CENTERSPAN COMMUNICATIONS CORP
PRES14A, 2001-01-19
COMPUTER PERIPHERAL EQUIPMENT, NEC
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934


Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[X]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by Rule
     14a-6(e)(2))
[ ]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12


                      CENTERSPAN COMMUNICATIONS CORPORATION
             (Exact Name of Registrant as Specified In Its Charter)


Payment of Filing Fee (Check the appropriate box):
[X]  No fee required

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
     1)   Title of each class of securities to which transaction applies:
     2)   Aggregate number of securities to which transaction applies:
     3)   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
          filing fee is calculated and state how it was determined):
     4)   Proposed maximum aggregate value of transaction:
     5)   Total fee paid:

[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
     1)   Amount Previously Paid:
     2)   Form, Schedule or Registration Statement No.:
     3)   Filing Party:
     4)   Date Filed:

===============================================================================

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[LOGO]

                               [PRELIMINARY COPY]



To the Shareholders of CenterSpan Communications Corporation:

NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of
CenterSpan Communications Corporation, an Oregon Corporation (the "Company"),
will be held at the office of the Company, located at 7175 N.W. Evergreen
Parkway Suite 400, Hillsboro, Oregon 97124, on February 22, 2001, at 2:00
p.m. local time for the following purposes:

     1.   To approve the sale of up to 714,286 additional shares of the
          Company's Common Stock to an investor in a private placement;

     2.   To approve an increase in the number of shares available under, and
          other amendments to, the 1998 Stock Option Plan;

     3.   To approve and ratify two option grants previously made by the Company
          to an officer outside the 1998 Stock Option Plan; and

     4.   To transact any other business as may properly come before the
          meeting.

The attached Proxy Statement provides details of these proposals.

Shareholders of record at the close of business on January 8, 2001, will be
entitled to notice of and to vote at the meeting, and any adjournment thereof.

YOUR VOTE IS IMPORTANT. All shareholders are invited to attend the meeting.
Whether or not you plan to attend the meeting, please complete the accompanying
proxy and return it promptly in the enclosed return envelope. If you attend the
meeting and you are a shareholder of record, you may vote in person if you wish
even if you have returned your proxy.


                                       By Order of the Board of Directors,



                                       Mark B. Conan
                                       Secretary

Hillsboro, Oregon
January 31, 2001

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[LOGO]

                               [PRELIMINARY COPY]


               PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS

GENERAL

This proxy statement and the enclosed form of proxy are being mailed on or about
January 31, 2001, to shareholders of CenterSpan Communications Corporation, an
Oregon corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at a special meeting of
shareholders to be held on February 22, 2001, at 2:00 p.m. local time, at the
office of the Company, located at 7175 N.W. Evergreen Parkway Suite 400,
Hillsboro, Oregon 97124, and any adjournment thereof (the "Special Meeting").

The mailing address of the Company's principal executive offices is CenterSpan
Communications Corporation, 7175 NW Evergreen Parkway, Suite 400, Hillsboro,
Oregon 97124-5839, and the Company's telephone number is (503) 615-3200.

REVOCABILITY OF PROXIES

A shareholder giving a proxy has the power to revoke that proxy at any time
before it is exercised by filing with the Secretary of the Company an instrument
of revocation, or a duly executed proxy bearing a later date, or by personally
attending and voting at the Special Meeting. Any notice of revocation of
subsequent proxy should be sent to CenterSpan Communications Corporation, 7175
NW Evergreen Parkway, Suite 400, Hillsboro, Oregon 97124-5839, Attention:
Secretary, or hand delivered to the Secretary at or before the taking of the
vote at the Special Meeting.

RECORD DATE AND OUTSTANDING SHARES

Only shareholders of record at the close of business on January 8, 2001 (the
"Record Date"), will be entitled to vote at the meeting. At the close of
business on the Record Date, there were 7,307,851 shares of the Company's Common
Stock ("Common Stock") outstanding.

QUORUM AND VOTING

Each share of Common Stock entitles the holder thereof to one vote. Under Oregon
law, action may be taken on a matter submitted to shareholders only if a quorum
exists with respect to such matter. A majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting, present in person or
represented by proxy, will constitute a quorum.

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<PAGE>

If a quorum is present, action will be approved if the votes cast in favor of
the action exceed the votes cast opposing the action.

Shares represented by a properly executed proxy will be voted in accordance with
the shareholder's instructions if given. If no instructions are given, shares
will be voted "FOR" (a) the sale of up to 714,286 additional shares of the
Company's Common Stock to an investor in a private placement as described
herein, (b) the approval of the increase in the number of shares available
under, and of other amendments to, the 1998 Stock Option Plan, and (c) the
approval and ratification of two option grants previously made by the Company to
an officer outside the 1998 Stock Option Plan, and will be voted in accordance
with the recommendations of management on any other matters properly brought
before the Special Meeting. The Board of Directors knows of no other matters to
be presented for action at the meeting.

Proxies that expressly indicate an abstention as to a particular proposal and
broker non-votes will be counted for purposes of determining whether a quorum
exists at the Special Meeting, but will not be counted for any purposes in
determining whether a proposal is approved. Proxies will be received and
tabulated by ChaseMellon Shareholder Services, the Company's transfer agent.

A complete list of shareholders entitled to vote at the Special Meeting will be
available for inspection by any shareholder for any purpose germane to the
Special Meeting for ten days prior to the Special Meeting during ordinary
business hours at the Company's principal executive offices located at 7175 NW
Evergreen Parkway, Suite 400, Hillsboro, Oregon.

NO APPRAISAL RIGHTS

Under Oregon law, objecting shareholders will have no appraisal, dissenters' or
similar rights (i.e., the right to seek a judicial determination of the "fair
value" of the Company's Common Stock and to compel the Company to purchase their
Common Stock for cash in that amount) with respect to any of the proposals to be
voted upon at the Special Meeting. Approval by the requisite number of shares of
the matters presented at the Special Meeting will bind all shareholders.

