party may desire to give the other
-------
party must be in writing and may be given by (i) personal delivery to an officer
of the party, (ii) by mailing the same by registered or certified mail, return
receipt requested, to the party to whom the party is directed at the address of
such party as set forth at the beginning of this Agreement, or such other
address as the parties may hereinafter designate, and (iii) by facsimile or
telex communication subsequently to be confirmed in writing pursuant to item (b)
herein.
11.2 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of California, except that body of law
concerning conflicts of law. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
11.3 Cooperation. Each party agrees to execute and deliver such further
-----------
documents and to cooperate as may be necessary to implement and give effect to
the provisions contained herein.
11.4 Force Majeure. Neither party shall be liable to the other for any
-------------
delay or failure to perform which results from causes outside its reasonable
control.
-9-
<PAGE>
11.5 Attorneys Fees. In the event there is any dispute concerning the terms
--------------
of this Agreement or the performance of any party hereto pursuant to the terms
of this Agreement, and any party hereto retains counsel for the purpose of
enforcing any of the provisions of this Agreement or asserting the terms of this
Agreement in defense of any suit filed against said party, each party shall be
solely responsible for its own costs and attorney's fees incurred in connection
with the dispute irrespective of whether or not a lawsuit is actually commenced
or prosecuted to conclusion.
11.6 Export Regulations. Ingram agrees by the purchase of Products to
------------------
conform to, and abide by, the export laws and regulations of the United States,
including but not limited to, the Export Administration Act of 1979 as amended
and its implementing regulations. Ingram shall include a statement in it's
standard sales terms and conditions that any shipment of Product outside the
United States will require a valid export license. Ingram further agrees to
distribute Product in accordance with the territory as defined in Section 1.1.
Whenever a EU country is specified as Territory under Section 1.1, Territory
shall include all EU countries.
12. Agreement.
---------
12.1 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.2 Section Headings. Section headings in this Agreement are for
----------------
convenience only, and shall not be used in consuming the Agreement.
12.3 Incorporation of all Exhibits. Each and every exhibit referred to
-----------------------------
hereinabove and attached hereto is hereby incorporated herein by reference as if
set forth herein in full.
12.4 Severability. A judicial determination that any provision of this
------------
Agreement is invalid in whole or in part shall not affect the enforceability of
those provisions found to be valid.
12.5 No Implied Waivers. If either party fails to require performance of
------------------
any duty hereunder by the other party, such failure shall not affect its right
to require performance of that or any other duty thereafter. The waiver by
either party of a breach of any provision of this, Agreement shall not be a
waiver of the provision itself or a waiver of any breach thereafter, or a waiver
of any other provision herein.
-10-
<PAGE>
12.6 Binding Effect/Assignment. This Agreement shall be binding upon and
-------------------------
shall inure to the benefit of the parties hereto, and their respective
representatives, successors and permitted assigns. This Agreement shall not be
assignable by Vendor, without the express written consent of Ingram, which
consent shall not be unreasonably withheld, including to a Person in which it
has merged or which has otherwise succeeded to all or substantially all of such
party's business and assets to which this Agreement pertains and which has
assumed in writing or by operation of law its obligations under this Agreement.
Any attempted assignment in violation of this provision will be void.
12.7 Survival. Sections 5.5 (Payment Terms), 5.6 (Right to Withhold), 7.2
--------
(Post-Term Termination) and 8 (Indemnification) shall survive the expiration or
earlier termination of this Agreement.
12.8 Entirety. This Agreement constitutes the entire agreement between the
--------
parties regarding its subject matter. This Agreement supersedes any and all
previous proposals, representations or statements, oral or written. Any
previous agreements between the parties pertaining to the subject matter of this
Agreement are expressly terminated. The terms and conditions of each party's
purchase orders, invoices, acknowledgments/confirmations or similar documents
shall not apply to any order under this Agreement, and any such terms and
conditions on any such document are objected to without need of further notice
or objection. Any modifications to this Agreement must be in writing and signed
by authorized representatives of both parties.
12.9 Authorized Representatives. Either party's authorized representative
--------------------------
for execution of this Agreement or any amendment hereto shall be president, a
partner, or a duly authorized vice president of their respective party. The
parties executing this Agreement warrant that they have the requisite authority
to do so.
IN WITNESS WHEREOF, the parties hereunto have executed this Agreement.
INGRAM VENDOR
- ------ ------
INGRAM MICRO INC. MIXMAN TECHNOLOGIES, INC.
1600 E. St. Andrew Place 850 Montgomery Street
Santa Ana, CA 92705 Suite 350
San Francisco, CA 94133
By /S/ Donna Grothan By /S/ Eric Almgren
---------------------------- --------------------------------
Name Donna Grothan Name Eric Almgren
-------------------------- ------------------------------
Title GM, Software Title CFO
------------------------- -----------------------------
Date 11/12/99 Date 10-10-99
-------------------------- ------------------------------
Address: Address:
-11-
<PAGE>
EXHIBITS
- --------
A - Vendor Routing Guide (if applicable)
B - Guide to Bar Code: The Product Label
C - TechNotes
D - Product Price List
E - Small And Disadvantaged Business Certification
F - Partnership America
-12-
<PAGE>
EXHIBIT 10.8
AGREEMENT
This Agreement is made and entered into as of March 10, 2000, by and
between MTVN ONLINE, L.P., a Delaware limited partnership, with its principal
place of business located at 770 Broadway, 10th floor, New York, New York 10012
("MTVi"), and BEATNIK, Inc., a California corporation, with its principal place
of business located at 2600 S. El Camino Real, San Mateo, CA 94403 ("Beatnik").
WHEREAS, MTVi and its Affiliates operate Internet Websites that offer
music, music-videos and other entertainment related content and advertising;
WHEREAS, Beatnik has developed software technology that enables visitors to
Internet Websites to hear audio content and to manipulate the content as
entertainment;
WHEREAS, the parties hereto desire to incorporate the Beatnik products and
Beatnik enabled audio content on MTVi and its Affiliate Websites;
WHEREAS, the parties desire to promote the Beatnik products on MTVi and its
Affiliate Websites;
NOW THEREFORE,
The parties hereto agree as follows:
1. Definitions.
(a) "Affiliate" means any entity that, directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, a party to this Agreement. Without limiting the foregoing, the
parties acknowledge that Viacom International, Inc. and MTV Networks are
Affiliates of MTVi.
(b) "Application" means any computer file and any rights therein owned or
licensed by Beatnik that can be rendered into audio on a User's computer in
conjunction with the Beatnik player, Remix Engine or MixMan Studio software
including without limitation GrooveGrams and "Remixes" and that are made
generally available by Beatnik to its customers.
(c) "Beatnik Content" means any computer file owned or licensed by
Beatnik including any in Beatnik's archives that can be rendered into audio
either by cooperating with a user's Internet browser as a plug-in module and/or
by the user using the Beatnik player software or the MixMan Studio software.
Beatnik Content shall include, without limitation, any "D-plate," any
Application, the 100 audio files contained within the Headspace Library usable
with the S-Track feature on the MTV Affiliate Sites and any sound components
contained within the Beatnik Licensing Portal.
(d) "Beatnik Technology" means the Beatnik GrooveGram Remix Engine API,
the QuickClip API, the Easysonifier API, the Beatnik Player, version 2.5, the
<PAGE>
2
Beatnik Editor and the Beatnik Converter, in the form distributed by Beatnik
generally as of January 31, 2000, plus any new versions or upgrades of such
software made generally available by Beatnik to its customers during the term of
this Agreement.
(e) "Beatnik Website" means www.beatnik.com or any other URL owned,
operated or controlled by Beatnik, including any mirror sites, caching servers
or equivalent devices.
(f) "Co-Branded" means the placement of one or more Beatnik brands in
close proximity to one or more MTVi brands on any given webpage, product, or
product packaging for the purposes of promotion or source designation of goods
and services in accordance with this Agreement.
(g) "Confidential Information" means all non-public information of a
party and its affiliates including, without limitation, information relating to
the party's technology, business strategy (either as then being conducted or
proposed to be conducted), know-how, marketing, suppliers, customers, sources of
materials, finances, accounting, business relationships, employees, and trade
secrets. The obligations set forth in Section 21 with respect to Confidential
Information shall not apply to (i) any information that enters the public domain
through no fault of a party bound hereby, (ii) any information that is made
available to a party from a source other than the other party, which information
is not subject to a confidentiality agreement, or (iii) any information that is
developed by a party independently, without use of or reference to the other
party's Confidential Information.
(h) "Effective Date" means the date of this Agreement.
(i) "GrooveGram" means the interactive remixes that Beatnik creates by
breaking a sound recording down into its musical components (such as guitar,
bass, drums and vocal tracks) or parts thereof and putting them into the Beatnik
RMF format on separate tracks that can be easily remixed using Beatnik's
proprietary Remix Engine in a musically cohesive way on any JavaScript-enabled
web browser.
(j) "Headspace Library" means the library of compositions which are
generally made available in the RMF formatted medium embodying masters for use
as musical accompaniment to enhance a featured audio, visual or audio-visual
performance made available by Beatnik.
(k) "Impression" means the appearance on any webpage hosted on any MTVi
Affiliate Site that is viewed by a User of either: (i) any hyperlink to any
Beatnik Application, any Co-Branded Page, any Beatnik related download or any
Website under the control of Beatnik or its Affiliates or (ii) any Beatnik or
Beatnik owned logo, trademark, or product designation. Notwithstanding the
foregoing, Impressions will not include any of the items listed in subsections
(i) or (ii) which are provided as part of the additional advertising or
sponsorships purchased by Beatnik pursuant to Section 4 of this Agreement. The
maximum number of Impressions counted for any single Webpage load shall be four
(4).
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(l) "Licensing Portal" means the Beatnik website (beatnik.com or its
successors) made generally available by Beatnik through which the public can
purchase licenses to music, sound effects and other sound components from
Beatnik's sound libraries to be used to incorporate sound effects into the
design of a website.