SOLICITATION OF PROXIES

This solicitation is being made on behalf of and the cost of soliciting proxies
will be borne by the Company. In addition to solicitation by mail, certain of
the Company's directors, officers, and regular employees may solicit proxies
personally or by telephone or other means without additional compensation.
Brokers, nominees and fiduciaries will be reimbursed in accordance with
customary practice for expenses incurred in obtaining proxies or authorizations
from the beneficial shareholders. Your cooperation in promptly completing,
signing, dating and returning the enclosed proxy card will help avoid additional
expense.

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       PROPOSAL 1: APPROVAL OF SALE OF UP TO 714,286 ADDITIONAL SHARES OF
               COMMON STOCK TO AN INVESTOR IN A PRIVATE PLACEMENT


The Company is seeking the approval of the holders of its Common Stock for the
issuance of up to 714,286 additional shares of the Company's Common Stock to
Peter R. Kellogg (the "Investor") in a private placement (the "Private Placement
Proposal").

BACKGROUND; PRIVATE PLACEMENT

On December 4, 2000, the Company and the Investor entered into a binding letter
of intent (the "Letter of Intent") pursuant to which the Investor agreed to
purchase from the Company in a private placement up to 1,428,572 shares of the
Company's Common Stock at a purchase price of $7.00 per share, or an aggregate
price of up to $10,000,004. The closing price of the Company's Common Stock on
The Nasdaq Stock Market on December 4, 2000 was $8.875. On January __, 2001, the
closing price of the Company's Common Stock on the Nasdaq Stock Market was
$____. On December 18, 2000, the Company and the Investor entered into a
definitive Common Stock Purchase Agreement for the private placement. The Common
Stock Purchase Agreement provides for multiple closings. The first closing
occurred on December 18, 2000 and involved the issuance of 714,286 shares of
Common Stock for an aggregate purchase price of $5,000,002. The subsequent
closings are conditioned upon receipt of shareholder approval of the Private
Placement Proposal as required by applicable rules of the National Association
of Securities Dealers, Inc. ("NASD"). See "Reasons for Shareholder Approval"
below. As a finder's fee in connection with the private placement, the Company
also issued warrants to purchase an aggregate of 85,000 shares of the Company's
Common Stock to designees of the Investor's financial consultant. See "Terms of
the Warrants" below. If the Investor purchases the remaining 714,286 shares of
Common Stock pursuant to the Common Stock Purchase Agreement, the Company will
issue, as a additional finder's fee, additional warrants exercisable for up to
an additional 85,000 shares of its Common Stock. Copies of the Common Stock
Purchase Agreement and the form of warrant are attached as Appendices A and B to
this Proxy Statement.

The private placement pursuant to the Common Stock Purchase Agreement was not
registered under the Securities Act of 1933 in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.

The Investor is not a director or officer of the Company and has no relationship
with the Company other than as a shareholder. The Investor represented in the
Common Stock Purchase Agreement and SEC filings that he is not acquiring the
Common Stock with a view to exerting control of the Company. Based on filings
with the SEC, the Investor held 1,264,886 shares of the Company's Common Stock
as of December 27, 2000, representing 17.3% of the Company's then outstanding
Common Stock. The issuance of 714,286 additional shares to the Investor pursuant
to the Common Stock Purchase Agreement would increase that total to 1,979,172
shares, or ____% of the outstanding Common Stock as of January __, 2001. See
"Security Ownership of Certain Beneficial Owners, Directors and Management"
below in this Proxy Statement for details regarding other significant
shareholders of the Company.

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PRINCIPAL REASONS FOR THE PRIVATE PLACEMENT; USE OF PROCEEDS

The Company undertook the private placement to assist in its acquisition of
assets of Scour, Inc., which operated a digital entertainment Internet portal,
and to provide capital to pursue the Company's growth strategy for its new
digital distribution channel, code named C-star, which the Company intends to
commence in the first quarter of 2001. On December 4, 2000, the Company and the
Investor entered into the Letter of Intent. This commitment strengthened the
Company's ability to compete in the bidding for the Scour assets. On December
12, 2000, the Company was named the successful bidder to purchase substantially
all the assets of Scour pursuant to a sale approved by the bankruptcy court in
Scour's Chapter 11 proceeding. The Company's purchase of the Scour assets closed
on December 19, 2000. The Company paid $5,500,000 cash and 333,333 shares of
Common Stock for the Scour assets. These shares of the Company's Common Stock
were valued at $10.50 per share, the closing price of the Common Stock on
December 12, 2000. At the time the Company entered into the Letter of Intent, it
had approximately $8,200,000 of unrestricted cash, which the Company believed
would have been sufficient to fund its foreseeable needs for its then existing
business. However, the Company believed that, if its bid to acquire the Scour
assets were successful, the Company would require significantly greater cash in
order to exploit the assets and to pursue its growth strategy for its digital
distribution channel.

The exploitation of the Scour assets and the implementation of the Company's
digital distribution channel will require significant additional funds for
increased staffing and organizational expenses, marketing costs, capital
expenditures and other expenses. The Company is an early stage company in a new
market and expects continuing losses for 2001. The Company believes that the net
proceeds from the sale of additional shares of Common Stock to the Investor
under the Common Stock Purchase Agreement, together with existing cash, cash
equivalents and marketable securities will be sufficient to meet its anticipated
needs for working capital and capital expenditures into the first quarter of
2002. However, any projections of future cash needs and cash flows are subject
to substantial uncertainty. If the Company is unable to raise additional capital
pursuant to the Common Stock Purchase Agreement, it will need to seek
alternative sources of financing in order to begin to exploit the assets
acquired from Scour and to pursue its growth strategy for its digital
distribution channel and to continue the Company's operations through the end of
2001.

REASONS FOR SHAREHOLDER APPROVAL

The terms of the Common Stock Purchase Agreement require the Company to use
commercially reasonable efforts to seek the approval of its shareholders for the
issuance of additional shares of Common Stock to the Investor pursuant to that
agreement. Under the Oregon Business Corporation Act, and the Company's articles
of incorporation and bylaws, no action or authorization by the Company's
shareholders is necessary for the issuance of the additional shares of Common
Stock to the Investor as described in the Private Placement Proposal. However,
because the Common Stock is quoted on The Nasdaq Stock Market, the Company is
subject to applicable rules of the NASD. NASD Rule 4350(i)(1) requires the
Company to obtain shareholder approval before issuing Common Stock in specified
circumstances. The Company is seeking shareholder approval of the Private
Placement Proposal to comply with NASD Rule 4350(i)(1).

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POTENTIAL DILUTION TO EXISTING SHAREHOLDERS; EFFECT ON MARKET VALUE OF COMMON
STOCK

The sale of additional shares of Common Stock to the Investor or the exercise of
the related warrants would cause dilution to the voting power and interests of
current shareholders and to the earnings per share of the Company. In addition,
the sale of a significant number of shares of Common Stock in the open market
could cause a decline in the market value of the Common Stock. The shares of
stock issued in the private placement, including any shares issued upon exercise
of the warrants, are subject to restrictions on resale under Rule 144 of the
Securities Act of 1933. However, the Company has agreed with the Investor and
the holders of the warrants to register, under the Securities Act prior to June
16, 2001, the shares of Common Stock issued to the Investor and issuable upon
exercise of the warrants. The Company has agreed to use commercially reasonable
efforts to cause such registration to remain effective for two years and has
also granted "piggy-back" registration rights to the Investor and the holders of
the warrants. Upon registration, such shares would be freely tradable under the
Securities Act of 1933.

CONSEQUENCES IF THE PRIVATE PLACEMENT PROPOSAL IS NOT APPROVED

If the Private Placement Proposal is not approved by the Company's shareholders,
the Company will not issue to the Investor 714,286 shares of its Common Stock
and the Company will not receive $5,000,002 of proceeds. In addition, the
Company would not issue additional warrants as a finder's fee in connection with
the private placement. Without the private placement proceeds, the Company will
need to seek alternative sources of financing to begin to exploit the assets
acquired from Scour and to pursue its growth strategy for its digital
distribution channel and to continue the Company's operations through the end of
2001. Additional funds may not be available to the Company or on terms favorable
to the Company. The inability of the Company to raise sufficient additional
funds could have a material adverse effect on the Company's business, financial
condition and results of operations.

TERMS OF THE WARRANTS

The warrants were issued to five designees of the Investor's financial
consultant as a finder's fee in connection with the private placement. The
exercise price for the warrants is $9.063 per share, the closing price of the
Common Stock on December 5, 2000. The warrants are exercisable until the earlier
of December 18, 2005, and the closing of a corporate transaction involving the
Company (i.e. the sale or other disposition of all of substantially all the
Company's assets or the merger, consolidation or similar transaction in which
the Company's shareholders prior to the transaction own less than 50% of the
capital stock of the resulting entity after the transaction). The holders of the
warrants have registration rights with respect to the shares of Common Stock
issuable upon exercise of the warrants as described above under "Potential
Dilution to Existing Shareholders; Effect on Market Value of Common Stock."

          THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
                                      "FOR"
                 THE APPROVAL OF THE PRIVATE PLACEMENT PROPOSAL

                                       5
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       PROPOSAL 2: APPROVAL OF INCREASE IN THE NUMBER OF SHARES AVAILABLE
         UNDER, AND OF OTHER AMENDMENTS TO, THE 1998 STOCK OPTION PLAN

In order for the Company to continue to attract and retain key personnel, the
Board of Directors has approved (a) an increase in the number of shares of
Common Stock authorized under the Company's 1998 Stock Plan (as amended, the
"Plan") by an additional 1,000,000 shares, (b) an increase to 150,000 from
100,000 in the number of shares subject to options under the Plan which may be
granted to any individual in the aggregate in any one fiscal year, (c) an
increase to 250,000 from 150,000 in the number of shares the Company may grant
to newly hired employees, in addition to the annual limit in clause (b) above,
and (d) the Company's ability to grant up to 250,000 shares to employees in
connection with their promotion, in addition to the annual limit in clause (b)
above.

The Plan is summarized below.

GENERAL

The Company's shareholders approved the Plan in 1998 and amendments to the Plan
at the 1999 Annual Meeting of Shareholders. The purpose of the 1998 Plan is to
enhance the long-term shareholder value of the Company by offering opportunities
to employees (and persons offered employment), directors, officers, consultants,
agents, advisors and independent contractors of the Company to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its subsidiaries and to acquire and maintain stock ownership
in the Company. The 1998 Plan is administered by the Compensation Committee of
the Board of Directors.

ELIGIBILITY

As of January 8, 2001, the persons eligible to participate in the 1998 Plan
included four officers, six non-employee directors and approximately 49
employees of the Company. Under the 1998 Plan, options to purchase 685,000
shares of Common Stock were granted at an average exercise price of $18.98 per
share during the year ended December 31, 2000. As a result of employee
terminations and directors resignations, options to purchase 210,500 shares of
the Company's Common Stock were canceled during 2000 at an average price of
$16.50. As of January 8, 2001, options to purchase 1,269,828 shares of Common
Stock were outstanding at an average exercise price of $14.92 per share,
1,386,805 shares of Common Stock had been issued upon exercise of options and
443,367 shares of Common Stock were available for future grants under the 1998
Plan. Subject to approval by the shareholders at the Special Meeting, the number
of shares available for future grants will be increased by 1,000,000.