(m) "MTVi Affiliate Site(s)" means: (i) www.mtv.com; (ii) www.vh1.com;
(iii) www.sonicnet.com; (iv) any other universal resource locator (URL) under
common ownership, control or operation with MTVi; and (v) a URL in which Viacom
owns a substantial equity interest and is branded and/or presented to users
solely as an "MTV" Website. MTVi Affiliate Sites shall also include mirror
sites, caching servers or equivalent devices whose distribution function for
purposes hereunder is determined solely by actions directed at the top level
domains listed in the foregoing clauses (i) through (v).
(n) "MTV Named Sites" means the following sites: (i) www.mtv.com,
www.vh1.com; and www.sonicnet.com, and (ii) any other site mutually agreed upon
by the parties, including mirror sites, caching servers or equivalent devices
whose distribution function is determined solely by actions directed at the top
level domains listed in the foregoing clauses (i) and (ii).
(o) "Net Revenues" means amounts actually received for each D-Plate or
Mixman Studio license sold for which MTVi is entitled to receive a commission
pursuant to Section 3.2(d) of this Agreement, less any returns, chargebacks,
discounts, rebates, taxes, duties, insurance and customer shipping charges.
(p) "Remix Engine" means that portion of Beatnik's proprietary technology
that is contained in the GrooveGram and used in conjunction with the Beatnik
Player to permit the Internet end user to manipulate the RMF Formatted files.
(q) "Sonify" means integrate Beatnik sourced sound components into a
Website such that Users who have downloaded the appropriate Beatnik browser
plug-in software module will hear such sound components when interacting with
certain elements on the Website.
(r) "Term" is defined in Section 20 below.
(s) "Top Line Artist" means any musical performer who has either (i) in
the last year reached the top 30 North American concert ticket gross sales in
the last year as stated by Billboard, (ii) has sold at least one million album
copies in aggregate over the last two years, (iii) has sold at least five
hundred thousand single copies in aggregate over the last one year, (iv) is or
was listed on the Billboard Top 50 during the last eighteen months, (v) during
the past year is an emerging hot artist based on at least five (5)
mentions in the on-line reviews, press reviews or club scene articles listed on
Schedule A attached hereto, (vi) is popular on the world wide web as measured by
being one of the artists with the highest number of chats as determined by three
online reviews listed on Schedule A attached hereto within the last year, (vii)
has been a subject of any top 100 searches during any month within the last six
months using the following search mentions in the on-line reviews, press reviews
or club scene articles listed on Schedule A attached hereto, (vi) is popular on
the world wide web as measured by being one of the artists with the highest
number of chats as determined by three online reviews listed on Schedule A
attached hereto within the last year, (vii) has been a subject of any top 100
searches during any month within the last six months using the following search
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4
engines: Yahoo, Lycos, Alta Vista and Listen.com, (viii) has been during the
past year or is scheduled to be an MTV featured artist; or (ix) any artist as
mutually agreed upon by the parties.
(t) "Users" means individual visitors to the MTVi Affiliate Sites.
(u) "Viacom" means Viacom International Inc., a Delaware corporation.
(v) "Website" shall mean any specific or unique physical or logical
address on that portion of the publicly available network of computer networks
commonly referred to as the Internet and also known as the "World Wide Web."
2. Content Integration.
2.1. Beatnik Content and Applications.
(a) During each Development Period (defined below), pursuant to this
Section 2.1 throughout the Term, Beatnik shall use commercially reasonable
efforts to license and make available to MTVi at least one Application that MTVi
shall be permitted to link to for at least a forty-five (45) day period from one
or more web pages within at least one MTVi Named Site, produced by or for
Beatnik with a Top Line Artist who is selected in accordance with Section
2.1(c), such MTVi Named Site and web page to be chosen by MTVi in its sole
discretion based on the genre of such artist, the genre of the Application and
any desire to provide branded product or event tie-ins (the "Featured
Application"). Any Featured Application that is linked from any home page of an
MTVi Named Site shall be exclusive to MTVi, and shall not be licensed by Beatnik
to appear on any other Website, whether controlled by Beatnik or otherwise, for
a period of forty-five (45) days beginning on the day the link to the
Application first appears on such home page. Any Featured Application shall
appear to reside on the applicable MTVi Named Site but will be hosted on and
distributed from Beatnik controlled servers in accordance with the terms of this
Agreement.
(b) Throughout the Term, MTVi shall place at least one hyperlink that
links to one Featured Application (the "Home Page Promotion") (i) on the home
page of mtv.com for at least seven (7) days during the 30 day period following
delivery of the Featured Application and (ii) on a webpage one click below the
home page of mtv.com for at least three (3) additional days during such 30 day
period. The Home Page Promotion link shall be denoted by a hyperlink which (x)
if on the mtv.com home page, shall be a text link appearing above the "MTV at a
glance" line, (y) if on the mtv.com home page but appearing below such line,
shall be a text link with at least two lines of text, one of which will be the
name of the Top Line Artist in such Featured Application, or (z) if on any other
MTVi Affiliate Site home page, shall be a graphical link or button whose
appearance shall be governed by the terms hereunder.
(c) On the first day of each month, Beatnik shall deliver to MTVi a list
of at least three Top Line Artists ("Artist List") from which MTVi may select
one Featured Application. At the time Beatnik delivers the Artist List to MTVi,
Beatnik will use commercially reasonable efforts to inform MTVi of the
parameters of and limitations on
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5
promotional activities related to such Featured Application known to Beatnik.
MTVi shall select one, two or three of such Top Line Artists for such Featured
Application for the month within ten (10) business days of its receipt of the
Artist List. Beatnik shall use commercially reasonable efforts to deliver one
Featured Application monthly within thirty (30) days ("Development Period")
after MTVi's notice to Beatnik of MTVi's selection of Top Line Artist. Once MTVi
has delivered such notice of its selection of Top Artists to Beatnik, as
information on additional limitations with respect to such choices becomes
available to Beatnik, Beatnik shall promptly provide MTVi written notice of such
additional limitations applicable to the corresponding selections for the
Featured Application. MTVi may reject any of the selections for the Featured
Application based only on (i) any such additional limitations provided in the
most recent written notice from Beatnik or (ii) combination of such additional
limitations provided in the most recent written notice from Beatnik together
with the limitations previously disclosed to MTVi by Beatnik, so long as such
rejection is provided within five (5) business days after MTVi's receipt of such
written notice of the limitations on which MTVi is basing such rejection;
provided, however, it is agreed MTVi cannot base any such rejection on
- -------- -------
limitations or parameters that MTVi has otherwise agreed to in this Agreement.
If MTVi rejects all of its selections for the Featured Application (for a month)
pursuant to the foregoing, then (x) Beatnik will use commercial reasonable
efforts to propose other choices of Top Line Artists for the Featured
Application, (y) MTVi will use commercially reasonable efforts to propose one
artist for a Featured Application, and (z) if the delivery of the Featured
Application is not made within the applicable Development Period, MTVi will be
deemed to have fulfilled the obligations under Section 2.1(b) during such 30 day
period under this Agreement for the purposes of determining whether the related
milestone event has occurred. For the purposes of this Section 2.1(c) only,
written notice may be provided by a E-mail or facsimile in each case with
receipt thereof confirmed, in addition to the methods specified in Section 18.
The current running promotions with Lucy Pearl and Smash Mouth are deemed to
satisfy Beatnik's obligations under the first two months of the Term for
purposes of Section 2.1 and when MTVi has complied with the requirements of
Section 2.1(b) with respect to any such Featured Application, MTVi shall be
deemed to have met its obligations with respect to such Featured Application and
the related milestone event shall be deemed to have occurred.
(d) All Featured Applications shall be compatible with and playable by
the standard Beatnik plug-in module or some other Beatnik software module made
available to the public by Beatnik at no charge.
(e) Beatnik shall have the right to disclose to its potential third party
licensors that the Featured Application may be displayed via the MTVi Affiliate
Sites and that such MTVi Affiliate Sites may link to such Featured Application.
(f) Any MTVi Affiliate Site using or distributing the Beatnik Content
pursuant to this Section 2.1 shall include the name and logo of Beatnik, in
compliance with Beatnik's Trademark Usage Guidelines attached hereto as Schedule
C.
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6
(g) In any monthly period during the term that Beatnik fails to deliver a
Featured Application from among MTVi's choices made by MTVi in accordance with
the terms hereunder, due to reasons other than any delay substantially resulting
from MTVi's failure to provide timely notice of MTVi's selections of Top Line
Artists, MTVi shall be deemed to have met its obligations under Section 2.1(b)
for such month and for the purposes of determining whether the related milestone
event has occurred. Any failure of Beatnik to adequately host the Featured
Application shall not in any way require MTVi to take any further action in
order to meet its obligations hereunder. Notwithstanding anything to the
contrary herein, MTVi shall not be obligated to provide a Home Page Promotion
more than twelve (12) times in any annual period.
2.2. Co-Branded Pages.
(a) Within thirty (30) days after the Effective Date, MTVi shall provide
Beatnik a proposed production schedule for the design and creation of Web pages
to appear on the MTVi Named Sites incorporating music-related content, subject
to the terms and conditions hereunder (the "Co-Branded Page"). Within fifteen
(15) days of delivery of such proposed production schedule, Beatnik shall either
approve the production schedule or the parties will mutually agree on an amended
production schedule for such design and creation. The Co-Branded Pages will be
placed on one or more of the MTVi Named Sites. The Co-Branded Pages may also be
placed on other MTVi Affiliate Sites by mutual agreement of the parties. The
Co-Branded Pages will be continuously hosted for the duration of this agreement
and will appear and be hosted completely on the MTVi Named Site. Except for any
Application, MTVi will have sole responsibility for hosting and maintaining the
Co-Branded Pages at its sole expense. The Co-Branded Pages shall only be
viewable by a visitor who links to them directly from a hyperlink placed on a
MTVi Named Site or the Beatnik Website or through a stored URL (e.g., bookmark
or similar index storage mechanism).
(b) Each Co-Branded Page will display certain proprietary features of
both the MTVi Named Site and Beatnik, including trademarks, logos, or links to
either Beatnik Content, Applications, or MTVi content. MTVi and Beatnik will
collaborate on the "look and feel" of the Co-Branded Pages including, but not
limited to, the display, appearance and placement of the parties' respective
names and/or brands and of advertising displayed on the Co-Branded Pages. The
"look and feel" of the Co-Branded Pages shall be developed by MTVi, subject to
the reasonable approval of Beatnik. Notwithstanding the foregoing, in no case
shall MTVi be obligated to include any Beatnik Content on the Co-Branded Pages
which is co-branded with any third party without the prior written consent of
MTVi.
(c) MTVi shall place at least five (5) hyperlinks from five (5) different
webpages residing anywhere within the MTVi Named Sites to the Co-Branded Pages,
three (3) of which will reside on the mtv.com Website. If any artist whose work
appears on a Co-Branded Page expressly requires that Beatnik hyperlink to the
artists' webpages, MTVi shall permit Beatnik to include such a hyperlink on any
Application that may be linked to via such Co-Branded Page, subject to MTVi's
prior approval in regards to the
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7
hyperlink's appearance and in accordance with the rights and restrictions
contained in the grant.
(d) Beatnik shall host any and all Applications that are mutually agreed
upon as elements of the Co-Branded Pages. Beatnik shall make its reasonable
efforts to furnish Applications for such purpose, including procuring any
underlying intellectual property rights necessary, and to adequately host and
maintain such Applications in the manner necessary in order for MTVi to fulfill
its obligations to Beatnik hereunder.
(e) As between MTVi and Beatnik, MTVi shall own the copyright in and to
the Co-Branded Pages, except the Beatnik Content, the Beatnik Technology,
Beatnik Marks and Applications owned by Beatnik or its licensors, as applicable.
Nothing in the foregoing shall grant or transfer ownership or any right to the
Beatnik name and logo, Beatnik Content, Beatnik Technology or Applications to
MTVi. As between MTVi and Beatnik, Beatnik will own all right title and
interest in and to the Beatnik Content, Beatnik Technology, Beatnik Marks and
Applications.
2.3. MTVi Webpage Background Music.
(a) During the Term of, and subject to the terms of, this Agreement,
Beatnik shall provide MTVi, on a non-exclusive basis, one hundred (100)
different music clips, from those clips made available by Beatnik from the
Headspace Library, to be used as webpage background music on any MTVi Affiliate
Site, as determined by MTVi in its sole discretion (the "S-Track Clips"). The
S-Track Clips shall be compatible with and playable by the standard Beatnik
plug-in or some other Beatnik software made available to the public at no cost.
Beatnik will make available such S-Track Clips within five (5) days of the
Effective Date. In no case shall an S-Track Clip contain any sound component
that has not been cleared by Beatnik for the use in accordance with this
Agreement as contemplated by Section 15. If and during the time in which, MTVi
uses any S-Track Clip on an MTVi Affiliate Site, MTVi will promote the S-Track
feature via a hyperlink on the applicable MTVi Affiliate Site no more than one
click below the homepage, which hyperlink will be included for so long as the S-
Track Clip is being used by such MTVi Affiliate Site.
(b) MTVi will Sonify at least ten (10) webpages on the MTVi Named Sites,
none of which may be more than two (2) clicks below the homepage of such Site.
MTVi shall make its reasonable efforts to refresh at least five (5) of such
webpages each month during the term of this Agreement.
(c) Beatnik will provide MTVi with access to Beatnik's Licensing Portal
and a credit of fifty thousand dollars ($50,000) solely for use against
purchases of licenses to music, sound effects and other sound components from
the Licensing Portal. Purchases made through the Licensing Portal will be
subject to the terms and conditions applicable to the Licensing Portal,
including without limitation, the prices set forth therein. In the event MTVi
begins to use any item included in the Licensing Portal, except for the S-Track
Clips used pursuant to Sections 2.3(a), MTVi will permit Beatnik to (i) develop,
use and publish in trade publications one success story regarding this Agreement
and the
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8
relationship reflected herein, the text of which will be subject to MTVi's prior
approval and (ii) use and publish the MTVi trademark in Beatnik's upcoming print
ad campaign solely to the trade, subject to MTVi's approval of each use, and
further subject to MTVi's Trademark Usage Guidelines, attached hereto as
Schedule D. Beatnik will be responsible for all development and costs associated
with the print ad campaign and the success story publication. MTVi agrees to use
commercially reasonable efforts to review such success story and print ads in a
timely manner.
3. Beatnik Promotion.
3.1. General. Subject to the terms of this Agreement, throughout the Term,
the package of placements, promotions and links for the Beatnik Site on the MTVi
Affiliate Sites as described in Section 2 of this Agreement shall conform with
the following requirements:
(a) Except to the extent otherwise expressly described herein, the
appearance of the Beatnik promotional vehicles on the MTVi Affiliate Sites will
be as mutually agreed by the parties and will be subject to (i) final approval
of MTVi and Beatnik, such approval to be based on the reasonable business
judgment of MTVi and Beatnik and not to be unreasonably withheld or delayed, and
(ii) standard, generally applicable technical limitations.
(b) MTVi reserves the right to redesign or modify the organization,
structure, "look and feel," navigation and other elements of any portion of the
MTVi Affiliate Sites. In the event such modifications materially affect the
promotional placements for Beatnik described above, MTVi will promptly notify
Beatnik and provide Beatnik with a comparable package of promotional placements
which are reasonably satisfactory to Beatnik. No such redesign or modification
to the MTVi Affiliate Sites provided for in this Section will affect the
Impressions guarantee in this Agreement.
(c) No Beatnik button, banner, or logo: (i) shall have dimensions larger
than 468 pixels wide by 60 pixels high, (ii) shall contain more than six seconds
of "looped" animation, (iii) be a file size of no greater than 20K, or (iv)
shall be "interruptive ads," which includes but is not limited to Interstitial
or pop-up ads. All banner advertisements, buttons or logos provided by Beatnik
must be in compliance with all applicable federal, state and local laws, rules
and regulations, including, without limitation, consumer protection laws and
rules and regulations governing product claims, truth in labeling, and false
advertising. The foregoing limitations on the Beatnik buttons, banners and logos
are based on the industry standard, and if the industry standard changes, then
the limitations will be adjusted accordingly, subject to the mutual agreement of
the parties not to be unreasonably withheld.
(d) During the Term, MTVi shall deliver at least 2 Million Impressions
per month in aggregate; provided, however, that at least 80% of such Impressions
per month must be on MTVi Named Sites. On a quarterly basis, MTVi will deliver
to Beatnik a report that describes (in reasonable detail) MTVi's calculation of
Impressions delivered during the previous month.
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9
(e) In the event that MTVi fails to deliver the guaranteed number of
Impressions specified above, MTVi will "make good" the shortfall by providing
Beatnik with a number of substitute Impressions equal to such shortfall by
providing additional hyperlinks to Beatnik content on the MTVi Affiliate Sites
as soon as reasonably possible, but in no event later than sixty (60) days after
the month in which such shortfall occurred; provided that if the shortfall
occurs in the number of Impressions applicable to the MTVi Named Sites, only
Impressions on such MTVi Named Sites may be used to "make good" the shortfall.
If MTVi is unable to "make good" the shortfall within such sixty (60) day
period, MTVi will provide Beatnik with an equivalent number of Impressions as
part of the additional advertising provided to Beatnik pursuant to Section 4,
without charge. The foregoing "make good" provision sets forth the entire
liability of MTVi, and Beatnik's sole remedy, for MTVi's breach of its
guaranteed Impression obligations.
(f) If any Featured Application or Application appearing on the Co-
Branded Pages contain a hyperlink to another Application, such linked
Application must appear on a Co-Branded Page. Any instant buy buttons that
appear on any Application accessed through the Co-Branded Pages shall comply
with the requirements of any MTVi Affiliate Site e-commerce contractual
requirements. No Application accessed from the Co-Branded Pages will contain
any advertising other than as expressly permitted herein. At the time any
Featured Application or any other Application linked to by the Co-Branded Pages
requests an email address from the User, such Application shall also prompt the
User with an announcement that the User has the option to sign-up for a
newsletter mailing list for an MTVi related newsletter.
3.2. Other Promotions.
(a) MTVi will permit Beatnik use of its logo in Co-Branded in-store
promotions of Beatnik's products, including at least one Co-Branded Mixman
product including D-plates produced by Beatnik at its own expense. MTVi will
have the right to prior written approval for such use.
(b) At the beginning of each quarter during the Term, MTVi shall draft a
press release announcing the progress of any of the activities described in this
Agreement, including that Beatnik is the featured technology platform for user
interactive music remix web browsing tools for MTVi. Beatnik shall provide MTVi
with quotes and product specifications for the press release. Any such press
release shall be subject to Beatnik's comments and approval in its sole
discretion. Any press release mutually agreed by prior written consent of both
parties shall be promptly released. Upon execution of this Agreement, MTVi and
Beatnik shall prepare and release a press release announcing this relationship,
the content of which will be mutually approved by the prior written consent of
both parties. Notwithstanding the foregoing, each party agrees that it shall not
use the name, logo or otherwise refer to the other party or the existence of
this agreement (directly or indirectly) in any media release, public
announcement, public disclosure or promotional campaign without the prior
written consent of the other party, which consent shall not be unreasonably
withheld, except as required by law. Each party further agrees that no press
release shall be released if either
<PAGE>
10
party reasonably believes that such press release would violate any federal
securities law or any rule or regulation promulgated by the Securities and
Exchange Commission or any securities law or regulation of any state.
(c) MTVi will negotiate with Beatnik in good faith to enter into a
separate agreement with Beatnik whereby Beatnik shall co-produce Co-Branded
content, including a "D-plate" for the exclusive use by MTVi Affiliate Sites.
(d) (i) During the term of this Agreement, MTVi will offer the Mixman
Studio product and D-plates for sale on the MTVi Named Sites, and MTVi may offer
such items on MTVi Affiliate Sites or the MTVi branded download area which may
be hosted by a third party and, in each case, on webpages to be specified by
mutual consent of the Parties. Beatnik will pay MTVi as a commission a
percentage of Net Revenues for each sale of the Mixman Studio or D-plates made
by Beatnik to a User (i) during the same session in which such User linked from
any MTVi Affiliate Site directly to the Beatnik Site or (ii) via download of the
Mixman Studio product or D-plates, as applicable, from a MTVi Affiliate Site.