STOCK SUBJECT TO THE 1998 PLAN

Subject to adjustment from time to time as provided in the 1998 Plan, the
maximum number of shares of Common Stock available for issuance under the 1998
Plan is equal to the sum of: (a) 1,000,000 shares of Common Stock; (b) any
shares of Common Stock available for future awards under (i) the Company's 1994
Stock Incentive Plan and (ii) the Company's Directors' Stock Incentive Plan; and
(c) any shares of Common Stock that are represented by awards granted under the
Company's 1994 Stock Incentive Plan or the Company's Directors' Stock Incentive
Plan that are forfeited, expire or are canceled without delivery of

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shares of Common Stock or which result in the forfeiture of shares of Common
Stock back to the Company. At January 8, 2001, the sum of (a), (b) and (c)
totaled 3,100,000. Subject to shareholder approval at the Special Meeting, the
total number of shares authorized will be increased by 1,000,000.

Subject to adjustment from time to time as provided in the 1998 Plan, no more
than 100,000 shares of Common Stock may be subject to aggregate awards under the
1998 Plan to any participant in any one year, except that the Company may make
additional one-time grants of up to 150,000 shares to newly hired individuals,
such limitation to be applied consistently with the requirements of, and only to
the extent required for compliance with, certain provisions of Section 162(m) of
the Internal Revenue Code of 1986, as amended, which precludes the Company from
taking a tax deduction for compensation payments to executives in excess of $1.0
million, unless such payments qualify for the "performance-based" exemption from
the $1.0 million limitation. Subject to shareholder approval at the Special
Meeting, such annual limit will be increased from 100,000 to 150,000 and such
one-time grant exception will be increased from 150,000 to 250,000 and will
apply to promotions as well as new hirings.

Any shares of Common Stock that cease to be subject to an option will be
available for issuance in connection with future grants under the 1998 Plan.
Options also may be granted in replacement of, or as alternatives to, grants or
rights under any other employee or compensation plan or in substitution for, or
by the assumption of, awards issued under plans of an acquired entity.

ELIGIBILITY TO RECEIVE OPTIONS

Options may be granted under the 1998 Plan to those officers, directors and
employees of the Company and its subsidiaries as the plan administrator from
time to time selects. Options may also be granted to consultants, agents,
advisors and independent contractors who provide services to the Company and its
subsidiaries.

TERMS AND CONDITIONS OF STOCK OPTION GRANTS

Options granted under the 1998 Plan may be Incentive Stock Options ("ISOs") or
Non-Statutory Stock Options ("NSOs"). The per share exercise price for each
option granted under the 1998 Plan will be determined by the plan administrator,
but will be not less than 100% of the fair market value of a share of Common
Stock on the date of grant with respect to ISOs. For purposes of the 1998 Plan,
"fair market value" means the closing price for a share of Common Stock as
reported by the Nasdaq National Market for a single trading day.

The exercise price for shares purchased under options may be paid in cash or by
check or, unless the plan administrator at any time determines otherwise, a
combination of cash, check, shares of Common Stock which have been held for at
least six months, delivery of a properly executed exercise notice together with
certain irrevocable instructions to a broker, or such other consideration as the
plan administrator may permit. The Company may require the optionee to pay to
the Company any applicable withholding taxes that the Company is required to
withhold with respect to the grant or exercise of any award. The withholding tax
may be paid in cash or, subject to applicable law, the plan administrator may
permit the optionee to satisfy such obligations by the withholding or delivery
of shares of Common Stock. The Company may withhold from any shares of Common
Stock issuable pursuant to an option or from any cash amounts otherwise due from
the Company to the recipient of the

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<PAGE>

award an amount equal to such taxes. The Company may also deduct from any option
any other amounts due from the recipient to the Company or any of its
subsidiaries.

The option term is fixed by the plan administrator, and each option is
exercisable pursuant to a vesting schedule determined by the plan administrator.
If the vesting schedule is not set forth in the instrument evidencing the
option, the option will become exercisable in four equal annual installments
beginning one year after the date of grant. The plan administrator also
determines the circumstances under which an option will be exercisable in the
event the optionee ceases to be employed by, or to provide services to, the
Company or one of its subsidiaries. If not so established, options generally
will be exercisable for one year after termination of services as a result of
retirement, early retirement at the Company's request, disability or death and
for three months after all other terminations. An option automatically
terminates if the optionee's services are terminated for cause, as defined in
the 1998 Plan.

TRANSFERABILITY

No option is assignable or otherwise transferable by the holder other than by
will or the laws of descent and distribution and, during the holder's lifetime,
may be exercised only by the holder, unless the plan administrator determines
otherwise in its sole discretion, and except to the extent permitted by Section
422 of the Code.

FEDERAL TAX EFFECTS OF ISOS

The Company intends that ISOs granted under the 1998 Plan will qualify as ISOs
under Section 422 of the Code. An optionee acquiring stock pursuant to an ISO
receives favorable tax treatment in that the optionee does not recognize any
taxable income at the time of the grant of the ISO or upon exercise. The tax
treatment of the disposition of ISO stock depends upon whether the stock is
disposed of within the holding period, which is the later of two years from the
date the ISO is granted or one year from the date the ISO is exercised. If the
optionee disposes of ISO stock after completion of the holding period, the
optionee will recognize as capital gains income the difference between the
amount received in such disposition and the basis in the ISO stock, i.e. the
option's exercise price. If the optionee disposes of ISO stock before the
holding period expires, it is considered a disqualifying disposition and the
optionee must recognize the gain on the disposition as ordinary income in the
year of the disqualifying disposition. Generally, the gain is equal to the
difference between the option's exercise price and the stock's fair market value
at the time the related stock is sold. While the exercise of an ISO does not
result in taxable income, there are implications with regard to the alternative
minimum tax ("AMT"). When calculating income for AMT purposes, the favorable tax
treatment granted ISOs is disregarded and the difference between the option
exercise price and the fair market value of the related Common Stock on the date
of exercise (the "bargain purchase element") will be considered as part of AMT
income. Just as the optionee does not recognize any taxable income on the grant
or exercise of an ISO, the Company is not entitled to a deduction on the grant
or exercise of an ISO. Upon a disqualifying disposition of ISO stock, the
Company may deduct from taxable income in the year of the disqualifying
disposition an amount generally equal to the amount that the optionee recognizes
as ordinary income due to the disqualifying disposition. In general capital
gains will be taxed at a rate of 28 percent, but if the shares are held for at
least 18 months, the rate of taxation is 20 percent.