The percentage of Net Revenues to be paid or retained by MTVi with respect to
such sales shall be as set forth on a schedule to be agreed upon between the
parties.
(ii) Within thirty (30) days following the last day of each calendar
month in which each party shall submit to the other party a complete and
accurate report stating the total number of D-plates sold and the total number
of Mixman Studio licenses sold during such calendar month by the reporting party
for which MTVi is entitled to a commission pursuant to Section 3.2(d) of this
Agreement and indicating the total Net Revenues and total associated commissions
owed, accompanied by the appropriate payment as follows: (x) In the case of
MTVi, MTVi will pay to Beatnik the Net Revenues from such sales made during such
month, less MTVi's applicable commission and (y) in the case of Beatnik, Beatnik
will pay to MTVi the amount of the commission payable on sales of D-plates and
Mixman Studio licenses made by Beatnik. All payments will be made in U.S.
dollars. Time of payment is of the essence under this Agreement. All amounts
owed hereunder not paid within thirty (30) days of the date when due and payable
will bear interest from the date such amounts are due and payable at the per
annum rate published by Citibank, N.A. as its "prime rate."
(iii) During the term of this Agreement and for three (3) years after
its termination, each party agrees (x) to retain all usual and proper records
and books of account and all usual and proper entries relating to sales of D-
plates and Mixman Studio for which MTVi is entitled to a commission and (y) to
allow the other party's representative to audit the reporting party's documents,
financial statements and business records relevant to the transactions set forth
in Section 3.2(d)(i) in order to verify the reporting party's compliance with
the terms of this Section 3.2(d). Any audit shall be conducted during regular
business hours on reasonable prior notice. Any audit shall be conducted by an
independent certified public accountant selected by the auditing party and
acceptable to the reporting party (but the reporting party may not unreasonably
withhold or delay such acceptance). If the audit reveals any underreporting of
amounts due the auditing party, then the reporting party shall within thirty
(30) days after notice
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11
thereof pay the auditing party the full amount of the underpayment and any
accrued interest running from the date payments should have been made had the
reports been accurate. If the reporting party's underreporting for any quarterly
period exceeds five percent (5%) of total amount due to the auditing party for
such period, then the reporting party shall reimburse the auditing party for all
reasonable costs of the audit.
(e) MTVi will use commercially reasonable efforts to provide a joint web
collaboration and event promotion mentioning Beatnik for the MTV Spring Break
tour, MTV Music Awards or similar events in which MTVi is involved.
(f) MTVi will use commercially reasonable efforts, with Beatnik's
acknowledgment, to cooperate with MTVi's television programming division to
consider using MTVi online content, which incorporates Beatnik Technology or
Beatnik Content in one or more MTV's TV properties.
(g) MTVi will use commercially reasonable efforts to facilitate business
discussions between Beatnik and the various divisions/affiliates of Viacom. An
agreement, if any, between Beatnik and one or more such divisions/affiliates
shall be the subject of a separate agreement. Any technology license entered
into in conjunction with any such agreement shall be on substantially similar
terms as the license granted in Section 6(a).
(h) MTVi will incorporate Beatnik QuickClips in the "Emerging Artists"
initiative and use commercially reasonable efforts to incorporate Beatnik
QuickClips in the MTVi branded download area which may be hosted by a third
party. Beatnik covenants that any Beatnik software malfunction that causes
Users to lose control of the User's soundcard shall be repaired and a workaround
provided to MTVi in a reasonably prompt time frame.
4. Additional Advertising.
(a) Beatnik agrees to purchase additional advertising and promotional
sponsorships from MTVi during the Term up to the minimum amount of US $1 Million
(one million dollars) during the 12 month period beginning on the Effective Date
and US $2 Million (two million dollars) during the 12 month period beginning on
the first anniversary of the date of this Agreement. The advertising and
promotional sponsorship opportunities available will be offered by MTVi to
Beatnik on pricing terms in conformity with specified parameters set forth on a
schedule to be agreed upon by the parties.
(b) Promptly after the date hereof and at the beginning of each quarter
throughout the Term, an advertising and sponsorship plan will be developed
jointly by the parties and will be subject to the mutual agreement of the
parties. MTVi will designate a dedicated advertising account manager for
Beatnik. The account manager will be available during normal business hours to
cooperate with Beatnik in developing the plan. Beatnik and the MTVi
representatives from the advertising and sales group will meet once per quarter
to review the account and plan the following quarter's activities.
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12
Beatnik's designated manager will attend this quarterly meeting as will a Vice
President or Senior Vice President of Ad Sales of MTVi. The first meeting will
be scheduled to occur within twenty-one (21) days of the execution date of this
agreement.
(c) Payments for such advertising and sponsorships shall be made within
thirty days of Beatnik's receipt of a proper invoice therefor in immediately
available funds payable to MTVN Online, L.P. and paid by wire transfer or check
to an account specified in a funding memorandum to be delivered to Beatnik at
least 10 days before the first (or in the case of any change in such account,
the next) payment is due. Time of payment is of the essence under this
Agreement. All amounts owed hereunder not paid within thirty (30) days of the
date when due and payable will bear interest from the date such amounts are due
and payable at the per annum rate published by Citibank, N.A. as its "prime
rate."
5. Limitations on Hyperlink Destinations.
Notwithstanding anything to the contrary herein, at no time shall MTVi be
obligated to place on the Co-Branded Pages hosted by MTVi any Application or any
other Co-Branded promotional material containing hyperlinks, logos or other
designations of any website owned, controlled by, or under the common control of
ArtistDirect.com, MP3.com, Launch.com, Spinner.com, the proprietary music site
on aol.com, music.aol.com, RollingStone.com, or Emusic.com/tunes.com.
6. Technology License.
(a) Subject to and in accordance with the terms, conditions, restrictions
and limitations contained in this Agreement, Beatnik grants to MTVi and the MTVi
Affiliate Sites, a world-wide, royalty-free, non-exclusive, license (subject to
termination pursuant to Section 20 by Beatnik) to (i) use the Beatnik Technology
for the sole purpose of rendering sound effects on the MTVi Affiliate Sites,
(ii) distribute the Beatnik GrooveGram Remix Engine API, the QuickClip API, and
the Easysonifier API, solely to Users of the MTVi Affiliate Sites, and (iii)
make copies of each Beatnik Technology solely to the extent necessary to
exercise its rights in clause (i) and (ii) above, it being understood that such
copies shall only reside on the network servers, mirror sites, caching servers
or equivalent devices under the control of MTVi or Affiliates of MTVi. Other
than as expressly provided in this Section 6(a), MTVi shall have no right to
sublicense, distribute, use, modify or create derivative works of the Beatnik
Technology except with prior written consent. Any MTVi Affiliate Site using or
distributing the Beatnik Technology pursuant to this Section 6(a) shall include
the name and logo of Beatnik, subject to compliance with Beatnik's Trademark
Usage Guidelines attached hereto as Schedule C.
(b) Beatnik shall provide MTVi Affiliate Sites and their website
developers phone, web and on-site support in a manner consistent with the terms
and conditions set forth on Schedule B. Beatnik will provide Users web support
via email in a manner consistent with the manner in which Beatnik provides such
support to end users of Beatnik Technology in general.
<PAGE>
13
(c) If Beatnik makes an alpha and/or beta software program with respect
to new alpha or beta versions of Beatnik Technology, which program is made
generally available to Beatnik's relationship partners, Beatnik shall allow MTVi
to participate in such program on the same terms and conditions as such
relationship partners.
7. Content License.
Subject to and in accordance with the terms, conditions, restrictions and
limitations contained in this Agreement, Beatnik grants to MTVi and the MTVi
Affiliate Sites, a world-wide, royalty-free, license for the Term to (i)
distribute the Beatnik Content provided to MTVi by Beatnik pursuant to Section 2
and Section 4 of this Agreement from the MTVi Affiliate Sites as expressly
provided in Section 2 and Section 4 of this Agreement and with regard to uses
other than Section 2, Section 4, and Section 10 subject to applicable third
party consent, and (ii) make copies of Beatnik Content provided to MTVi by
Beatnik pursuant to Section 2 and Section 4 of this Agreement to the extent
necessary to exercise its rights in clause (i) above, it being understood that
such copies shall only reside on the network servers, mirror sites, caching
servers or equivalent devices under the control of Beatnik and will appear to
reside on the MTVi Affiliate Sites. Other than as expressly provided in this
Section 7, MTVi shall have no right to sublicense, distribute, use, modify or
create derivative works of the Beatnik Content except with Beatnik's prior
written consent. This license shall be non-exclusive except for those terms
hereunder expressly providing for an exclusive license.
8. Trademark License.
Beatnik hereby grants to MTVi and the MTVi Affiliate Sites a non-exclusive,
worldwide, royalty free license during the Term to use, reproduce and display
the Beatnik name and logo (i) to indicate the location of the Beatnik Content as
set forth herein and (ii) in connection with the marketing and promotion of
Beatnik by MTVi, subject to MTVi's compliance with Beatnik's Trademark Usage
Guidelines attached hereto as Schedule C. Beatnik shall have the right to
approve the appearance and placement of the Beatnik name and logo in any
marketing and promotion materials created by MTVi in accordance with the terms
of Sections 2, 3 and 4. To the extent allowed under the applicable license
grant to Beatnik, Beatnik grants MTVi the right to use the names of the artists
who created the Beatnik Content provided by Beatnik to MTVi pursuant to Sections
2, 3 and 4 of this Agreement, to the extent that such names are included in such
Beatnik Content being used. Beatnik will notify MTVi of the extent to which
such names may be used.
9. Ownership of Trademarks.
Each party hereby covenants and agrees that the trademarks, trade names,
service marks of the other party are and shall remain the sole and exclusive
property of that party and neither party shall hold itself out as having any
ownership rights with respect thereto. Any and all goodwill associated with the
use of a party's name and logo shall inure directly and exclusively to the
benefit of such party.
<PAGE>
14
10. Syndication Rights.
Beatnik grants MTVi a royalty free, non-exclusive, worldwide license during
the Term to syndicate any Beatnik-owned features appearing on the Co-Branded
Pages, including, without limitation, any Beatnik Content and Beatnik
Technology; each syndication to be approved by Beatnik in writing. With respect
to audience measurement, any such syndicated or sublicensed features from the
Co-Branded Pages shall be attributed to both Beatnik and MTVi and both Beatnik
and MTVi shall represent the same to any third party, subject to the mutual
approval of the specific form of such attribution. If in any case a third party
audience measurement firm requires that attribution be assigned to either MTVi
or Beatnik but not both, then such attribution shall be assigned to MTVi.
11. Users' Usage Data.
(a) Beatnik hereby acknowledges and agrees that MTVi shall own all
information concerning Users' usage of the Beatnik Content made available on the
MTVi Affiliate Sites and other customer data and information MTVi collects and
retains from the use of the Co-Branded Pages or any other webpages on the MTVi
Affiliate Sites (the "Usage Data"). Notwithstanding the foregoing, MTVi and
Beatnik shall both have a right to use any registration data provided by Users
of the MTVi Affiliate Sites who download Beatnik software from the MTVi
Affiliate Sites, provided that (i) Beatnik must comply with MTVi's stated
privacy policies and the Online Privacy Guidelines, (ii) MTVi must comply with
Beatnik's stated privacy policies and (iii) neither party may sell or otherwise
transfer such registration data without the written consent of the other party.
(b) MTVi shall make reasonable efforts to provide Beatnik the Usage Data
and quarterly reports summarizing the Usage Data on an aggregate basis and in
such a manner that is reasonably relevant to Beatnik's product development
efforts.
(c) In no case is either party obligated to collect or provide to the
other party any User information in a manner that would (i) violate any state or
federal law governing a person's privacy or (ii) contravene the intent of its
stated privacy policy or the Online Privacy Guidelines attached hereto.
(d) Beatnik shall provide MTVi with quarterly reports summarizing the
number of downloads of Beatnik software to Users linking from the MTVi Affiliate
Sites in connection with the promotions set forth in Section 3.2(d).
(e) Beatnik shall have the right, and MTVi acknowledges and agrees that
Beatnik will have the right, to disclose to its third party licensor of
information included in an Application the email addresses provided by Users
when such Users request information regarding the artist appearing (or whose
music appears) in such Application, subject to the Online Privacy Guidelines
attached hereto as may be amended from time to time and applicable law.
<PAGE>
15
12. Designated Liaison.
Each party shall designate one or more persons, who are either an employee
or independent contractor to serve as a liaison through which the other party
may present business opportunities (the "Liaison"). MTVi shall designate one
person who is a Manager or above from its strategic partnership group and two
persons who are Directors or above from its senior production staff as Liaisons.
Beatnik covenants that it will provide product use training in person to three
senior members of the MTVi production staff. MTVi agrees to permit the Liaisons
to make reasonable efforts to initiate business strategy discussions between
Beatnik and other members of MTVi Internet projects. The failure of a Liaison
to successfully generate any interest in any business opportunity or if any
discussions fail to lead to a definitive agreement shall not constitute a breach
of this Agreement.
13. No Agency.
Beatnik agrees that it is not an agent of MTVi or any Affiliate of MTVi in
any way. MTVi agrees that it is not an agent of Beatnik in any way. Beatnik
covenants that it shall not represent itself as an agent of MTVi or any
Affiliate of MTVi with the power to select and/or specify elements that will
appear on MTVi Affiliate Sites.
14. Representations, Warranties and Agreements.
Each party represents and warrants that it has the right and power to enter
into and fully perform this Agreement and to make the commitments it makes
herein and to perform fully its obligations hereunder. Beatnik represents and
warrants that it has obtained, or will have obtained when such Beatnik
Technology or Beatnik Content is delivered to MTVi or any MTVi Affiliate Site,
all necessary licenses, permissions and consents required to license the MTVi
Affiliate Sites to use and/or distribute the applicable Beatnik Technology and
Beatnik Content in accordance with the terms of this Agreement, including,
without limitation, all sync licenses, artist consents, or digital sound
recording performance licenses.
15. Copyright License Fees and Union Payments.
Beatnik shall promptly and fully pay: (i) any fees that become payable as
a result of the public performance or distribution of any sound recording
embodied in any Beatnik Content or Application provided by Beatnik to MTVi
pursuant to this Agreement and arising directly from such Beatnik Content or
Application distributed from the MTVi Affiliate Sites; (ii) any fees that become
payable as a result of the public performance or distribution of any underlying
works embodied in any Beatnik Content or Application provided by Beatnik to MTVi
pursuant to this Agreement and arising directly from such Beatnik Content or
Application distributed from the MTVi Affiliate Sites; (iii) any fees due any
third party pursuant to a collective bargaining agreement covering the creation
and exploitation of the Beatnik Content or Applications distributed from the
MTVi Affiliate Sites and arising directly from such Beatnik Content or
Application provided by Beatnik to MTVi pursuant to this Agreement, and (iv) any
fees that became payable as a
<PAGE>
16
result of any sync license or mechanical license obtained for Beatnik Content or
Application provided by Beatnik to MTVi pursuant to this Agreement.
16. Indemnification.
(a) Beatnik, at its own expense, will indemnify, defend and hold harmless
MTVi and the MTVi Affiliate Sites and any employees, representatives, agents of
MTVi or any Affiliate of MTVi (each a MTVi Indemnified Person), from and against
any and all claims made by a third party and all damages, liabilities, costs and
expenses (including legal expenses and reasonable counsel fees) arising
therefrom brought against any MTVi Indemnified Person arising from (i) any
breach of Beatnik's representations, warranties or undertakings hereunder, (ii)
a claim that any trademark, service mark or other brand, feature, any Beatnik
Technology, Beatnik Content or Application provided by Beatnik for use and/or
distribution by the MTVi Affiliate Sites pursuant to this Agreement infringes in
any manner any copyright, patent, trademark, trade secret or any other
intellectual property right of any third party, is or contains any material or
information that is defamatory, libelous, slanderous, or that violates any law
or regulation, or that otherwise violates any rights of any person or entity,
including, without limitation, rights of publicity, privacy or personality, or
(iii) the terms of any applicable collective bargaining agreement. Such MTVi
Indemnified Party shall provide Beatnik with prompt notice of any such claim
which could result in indemnification hereunder, but failure to so notify
Beatnik shall not affect Beatnik's obligations to indemnify hereunder unless
such failure prejudices Beatnik's ability to defend the claim. Such MTVi
Indemnified Person shall provide reasonable assistance in any defense or
settlement at Beatnik's expense, and shall permit Beatnik to assume and control
the defense of such action (unless a conflict or potential conflict exists
between Beatnik and MTVi Identified Person) upon Beatnik's written notice to the
MTVi Indemnified Person of its obligation to so indemnify, so long as Beatnik
does not enter into any settlement or compromise of any such claim which would
result in any liability to any MTVi Indemnified Party, without the MTVi
Indemnified Person's prior written consent which will not be unreasonably
withheld.
(b) MTVi, as its own expense, will indemnify, defend and hold harmless
Beatnik and its employees, representatives, agents and Affiliates (each a
"Beatnik Indemnified Person"), from and against any and all claims made by a
third party and all damages, liabilities, costs and expenses (including legal
expenses and reasonable counsel fees) arising therefrom brought against a
Beatnik Indemnified Person arising from (i) any breach of MTVi's
representatives, warranties or undertakings hereunder, (ii) a claim that any
trademark, service mark or other brand feature, any material, product or service
produced, distributed, offered or provided by MTVi for use and/or distribution
by the MTVi Affiliate Sites, other than any claim arising in connection with or
relating to any Beatnik Content, Application, Beatnik Technology, or any
trademark, trade secret, patent, copyright or other intellectual property owned
or controlled by Beatnik or its Affiliates, infringes in any manner any
copyright, patent, trademark, trade secret or any other intellectual property
right of any third party, is or contains any material or information that is
defamatory, libelous, slanderous or that violates any law or regulation, or that
otherwise violates any rights of any person or entity, including without
limitation,
<PAGE>
17
rights of publicity, privacy or personality or (iii) the terms of any applicable
collective bargaining agreement. Such Beatnik Indemnified Person shall provide
MTVi with prompt notice of any such claim which could result in indemnification
hereunder, but failure to so notify MTVi shall not affect the MTVi's obligations
to indemnify hereunder unless such failure prejudices MTVi's ability to defend
the claim. Such Beatnik Indemnified Person shall provide reasonable assistance
in any defense or settlement at MTVi's expense, and shall permit MTVi to assume
and control the defense of such action (unless a conflict or potential conflict
exists between Beatnik and MTVi Identified Person) upon MTVi's written notice to
the Beatnik Indemnified Person of its obligation to so indemnify, so long as
MTVi does not enter into any settlement or compromise of any such claim which
would result in any liability to any Beatnik Indemnified Party, Beatnik or its
Affiliates without the Beatnik Indemnified Person's prior written consent which
will not be unreasonably withheld.
17. Limitation of Liability.
UNDER NO CIRCUMSTANCES SHALL BEATNIK, MTVi, OR ANY AFFILIATE BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS. EACH PARTY DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY
FOR FITNESS FOR A PARTICULAR PURPOSE IN REGARDS TO ANY PRODUCT OR SERVICE
PROVIDED HEREUNDER EXCEPT FOR ANY THIRD PARTY CLAIM ARISING FROM AN OFFLINE,
NON-INTERNET USE OF BEATNIK CONTENT BY MTVI BEYOND THOSE USES PERMITTED UNDER
THIS AGREEMENT.
18. Notices.
Except as otherwise specifically provided herein, all notices hereunder
shall be in writing and shall be given by registered or certified mail or
Federal Express or similar carrier (prepaid), at the respective addresses
hereinabove set forth, or such other address or addresses as may be designated
by either party. Such notices shall be deemed given when mailed or delivered to
a Federal Express office, except that notice of change of address shall be
effective only from the date of its receipt. A copy of each notice sent:
If to MTVi:
MTVi
770 Broadway, 10th Floor,
New York, New York 10003
Attn: General Counsel
If to Beatnik:
<PAGE>
18
Beatnik, Inc.