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<PAGE>

FEDERAL TAX EFFECTS OF NSOS

If an option does not meet the statutory requirements of Section 422 of the Code
and therefore does not qualify as an ISO, the difference, if any, between the
option's exercise price and the fair market value of the stock on the date the
option is exercised is considered compensation and is taxable as ordinary income
to the optionee in the year the option is exercised, and is deductible by the
Company for federal income tax purposes in such year.

THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS DOES
NOT PURPORT TO BE COMPLETE, NOR DOES IT DISCUSS THE PROVISIONS OF THE INCOME TAX
LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE OPTIONEE RESIDES.

CORPORATE TRANSACTIONS

In the event of certain mergers, consolidations, sales or transfers of
substantially all the assets of the Company or a liquidation of the Company,
each option that is at the time outstanding will automatically accelerate so
that each such option becomes, immediately prior to such corporate transaction,
100% vested, unless, in the opinion of the Company's accountants, such
acceleration would render unavailable pooling-of-interests accounting for the
corporate transaction, and except that such option will not so accelerate if and
to the extent such option is, in connection with the corporate transaction,
either to be assumed by the successor corporation or parent thereof or to be
replaced with a comparable award for the purchase of shares of the capital stock
of the successor corporation. Any such options granted to an "executive officer"
(as defined for purposes of Section 16 of the Exchange Act) of the Company that
are assumed or replaced in the corporate transaction and do not otherwise
accelerate at that time shall be accelerated in the event such holder's
employment or services shall subsequently terminate within two years following
such corporate transaction, unless such employment or services are terminated by
the successor corporation or parent thereof for cause or by the holder
voluntarily without good reason.

FURTHER ADJUSTMENT OF OPTIONS

The plan administrator shall have the discretion, exercisable at any time before
a sale, merger, consolidation, reorganization, liquidation or change in control
of the Company, as defined by the plan administrator, to take such further
action as it determines to be necessary or advisable, and fair and equitable to
holders, with respect to options. Such authorized action may include (but is not
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, options so as to provide for earlier, later,
extended or additional time for exercise or settlement and other modifications,
and the plan administrator may take such actions with respect to all holders, to
certain categories of holders or only to individual holders. The plan
administrator may take such actions before or after granting options to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.

AMENDMENT AND TERMINATION

The 1998 Plan may be suspended or terminated by the Board of Directors at any
time. The Board may amend the 1998 Plan, as it deems advisable, subject to
shareholder approval in certain instances, as set forth in the 1998 Plan. If not
earlier terminated, the 1998 Plan terminates ten years after the date the 1998
Plan was adopted by the Board of Directors.

                                       9
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NEW PLAN BENEFITS

The following options were granted under the 1998 Plan during 2000:

<TABLE>
<CAPTION>
                    Name and Position                                      Number of Options (A)
                    -----------------                                      ---------------------
<S>                                                                        <C>
Frank G. Hausmann, Chairman and Chief Executive Officer                          20,000
Steve G. Frison, Senior Vice President of Product
   Development & Chief Technology Officer                                       200,000
Mark B. Conan, Vice President of Finance, Administration &
   Chief Financial Officer                                                           --
David A. McFeeters-Krone, Vice President of Strategic Alliances                  20,000
Robert B. Smart, Former Vice President, Marketing
   and Business Development                                                      20,000
Lee E. Mikles, Director                                                         100,000
Frederick M. Stevens, Director                                                   10,000
David Billstrom, Director                                                        10,000
Jerome J. Meyer, Director                                                        10,000
G. Gerald Pratt, Director                                                        10,000
General Merrill A. McPeak, Director                                              10,000
All Current Executive Officers as a Group (4 people)                            240,000
All Current Non-Executive Officer Directors
   as a Group (6 people)                                                        150,000
All Non-Executive Officer Employees as a Group (49 people)                      210,500

</TABLE>

(A)  Options to purchase shares of the Company's Common Stock, totaling 600,500
     shares, have been granted to the Named Executive Officers and described
     groups through January 8, 2001. Such options were granted at an exercise
     price per share that is equal to the fair market value of the Company's
     Common Stock on the date of grant. The average per share exercise price of
     all option grants included in the above table is $18.75. The options
     granted shall become exercisable over a four-year period and expire ten
     years from the date of grant. Option grants under the 1998 Stock Option
     Plan are discretionary and therefore grants for the remainder of 2000 or
     thereafter cannot be determined.



          THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
                                     "FOR"
         THE APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES AVAILABLE
       UNDER, AND OF THE OTHER AMENDMENTS TO, THE 1998 STOCK OPTION PLAN

                                       10
<PAGE>

       PROPOSAL 3: APPROVAL AND RATIFICATION OF PRIOR STOCK OPTION GRANTS


The Company is seeking shareholder approval and ratification of two stock option
grants made by the Company in 1998 and 1999 to Frank G. Hausmann, the Company's
Chairman and Chief Executive Officer (the "Option Grant Proposal").

BACKGROUND

In July 1998, the Company granted to Mr. Hausmann, in connection with his
hiring as the Company's Chief Financial Officer, options to purchase
80,000 shares of the Company's Common Stock with an exercise price of $3.50
per share, the fair market value of the Company's Common Stock on the grant
date.  In connection with Mr. Hausmann's appointment as the Company's
President and Chief Executive Officer, the Company granted to him in October
1998 options to purchase 110,000 shares of the Company's Common Stock with an
exercise price of $2.75 per share, the fair market value of the Common Stock
on the grant date.  All these options are fully vested and expire 10 years
after the respective grant date.  In each of August and October 1999, the
Company granted to Mr. Hausmann options to purchase 50,000 shares of Common
Stock at exercise prices of $16.00 and $15.00, respectively, the fair market
values of the Common Stock on the grant dates.  These options vest at an
annual rate of 25% and expire 10 years after the respective grant date.  When
the grants described above were made, the Company's 1998 Stock Option Plan
(the "Plan") limited annual option grants to Plan participants to 50,000
shares, except that the Company could make additional one-time grants of up
to 100,000 shares to newly hired individuals.  Such limits currently are
100,000 and 150,000 shares, respectively, and, subject to shareholder
approval of Proposal 2, will be increased to 150,000 and 250,000.

REASONS FOR SHAREHOLDER APPROVAL

Options covering 60,000 shares subject to the October 1998 grant and all
options subject to the October 1999 grant (the "Subject Options") exceeded
the then applicable Plan limits for annual grants and are deemed granted
outside of the Plan.  Nasdaq listing requirements generally require either
shareholder approval of the plan under which options are granted or of the
options themselves.

CONSEQUENCES IF THE OPTION GRANT PROPOSAL IS NOT APPROVED

If the Company's shareholders do not approve the Option Grant Proposal, the
Company will be in violation of Nasdaq listing requirements and Nasdaq could
take action against the Company, including instituting delisting proceedings.

OTHER MATERIAL TERMS OF THE SUBJECT OPTIONS

EXERCISE. The exercise price for shares purchased under the Subject Options
may be paid in cash or by check or, unless the Company's Board of Directors
at any time determines otherwise, a combination of cash, check, shares of
Common Stock which have been held for at least six months, delivery of a
properly executed exercise notice together with certain irrevocable
instructions to a broker, or such other consideration as the Board of
Directors may permit. The Company may require Mr. Hausmann to pay to the
Company any applicable withholding taxes that the Company is required to
withhold with respect to the

                                       11
<PAGE>

grant or exercise of the options. The withholding tax may be paid in cash or,
subject to applicable law, the Board of Directors may permit Mr. Hausmann to
satisfy such obligations by the withholding or delivery of shares of Common
Stock. The Company may withhold from any shares of Common Stock issuable
pursuant to a Subject Option or from any cash amounts otherwise due from the
Company to Mr. Hausmann an amount equal to such taxes. The Company may also
deduct from any option any other amounts due from Mr. Hausmann to the Company or
any of its subsidiaries.

The options generally will be exercisable for one year after termination of Mr.
Hausmann's services to the Company as a result of retirement, early retirement
at the Company's request, disability or death and for three months after all
other terminations. The options automatically terminate if Mr. Hausmann's
services are terminated for cause.

The fair market value of the Subject Options as of January __, 2001, based on
the difference between the exercise prices of the options and the closing price
per share of the Company's Common Stock on that date, was $_______ and
$________, respectively.

TRANSFERABILITY. No Subject Option is assignable or otherwise transferable by
Mr. Hausmann other than by will or the laws of descent and distribution and,
during his lifetime, may be exercised only by him, unless the Board of Directors
determines otherwise in its sole discretion.

FEDERAL TAX EFFECTS. The Subject Options are not ISOs. Accordingly, the
difference, if any, between the option's exercise price and the fair market
value of the Company's Common Stock on the date the option is exercised is
considered compensation and is taxable as ordinary income to Mr. Hausmann in the
year the option is exercised, and is deductible by the Company for federal
income tax purposes in such year. The options are subject to certain provisions
of Section 162(m) of the Internal Revenue Code of 1986, as amended, which
preclude the Company from taking a tax deduction for compensation payments to
executives in excess of $1.0 million, unless such payments qualify for the
"performance-based" exemption from the $1.0 million limitation

THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS DOES
NOT PURPORT TO BE COMPLETE, NOR DOES IT DISCUSS THE PROVISIONS OF THE INCOME TAX
LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE OPTIONEE RESIDES.

                                       12
<PAGE>

CORPORATE TRANSACTIONS. In the event of certain mergers, consolidations, sales
or transfers of substantially all the assets of the Company or a liquidation of
the Company, each Subject Option that is at the time outstanding will
automatically accelerate so that each such option becomes, immediately prior to
such corporate transaction, 100% vested, unless, in the opinion of the Company's
accountants, such acceleration would render unavailable pooling-of-interests
accounting for the corporate transaction, and except that such option will not
so accelerate if and to the extent such option is, in connection with the
corporate transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable award for the purchase of
shares of the capital stock of the successor corporation. If the Subject Options
are assumed or replaced in the corporate transaction and do not otherwise
accelerate at that time, they will be accelerated in the event Mr. Hausmann's
employment or services shall subsequently terminate within two years following
such corporate transaction, unless such employment or services are terminated by
the successor corporation or parent thereof for cause or by Mr. Hausmann
voluntarily without good reason.

FURTHER ADJUSTMENT OF OPTIONS. The Board of Directors has the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, to take such further action as
it determines to be necessary or advisable, and fair and equitable to holders,
with respect to the Subject Options. Such authorized action may include (but is
not limited to) establishing, amending or waiving the terms, conditions or
duration of, or restrictions on, the options so as to provide for earlier,
later, extended or additional time for exercise or settlement and other
modifications. The Board of Directors may take such actions before or after any
public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.

          THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
                                      "FOR"
                   THE APPROVAL OF THE OPTION GRANT PROPOSAL


                                       13
<PAGE>

    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership as of January 8, 2001 of the Company's Common Stock by (a) each
shareholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (b) each director of the Company, (c) each Named
Executive Officer (as defined below) and (d) all directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares.