2600 South El Camino Drive
San Mateo, CA 94403
Attn: General Counsel
19. Assignment.
Neither party may assign this Agreement or its rights hereunder in whole or
in part to any person without the prior written consent of the other party
except if such person is acquiring all or substantially all of the assets of the
party. Any assignment in violation of this Section 19 shall be null and void.
20. Term and Termination.
(a) Term. The term of this Agreement shall commence on the date hereof
and continue for a period of two years (the "Term").
(b) Termination. Either party may terminate this Agreement at any time
in the event of a material breach by the other party of any term, representation
or warranty which remains uncured after thirty (30) days written notice thereof.
Either party may terminate this Agreement immediately if the other party becomes
or is declared insolvent or bankrupt, is the subject of any proceeding related
to its liquidation or insolvency which is not dismissed within ninety (90)
calendar days or makes an assignment for the benefit of creditors.
(c) Notwithstanding any termination of this Agreement, this Section 20(c)
and Sections 1, 2.2(d), 9, 11, 13, 16, 17, 18, 22 and 23 shall remain in full
force and effect.
21. Confidentiality.
(a) Each party covenants to the other party that it will not, either
directly or indirectly through any officer, director, employee, agent or
otherwise, disclose this Agreement, any provisions of this Agreement (except to
the extent such disclosure is required by law to be disclosed or this Agreement
becomes generally available to the public other than as a result of a disclosure
in violation of this Agreement) nor any Confidential Information of the other
party either in whole or in part, without the prior written consent of the other
party.
(b) Any public announcement, filing, release or similar publicity with
respect to this agreement or the contemplated transactions will be issued, if at
all, at such time and in such manner as determined by mutual agreement of the
parties.
22. Issuance of Shares
(a) In consideration of MTVi's entering into this Agreement and the
services already provided to Beatnik by MTVi, Beatnik is hereby issuing to MTVi
800,000 shares of Beatnik's Series E Preferred Stock, par value $.001 per share
(the "Shares"). 400,000 of such Shares shall be subject to repurchase by
Beatnik in accordance with Section 22(b)
<PAGE>
19
hereof. Pursuant to the Series E Stock Purchase Agreement, dated as of the date
hereof, by and among Beatnik, MTVi and others (the "Stock Purchase Agreement")
Beatnik has sold to MTVi on the date hereof 600,000 shares of Series E Preferred
Stock, par value $.001 per share. It is hereby acknowledged and agreed that (1)
the representations and warranties of Beatnik and the representations and
warranties of MTVi contained in the Stock Purchase Agreement are hereby
incorporated in this Agreement with respect to the Shares and are hereby being
made on the date hereof by Beatnik for the benefit of MTVi and by MTVi for the
benefit of Beatnik, as the case may be, with respect to the Shares, and (2) the
terms and conditions of the Stock Purchase Agreement are incorporated herein by
reference and made a part hereof with respect to the Shares.
(b) Beatnik shall have the right to cause MTVi to forfeit 400,000 of the
Shares as follows: (i) if on or prior to the first anniversary of the date
hereof any of the milestone events listed on Schedule E under the heading "First
Anniversary Milestones" has not occurred (nor deemed to have occurred) and have
not been satisfied nor waived in writing, or (ii) if between the first
anniversary of the date hereof and the date eighteen months from the date hereof
the event listed on Schedule E under the heading "Eighteen Month Milestone" has
not occurred (or deemed to have occurred ) or been satisfied or waived in
writing, then upon written notice to MTVi specifying which milestones have not
occurred (nor deemed to have occurred) and have not been satisfied or waived in
writing (the "Forfeiture Notice") given no later than 30 days after such first
anniversary date in the case of clause (i) or eighteen month date in the case of
clause (ii), Beatnik shall have the right to cause forfeiture from MTVi of a
number of Shares (the "Unearned Shares") equal to the product of (i) 50,000 and
(ii) the number of milestone events which have not occurred (nor deemed to have
occurred) and not been satisfied or waived in writing, as the case may be, on or
prior to such first anniversary date in the case of clause (i) or eighteen month
date in the case of clause (ii). MTVi shall forfeit to Beatnik the Unearned
Shares no later than 20 days after such Forfeiture Notice is received by MTVi.
(c) If a milestone event listed on Schedule E occurs (or is deemed to
have occurred), or has been satisfied or waived in writing on or prior to (i)
the first anniversary of the date hereof in the case of the events listed under
the heading "First Anniversary Milestones" or (ii) the date eighteen months
after the date hereof in the case of the event listed under the heading
"Eighteen Month Milestone," then on the date such event occurs (or is deemed to
have occurred), is satisfied or waived in writing, as the case may be, 50,000
Shares shall no longer be subject to forfeiture to Beatnik under this Agreement
and Beatnik shall, within 10 business days, cause the legend referred to in
Section 22(f) hereof to be removed from the certificates representing such
Shares. During the period that any Share is subject to forfeiture by Beatnik
under this Agreement, such Share shall be referred to herein as a "Restricted
Share."
(d) If a milestone event does not occur or has not been satisfied and
such nonoccurrence or failure to satisfy is the result of (or substantially the
result of) Beatnik's action or inaction or the occurrence of an event under
Beatnik's control, including without limitation, failure to timely provide the
requisite Beatnik Content, Application, Mixman Studio or Beatnik Technology to
MTVi, then for all purposes of this Agreement the milestone event shall be
deemed to have occurred.
<PAGE>
20
(e) (i) With respect to any Restricted Share, for the period from the
date hereof until the date on which any such Restricted Share is no longer
subject to forfeiture to Beatnik pursuant to Section 22(b) or (c) hereof, MTVi
may not sell, transfer, pledge, or otherwise encumber or dispose of such
Restricted Share and such Restricted Share shall not be transferable, including,
but not by way of limitation, by execution, levy, garnishment, attachment,
pledge, or in any other similar manner.
(ii) The Shares shall not be transferred except in accordance with
this Agreement (including pursuant to Section 3.6 of the Stock Purchase
Agreement which is incorporated herein pursuant to Section 22(a)) or the Amended
and Restated Rights Agreement, dated as of the date hereof by and among Beatnik
and the shareholders listed on Exhibit A thereto, as each may be amended,
modified and supplemented from time to time.
(f) If there is a dispute between the parties as to whether a milestone
event has occurred, is deemed to have occurred or has been satisfied or waived,
the parties will arrange for Lorraine Harriton and Nicholas Butterworth to
discuss the matter and attempt to resolve any dispute.
(g) The stock certificates evidencing the Shares shall be delivered to
MTVi on the date hereof. All certificates representing Restricted Shares shall
bear the following legend reflecting the applicability of this Agreement to the
Restricted Shares represented by such certificate. Beatnik shall cause such
legend to be removed from the certificates representing each Restricted Share on
the date such share is no longer subject to forfeiture by Beatnik pursuant to
Section 22(b) or (c) hereof.
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY UPON
COMPLIANCE WITH, THE PROVISIONS OF THE AGREEMENT AMONG MTVI AND
BEATNIK DATED MARCH 10, 2000. SUCH AGREEMENT PROHIBITS THE TRANSFER
OF THESE SHARES UNTIL CERTAIN MILESTONES ARE MET. ANY TRANSFER OF
THESE SHARES IN VIOLATION OF SUCH AGREMEENT SHALL BE NULL AND VOID. A
COPY OF THE ABOVE REFERENCED AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF BEATNIK.
(h) The stock certificates evidencing the Shares that are delivered
hereunder shall bear restrictive legends to the extent required by Section 3.7
of the Stock Purchase Agreement which is incorporated herein pursuant to Section
22(a).
(i) If MTVi fails to comply with any of its obligations under this
Agreement and such obligations comprise Milestone Events listed on Schedule E,
then Beatnik's sole remedy with respect to such noncompliance by MTVi shall be
the forfeiture of Restricted Shares pursuant to this Section 22.
<PAGE>
21
23. Miscellaneous.
(a) This Agreement contains the entire understanding of the parties
hereto relating to the subject matter hereof and cannot be changed or terminated
except by an instrument signed by both an officer of MTVi and an officer of
Beatnik. This Agreement supersedes all prior and contemporaneous
understandings, agreements and discussions between the parties with respect to
the subject matter hereof, including without limitation, the letter agreement
between the parties dated as of February 16, 2000. A waiver by either party of
any term or condition of this Agreement in any instance shall not be deemed or
construed as a waiver of such term or condition for the future, or of any
subsequent breach thereof. All remedies, rights, undertakings, obligations and
agreements contained in this Agreement shall be cumulative and none of them
shall be in limitation of any other remedy, right, undertaking, obligation or
agreement of either party.
(b) Notwithstanding anything to the contrary herein, the parties hereto
shall be deemed independent contractors and nothing herein shall be construed as
establishing a joint venture or partnership.
(c) This Agreement shall be deemed entered into the State of New York,
and the validity, interpretation and legal effect of this Agreement shall be
governed by the laws of the State of New York applicable to contracts entered
into and performed entirely within the State of New York, with respect to the
determination of any claim, dispute or disagreement which may arise out of the
interpretation, performance, or breach of this Agreement.
(d) The parties hereto are sophisticated and have had the opportunity to
be represented by lawyers throughout the negotiation of this Agreement. As a
consequence, the parties do not believe that the presumptions of any laws or
rules relating to the interpretation of contracts against the drafter of any
particular clause should be applied in this case and therefore waive their
effects.
(e) This Agreement shall not become effective until executed by the
parties hereto.
(f) Each party shall bear its own legal fees incurred in connection with
the transactions contemplated hereby, provided, however, that if any party to
this Agreement seeks (i) to enforce its rights under this Agreement by legal
proceedings or otherwise or (ii) damages arising from and relating to a breach
of any representation, warranty, covenant or agreement made hereunder, the non-
prevailing party shall pay all costs and expenses incurred by the prevailing
party, including, without limitation, all reasonable attorneys' fees.
<PAGE>
22
(g) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which, when taken together, shall
constitute one and the same instrument.
ACCEPTED AND AGREED:
MTVN ONLINE, L.P. BEATNIK, INC.