<TABLE>
<CAPTION>
                                                                COMMON STOCK (2)
                                                        ------------------------------
                                                        NUMBER OF    PERCENT OF SHARES
 SHAREHOLDER (1)                                          SHARES       OUTSTANDING
 -------------------------------------------            ---------    -----------------
<S>                                                    <C>           <C>
 Peter R. Kellog (3)                                    1,264,886         17.3%

 Sawtooth Capital Management, Inc. (4)                    644,175          8.8%

 G. Gerald Pratt (5)                                      438,881          6.0%

 Frank G. Hausmann (6)                                    257,500          3.4%

 Frederick M. Stevens (7)                                  43,208            *

 General Merrill A. McPeak (8)                             34,350            *

 Steven G. Frison (9)                                      31,250            *

 David A. McFeeters-Krone (10)                             27,500            *

 Mark B. Conan (11)                                        25,000            *

 Jerome J. Meyer (12)                                      18,000            *

 David Billstrom (13)                                      15,000            *

 Robert B. Smart (14)                                      11,750            *

 Lee E. Mikles (15)                                             0            *

 All executive officers and directors as a
   group (10 persons) (16)                                890,689         11.4%

</TABLE>

-------------------
*    Less than 1%

                                       14
<PAGE>

(1)  Unless otherwise indicated, the address of each beneficial owner identified
     is CenterSpan Communications Corporation, 7175 NW Evergreen Parkway, Suite
     400, Hillsboro, Oregon 97124.

(2)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission. For purposes of this table, a person is
     deemed to be the beneficial owner of securities that (i) can be acquired by
     such person within 60 days upon the exercise of options or warrants and
     (ii) are held by such person's spouse or other immediate family member
     sharing such person's household. Each beneficial owner's percentage
     ownership is determined by assuming that options held by such person (but
     not those held by any other person), that are exercisable within 60 days
     after January 8, 2001, have been exercised.

(3)  The following information is obtained from Form 13D filed by Mr. Kellogg.
     Mr. Kellogg's address is c/o Spear, Leeds & Kellogg, 120 Broadway, New
     York, NY 10271.

(4)  The following information is obtained from Form 13G filed by Sawtooth
     Capital Management, Inc. Includes 495,028 shares owned by Sawtooth
     Partners, L.P. Sawtooth Capital Management, Inc. is a registered investment
     advisor whose clients, including Sawtooth Partners, L.P., have the right to
     receive or the power to direct the receipt of dividends from, or the
     proceeds from the sale of, shares of Common Stock. No person, other than
     Sawtooth Partners, L.P., holds more than five percent of the shares
     beneficially owned by Sawtooth Capital Management, Inc. Sawtooth Capital
     Management, L.P. is the sole general partner of Sawtooth Partners, L.P.
     Sawtooth Capital Management, Inc. is the sole general partner of Sawtooth
     Capital Management, L.P., and Bartley B. Blout is the controlling
     shareholder of Sawtooth Capital Management, Inc. The address for all of
     these persons is 100 Wilshire Blvd., 15th Floor, Santa Monica, CA 90401.

(5)  Includes 38,470 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 47,250 shares subject to options exercisable more
     than 60 days after January 8, 2001.

(6)  Includes 257,500 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 117,500 shares subject to options exercisable
     more than 60 days after January 8, 2001.

(7)  Includes 4,738 shares beneficially owned with spouse and 38,470 shares
     subject to options exercisable within 60 days after January 8, 2001.
     Excludes 47,250 shares subject to options exercisable more than 60 days
     after January 8, 2001.

(8)  Includes 34,350 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 48,750 shares subject to options exercisable more
     than 60 days after January 8, 2001.

(9)  Includes 31,250 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 313,750 shares subject to options exercisable
     more than 60 days after January 8, 2001.

(10) Includes 27,500 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 137,500 shares subject to options exercisable
     more than 60 days after January 8, 2001.

(11) Includes 25,000 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 125,000 shares subject to options exercisable
     more than 60 days after January 8, 2001.

(12) Includes 15,000 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 75,000 shares subject to options exercisable more
     than 60 days after January 8, 2001.

(13) Includes 15,000 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 75,000 shares subject to options exercisable more
     than 60 days after January 8, 2001.

(14) Includes 11,750 shares subject to options exercisable within 60 days after
     January 8, 2001.

(15) Excludes 125,000 shares subject to options exercisable more than 60 days
     after January 8, 2001.

                                       15
<PAGE>

(16) Includes 482,540 shares subject to options exercisable within 60 days after
     January 8, 2001. Excludes 1,112,000 shares subject to options exercisable
     more than 60 days after January 8, 2001.


                                       16
<PAGE>

                             EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company for 2000 to
the Company's Chief Executive Officer and the other executive officers of the
Company who earned more than $100,000 during 2000 (collectively, the "Named
Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                     Long-Term
                                                                                                   Compensation
                                                               Annual Compensation                     Awards
                                                  -------------------------------------------      ------------
                                                                                    Other
                                                                                    Annual          Securities    All Other
                                                                                    Compen-         Underlying     Compen-
Name and Principal Position          Year          Salary          Bonus (1)       sation (2)       Options (4)    sation
------------------------------       ----         --------         ---------       ----------       -----------   ---------
<S>                                  <C>          <C>              <C>             <C>             <C>            <C>
Frank G. Hausmann (3)                2000         $230,000         $   --           $  1,869           85,000       $ --
Chairman and CEO                     1999          199,500          140,000            1,680          100,000         --
                                     1998           82,150           25,000             --            190,000         --

Steven G. Frison (5)                 2000          186,667             --              2,350          345,000
Senior Vice President of             1999             --               --               --               --           --
Product Development & CTO            1998             --               --               --               --           --

Mark B. Conan (6)                    2000          150,000             --              2,250           50,000
Vice President of Finance,           1999           22,500           12,500             --            100,000         --
Administration & Chief               1998             --               --               --               --           --
Financial Officer

David A. McFeeters-Krone (7)         2000          120,000             --              1,864           75,000
Vice President of Strategic          1999           61,700           25,000             --             90,000         --
Alliance                             1998             --               --               --               --           --

Robert B. Smart (8)                  2000          111,029             --               --             20,000         --
Former Vice President,               1999          106,263           33,000             --             90,000         --
Marketing and Business               1998             --               --               --               --           --
Development

</TABLE>

(1)  Bonuses are based on the Company's performance and individual
     accomplishment for the year; bonus amounts have not yet been determined for
     2000 at this time.