By: By: /s/ Lorraine Hariton
_________________________________ ----------------------------
Title: CEO and President Title: President & CEO
------------------------------
<PAGE>
SCHEDULE A
TOP LINE ARTIST CRITERIA
Online reviews, press reviews or club scene articles:
RollingStone.com
Provide.com
Spin.com
EntertainmentWeek.com
People.com
Launch.com
Artistdirect.com
Vibe.com
Online reviews for determining number of chats:
RollingStone.com
Provide.com
Spin.com
EntertainmentWeek.com
People.com
Launch.com
Artistdirect.com
Vibe.com
23
<PAGE>
SCHEDULE C
LEADER'S PROGRAM
The Beatnik Leaders Program shall consist of the following products and
services:
(a) Products:
(i) Beatnik Leaders Kit - This kit shall include the following items:
(1) Exclusive Beatnik tutorials and case studies
(2) Exclusive Beatnik sonification style guide
(3) Exclusive Beatnik "Branding with Sound" white paper
(ii) Beatnik Pro Version Tools - These tools shall include the
following items:
(1) Beatnik Editor Pro with MP3
(2) Beatnik Converter Pro with MP3
(3) Beatnik Actionset Pro for Dreamweaver
(4) Beatnik Xtra Pro for Director
Each of the Beatnik Tools comes with 15 licenses for the
individuals listed in Exhibit C. Each such license is subject
---------
to the terms and conditions of this letter agreement.
(b) Services:
(i) One year access to controlled "Leaders only" discussion boards for
technical support
(ii) One year priority email technical support
(iii) Value Added Developer support for reselling Beatnik content and/or
technology such as Groovegrams, and Web Site Soundtracks (Jook
Joints)
You will receive one (1) copy of the Beatnik Leaders Kit for every person
listed in Exhibit A, which will contain further details concerning Services,
---------
including without limitation, time periods in which Services are available,
the location of such discussion boards and the email addresses where
technical and value-added support can be obtained. These Beatnik Leaders Kits
are licensed to you pursuant to the terms and conditions set forth herein and
the terms and conditions set forth in the end user licenses in the Beatnik
Leaders Kits delivered to you.
(c) Optional Services: The following Optional Services will be provided
to you by us for the fees set forth below:
(i) Training Options:
(x) In-House Training (recommended): At a fee to be mutually
agreed upon by the
parties, plus expenses.
(y) Quarterly workshops, see below.
(ii) Support Options:
(x) A la carte Telephone Support: At a fee to be mutually agreed
upon by the parties.
(y) Eight hours Telephone Support per month: No charge.
<PAGE>
(iii) Additional Sonifiers:
(x) Per person over 15 listed in Exhibit A: At a fee to be
----------
mutually agreed upon by the parties.
(iv) Travel expenses and additional in-house training that has not been
listed here, as well as any telephone support that we provide that is
not covered by an existing telephone support package, including any
telephone support in excess of any five-hour optional service package
you may have purchased, will be billed as described above and you will
receive an invoice for such amounts on not less than a monthly basis.
All payments shall be due and payable within 30 days of our sending of
such invoice. Your failure to pay such amounts may result in the
termination of our relationship in which case you will be required to
immediately return all Beatnik Leaders Kits and Beatnik Tools that have
been licensed to you as part of the Program, and delete any and all
copies of the Beatnik Tools from the hard drives of the computers on
which they have been installed.
(v) Quarterly workshops available in Boston, New York, Chicago, San
Francisco, and Los Angeles. These will be optional and subject to an
additional charge. Contact Bill Foster ([email protected]) for details.
----------------
WE DO NOT GUARANTEE THE BEATNIK LEADERS KITS OR TOOLS AND THEY ARE BEING
PROVIDED TO YOU WITHOUT ANY WARRANTY OF ANY KIND. IN PARTICULAR, PLEASE NOTE
THAT WE EXPRESSLY REJECT ALL WARRANTIES OF ANY KIND RELATED TO THE LEADERS KIT,
TOOLS OR TECHNICAL SUPPORT, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR
PURPOSE.
Your participation in the Program does not in any way transfer to you any
ownership interest in the Beatnik Leaders Kits or Beatnik Tools, and all
ownership rights to such Beatnik Leaders Kits and Beatnik Tools remains with us.
As a participant in the Program your company will be granted 15 non-exclusive
and non-transferable licenses to use the Beatnik Leaders Kits and Beatnik Tools
for the term of the Agreement. To validate the licenses granted to your company
by Beatnik as a part of this program, you must list in Exhibit A all individuals
---------
who will be using Beatnik Leaders Kits and Beatnik Tools. Up to 15 individuals
within your company will be included with your entry to the Program. Additional
licenses are available below at additional cost. Only individuals listed in
Exhibit A as the "Head Sonifier" or the "Sonifiers" may use the Beatnik Leaders
- ---------
Kits and Beatnik Tools, unless otherwise agreed to by us in writing. You may not
copy, distribute, otherwise disseminate or modify the Beatnik Leaders Kits. You
may not copy, distribute, otherwise disseminate, modify, reverse engineer or
attempt to decompile the Beatnik Tools. Any such actions shall terminate your
participation in the Beatnik Leaders Program and, in addition to any other
remedies we may have, you will be required to immediately return any and all
copies of the Beatnik Leaders Kits and Beatnik Tools to us and delete any and
all copies of the Beatnik Tools from the hard drives of the computers on which
they have been installed. The provisions of this paragraph will survive
termination of your participation in the Beatnik Leaders Program.
In addition, Beatnik reserves the right to terminate your participation in the
Leaders Program immediately if, in Beatnik's sole but reasonable discretion, you
use the Beatnik Leaders Kit or the Beatnik Tools in an inappropriate or
unauthorized manner, including, but not limited to, use in connection with
pornographic or illegal sites or activities, or in a manner that may tarnish
Beatnik's trademarks and/or service marks and their attendant goodwill. Upon
termination of your participation in the Leaders Program, all licenses granted
hereunder shall terminate, and you will be required to immediately return any
and all copies of the Beatnik Leaders Kits and Beatnik Tools to us and delete
any and all copies of the Beatnik Tools from the hard drives of the computers on
which they have been installed.
<PAGE>
Exhibit A to Beatnik Leaders Program
- ------------------------------------
<TABLE>
<CAPTION>
Head Sonifier & Sonifier
Head Sonifier (Sonifier #1)
<S> <C>
Name: ____________________________ Sonifier #5
Signature:________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title: ___________________________ Title: ___________________________
Sonifier #2 Sonifier #6
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title: ___________________________ Title: ___________________________
Sonifier #3 Sonifier #7
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title: ___________________________ Title: ___________________________
Sonifier #4 Sonifier #8
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title: ___________________________ Title: ___________________________
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Sonifier #9 Sonifier #13
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title:____________________________ Title:____________________________
Sonifier #10 Sonifier #14
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title:____________________________ Title:____________________________
Sonifier #11 Sonifier #15
Name: ____________________________ Name: ____________________________
E-mail: __________________________ E-mail: __________________________
Phone: ___________________________ Phone: ___________________________
Title:____________________________ Title:____________________________
Sonifier #12
Name: ____________________________
E-mail: __________________________
Phone: ___________________________
Title:____________________________
</TABLE>
<PAGE>
SCHEDULE C
Trademark Usage Guidelines
BEATNIK TRADEMARK USAGE GUIDELINES
- ----------------------------------
Beatnik's Trademarks and Logos
- ------------------------------
The following words and logos are trademarks of Beatnik, Inc. in the United
States and/or other countries:
"Beatnik(R)"
"Mixman(R)"
Beatnik Logo
The foregoing shall be referred to herein, collectively, as the "Beatnik
Marks."
Guidelines for Usage
- --------------------
Beatnik has established the following set of Guidelines to be followed in
all collateral, advertising, and related activities in which Beatnik's logo and
trademarks are used.
Graphic Element
- ---------------
Always use production-quality art (electronic or camera-ready) to reproduce
the Beatnik name and/or logo.
Trademark Requirements
- ----------------------
1. At the first mention of a Beatnik trademark in the body or printed or on-
line material, proper notice of trademark ownership ( e.g. or (R)) must appear.
If the first mention is in a headline, the or (R) does not have to appear at
that mention, provided there is text following where the notice does appear.
2. When writing about Beatnik, its products or technology, trademarks must be
used as adjectives.
3. Advertising and all other printed materials must include credit lines for
Beatnik products and/or technologies. If more than one Beatnik trademark is
used, all trademarks may be incorporated into one sentence. A sample credit
line that meets these criteria is as follows:
The following are trademarks of Beatnik, Inc.: Beatnik(R) Mixman(R) and
the Beatnik logo.
Quality Control and Ownership
- -----------------------------
1. MTVi shall ensure that all advertisements, marketing materials or other
documents on which Beatnik's Marks are placed (the "Marked Materials") shall not
reflect adversely upon the good name of Beatnik. MTVi acknowledges that if the
Marked Materials distributed by MTVi were of inferior quality in design,
material or workmanship, the substantial good will which Beatnik has established
and now possesses through Beatnik's Marks would be impaired. Accordingly, MTVi
agrees that the Marked Materials shall be of high standard and
<PAGE>
of such nature, style, appearance and quality as shall be adequate and suited to
the protection of the Marks and the goodwill associated therewith.
2. MTVi shall submit for approval, free of cost, two samples to Beatnik of
Marked Materials prior to their dissemination or distribution in order to allow
Beatnik to determine whether (a) such Marked Materials are compliant with this
Agreement, and (b) such Marked Materials are of a high standard and of such
nature, style, appearance and quality as to be adequate and suited to the
protection and enhancement of Beatnik's Marks and the goodwill associated
therewith. If Beatnik disapproves of any sample of the Marked Materials,
Beatnik shall provide MTVi with the specific reasons for such disapproval within
ten (10) working days after receipt thereof. Failure of Beatnik to approve or
disapprove such samples within such ten (10) working day period shall
automatically be deemed approval thereof. Once such Marked Materials have been
approved by Beatnik, MTVi shall not institute any material changes in the
standards, specifications or quality of the Marked Materials, without first
obtaining the approval of Beatnik to such Marked Materials as changed.
3. Beatnik shall have the right to conduct spot checks at MTVi's facilities and
elsewhere on Marked Materials.
4. MTVi shall promptly make all such changes to the Marked Materials as Beatnik
shall request to protect the value of Beatnik's Marks or MTVi shall not use
Beatnik's Marks on such non-conforming Marked Materials.
5. MTVi shall not use Beatnik's Marks, or any part thereof, as part of, or
display such Beatnik's Marks in conjunction with, any other names or trademarks
except with Beatnik's prior written approval. MTVi shall not use any of
Beatnik's Marks or any confusingly similar or diluting mark, term or design,
except as expressly authorized in this Agreement, and MTVi shall not attempt to
register or aid any third party in using or attempting to register any such
mark, term or design. MTVi shall not use any of Beatnik's Marks in any manner
that will indicate that it is using such mark other than as a licensee.
6. Refusal to submit samples, or non-compliance with this Agreement and these
guidelines will result in Beatnik's right to revoke MTVi's license to use
Beatnik's Marks.
7. Beatnik's Marks and the goodwill associated therewith are and remain
Beatnik's exclusive property. MTVi shall acquire no right, title or interest in
Beatnik's Marks or the goodwill associated therewith other than the limited
right to use Beatnik's Marks, as described by the express terms of this
Agreement. All usage of Beatnik's Marks shall inure to Beatnik's benefit. MTVi
shall not at any time do or suffer to be done any act which would impair
Beatnik's Marks or the goodwill associated therewith. MTVi shall take any
actions reasonable requested by Beatnik, including the execution of instruments,
that may be necessary or appropriate to record Beatnik's rights to Beatnik's
Marks in any jurisdiction and perfect these rights in Beatnik's name. MTVi
agrees to take no action inconsistent with Beatnik's ownership of and interest
in Beatnik's Marks, or assist any third party in doing any of the same. Under
no circumstances will anything in this Agreement be construed as granting, by
implication, estoppel or otherwise, any licenses or rights in Beatnik's Marks
not explicitly granted to MTVi herein.
8. MTVi shall promptly notify Beatnik in writing of any actual or suspected
infringement of Beatnik's Marks by a third party of which MTVi becomes aware and
of any available evidence thereof. MTVi shall cooperate, at Beatnik's expense,
with Beatnik's efforts to investigate, terminate and recover damages for any
actual or suspected infringement of the trademarks or logo.
Beatnik reserves the right to amend this Schedule at anytime. MTVi shall
---------
use commercially reasonable efforts to cease use and/or distribution of the
existing non-conforming Marked Materials, within ten (10) days after Beatnik
makes the amendments to this Schedule available to MTV.
--------
<PAGE>
SCHEDULE D
MTVi ONLINE TRADEMARK GUIDELINES
Pursuant to the Agreement, MTVi has granted to Beatnik the non-exclusive
right to use the MTVi, MTV, VH1 and SonicNet name, trademark and logo attached
as this Schedule D (the "Mark") solely in connection with, for the Term and as
permitted under this Agreement. Beatnik will not use the Mark in any other
manner other than as authorized herein.
1. All proprietary rights, title, interest and control of the Mark,
including any goodwill or other value generated in connection with the use of
the Mark, in the Territory, shall at all times rest with MTVi, but MTVi does not
thereby acquire any interest in Beatnik's business or revenues derived from that
business. At no time shall Beatnik attempt to register the Mark or other
materials identical, substantially similar to, or likely to cause confusion with
MTVi's Mark.
Beatnik shall comply with all reasonable requirements of MTVi for legal,
creative or artistic reasons in connection with the use of the Mark in order to
enable MTVi to protect and ensure consistency in the use of such Mark. Beatnik
shall at all times use its reasonable endeavors to monitor any other
unauthorized uses or misuses ("infringements") of the Mark, and shall promptly
notify MTVi of any such infringements it discovers. Beatnik agrees to use
reasonable efforts and cooperate with MTVi, upon MTVi's request and at MTVi's
expense, in terminating infringing or unauthorized or wrongful uses of the Mark
and undertakes to furnish any documentary evidence or evidentiary materials
which MTVi may reasonably require for the purpose of terminating such uses. In
addition, Beatnik undertakes to use its reasonable efforts to assist and
cooperate with MTVi, at MTVi's expense, in the prosecution of any lawsuits,
legal actions or other proceedings which, in the option of MTVi, are necessary
or advisable to protect the Mark. The expense of such proceedings shall be
borne by MTVi. The right to protect such mark, as well as the right to
determine in all respects the manner of protection, shall at all times rest
exclusively with MTVi.
As between MTVi and Beatnik, all proprietary rights, title and interest,
including, but not limited to, copyright, in the Mark shall rest exclusively
with MTVi.
2. Beatnik acknowledges that MTVi is the owner of the Mark and of all
ideas, concepts, trademark and copyrights in copyrightable subject matter
comprised in the Mark. It is understood and agreed that Betnik shall not
acquire and shall not claim any title to the Mark by virtue of the license
granted to Beatnik or through Beatnik's use of the Mark, the parties agreeing
that all use of the Mark by Beatnik shall inure for the benefit of the MTVi.
Beatnik will reasonably undertake to execute any instruments, acknowledgments,
assignments or similar documents MTVi reasonably deems necessary or advisable to
confirm or effectuate MTVi's ownership of said subject matter. Beatnik further
acknowledges the validity of the Mark and of MTVi's other trademarks and
Content, and agrees not to institute or participate in any proceedings which
challenge the validity of such Mark and/or other trademark and Content, or of
MTVi's ownership thereof.
3. Beatnik will not use the Mark to disparage MTVi, its products or
services, or promotional goods or for products which, in MTVi's reasonable
judgment, may diminish or otherwise damage MTVi's goodwill in the Mark,
including but not limited to uses which could be deemed to be obscene,
pornographic, excessively violent, or otherwise in poor taste or unlawful, or
which purpose is to encourage unlawful activities. Beatnik will not imitate the
Mark in any of Beatnik materials, including advertising, product packaging, and
promotional materials and press materials. Beatnik will use only MTVi's
authorized electronic artwork of the Mark as a link to the Site or for permitted
advertising and marking under this Agreement. The Mark must
<PAGE>
always be an active link to http://www.mtv.com., http://www.vh1.com or
http://www.sonicnet.com, as applicable.
4. Beatnik shall obtain written consent for any advertising, promotions
and press releases using MTVi's Mark. MTVi shall use all reasonable efforts to
provide approval/comments on any submitted advertising and promotions within
three (3) business days or in less time as the circumstances reasonably warrant.
<PAGE>
SCHEDULE E
----------
Milestone Events
FIRST ANNIVERSARY MILESTONES
1. MTVi will use commercially reasonable efforts to promote one Featured
Application on MTV.com per each 30 day period following Beatnik's delivery
under Section 2.1(b) (7 days per such 30 day period MTV.com home-page and 3
days per such 30 day period 1 click below).
. Validated by MTVi Research Staff Reports and screen grabs.
2. MTVi will (a) offer the Mixman Studio product for sale on at least one MTVi
Affiliate Site or the MTVi branded download area hosted on a third party
site and, (b) approve the use of an MTVi logo on at least one in-store co-
branded product which may consist of a hardware, content (such as featured
artist D*plates), or software product.
. Validated by screen grabs and product.
3. MTVi shall deliver at least 2 million Impressions per month in the
aggregate.
. Validated by MTVi Research Staff Reports.
4. MTVi will incorporate Beatnik QuickClips in the "Emerging Artists" area of
an MTVi Affiliate Site.
. Validated by the appearance of at least three Beatnik QuickClips.
5. At least one press release that involves Beatnik per quarter shall be
released by MTVi.
. Validated by publicly available press releases.
6. MTVi will use commercially reasonable efforts to provide a joint web
collaboration and event promotion mentioning Beatnik (e.g., Campus Tours,
Spring Break).
. Validated by collateral marketing materials.
7. MTVi will use commercially reasonable efforts to make introductions on
behalf of Beatnik to sister Viacom divisions of MTVi (i.e. Paramount Digital
Entertainment, Nickelodeon Online, Blockbuster).
. Validated by introductory meetings with at least two additional
Viacom online divisions -- staff at the Vice President or above level.
<PAGE>
EIGHTEEN MONTH MILESTONE
1. MTVi will continue (i) to use commercially reasonable efforts to promote one
Featured Application per each 30 day period following Beatnik's delivery
under Section 2.1(b) on MTV.com (7 days per each 30 day period MTV.com home-
page and 3 days per such 30 day period 1 click below, and (ii) MTVi will
continue to incorporate three (3) Beatnik QuickClips in the "Emerging
Artists" area of an MTVi Affiliate Site.
. Clause (i) validated by MTVi Research Staff Reports and screen grabs.
. Clause (ii) validated by the appearance of at least three Beatnik Quick
Clips.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant.
Registrant:
Beatnik, Inc.
2600 El Camino Real
San Mateo, CA 94403
Subsidiary:
Mixman Technologies Inc. (California)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 13, 2000, relating to the consolidated financial
statements of Beatnik, Inc., which appear in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
We also consent to the use in this Registration Statement on Form S-1 of
our report dated March 7, 2000, relating to the financial statements of Mixman
Technologies Inc., which appear in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 812 6,191
<SECURITIES> 0 0
<RECEIVABLES> 40 968
<ALLOWANCES> (40) (386)
<INVENTORY> 0 95
<CURRENT-ASSETS> 918 8,168
<PP&E> 112 1,132
<DEPRECIATION> 69 255
<TOTAL-ASSETS> 1,136 36,786
<CURRENT-LIABILITIES> 822 3,661
<BONDS> 0 0
3,390 22,221
0 0
<COMMON> 5 16
<OTHER-SE> (3,081) 9,633
<TOTAL-LIABILITY-AND-EQUITY> 1,136 36,786
<SALES> 675 1,492
<TOTAL-REVENUES> 675 1,492
<CGS> 294 1,036
<TOTAL-COSTS> 1,941 11,110
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (1,560) (10,654)
<INTEREST-EXPENSE> (36) 181
<INCOME-PRETAX> (1,596) (10,473)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,596) (10,473)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,596) (10,473)
<EPS-BASIC> (.35) (1.60)
<EPS-DILUTED> (.35) (1.60)
</TABLE>