(2)  Other annual compensation represents the Company's matching contributions
     under its 401(k) plan.

(3)  Mr. Hausmann's 1998 salary represents amounts earned since joining the
     Company in July 1998 through December 1998.

(4)  Includes 80,000 replacement options granted upon surrender of options
     previously granted. Surrendered options had an exercise price of $7.00 per
     share.

(5)  Mr. Frison's 2000 salary represents amounts earned since joining the
     Company in February 2000 through December 2000.

(6)  Mr. Conan's 1999 salary represents amounts earned since joining the Company
     in November 1999 through December 1999.

(7)  Mr. McFeeters-Krone's 1999 salary represents amounts earned since joining
     the Company in June 1999 through December 1999.

(8)  Mr. Smart's 1999 salary represents amounts earned since joining the Company
     in January 1999, his employment with the Company terminated as of October
     2000.

                                       17
<PAGE>

OPTION GRANTS

The following table sets forth information with respect to grants of stock
options to the Named Executive Officers during 2000.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                                    Potential
                                                                                                Realizable Value
                                                                                               At Assumed Annual
                                                                                              Rates of Stock Price
                                                                                                Appreciation for
                                                 Individual Grants                               Option Term (3)
                             ----------------------------------------------------------     -------------------------
                              Number of       % of Total
                             Securities        Options
                             Underlying       Granted to       Exercise
                               Options       Employees in        Price       Expiration
          Name               Granted (1)     Fiscal Year      ($/Sh.)(2)        Date            5%             10%
------------------------     -----------     ------------     ----------     ----------     ----------     ----------
<S>                          <C>             <C>              <C>            <C>            <C>            <C>
Frank G. Hausmann               20,000            1.8%        $ 23.875        02/03/10      $  300,297     $  761,012
                                65,000            6.0            8.313        12/06/10         339,820        861,171

Steve G. Frison                125,000           11.5           26.000        02/11/10       2,043,908      5,179,663
                                75,000            6.9           14.250        05/31/10         672,131      1,703,312
                                25,000            2.3            9.875        09/27/10         155,258        393,455
                               120,000           11.0            8.313        12/06/10         627,360      1,589,854

Mark B. Conan                   50,000            4.6            8.313        12/06/10         261,400        662,439

David A. McFeeters-Krone        20,000            1.8           23.875        02/03/10         300,297        761,012
                                55,000            5.0            8.313        12/06/10         287,540        728,683

Robert B. Smart                 20,000            1.8           23.875        02/03/10         300,297        761,012

</TABLE>

(1)  Options granted during 2000 vest in one of two ways, they become
     exercisable as to 25% of the total amount on each of the first through
     fourth anniversaries of the grant date or they become exercisable as to 1/6
     in six months and 1/36 each month thereafter of the total amount through
     three years of the grant date.

(2)  Based on the closing prices of the Common Stock as reported on The Nasdaq
     National Market on the respective grant dates.

(3)  This column shows the hypothetical gains or option spreads of the options
     granted based on assumed annual compound stock appreciation rates of 5% and
     10% over the full 10-year term of the options. The assumed rates of
     appreciation are mandated by the rules of the Securities and Exchange
     Commission and do not represent the Company's estimate or projection of
     future Common Stock prices.

OPTION EXERCISES AND HOLDINGS

The following table provides information concerning unexercised options held at
December 31, 2000 by the Named Executive Officers.

                                       18
<PAGE>

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                Number of
                                                          Securities Underlying
                                                               Unexercised           Value of Unexercised
                                Shares                           Options             In-The-Money Options
                               Acquired        Value           At FY-End (#)           At FY-End ($) (1)
                              On Exercise     Realized          Exercisable/             Exercisable/
          Name                   (#)            ($)           Unexercisable              Unexercisable
-------------------------     -----------     --------    ---------------------     -----------------------
<S>                           <C>             <C>          <C>                      <C>
Frank G. Hausmann                 --           $   --        252,500 / 122,500       $1,543,220 / $ 186,875
Steve G. Frison                   --               --             -- / 345,000               -- /   377,825
Mark B. Conan                     --               --         25,000 / 125,000               -- /   143,750
David A. McFeeters-Krone          --               --         22,500 / 142,500               -- /   158,125
Robert B. Smart                   --               --         16,250 /      --            9,149 /        --

</TABLE>

(1)  Calculated based on the difference between the market value of the
     underlying securities at December 29, 2000, $11.188 per share, and the
     exercise price of the unexercised options. The potential values have not
     been, and may never be, realized. The underlying options have not been, and
     may never be, exercised. Actual gains, if any, on exercise will depend on
     the value of the Common Stock on the date of exercise.


                            COMPENSATION OF DIRECTORS

During 2000, each non-employee director received an annual fee of $5,000 and
$1,000 for each Board and committee meeting attended (unless the committee
meeting was held on the same day as a Board meeting) and $500 for each Board and
committee meeting attended via telephone. In 2000, each non-employee director
who had been a director as of January 1, 2000 received options to purchase
10,000 shares of Common Stock and each new non-employee director received
options to purchase 50,000 shares of Common Stock at a price equal to the fair
market value on the date of grant. In addition, in 2000 each such non-employee
director was granted under the Company's Nonqualifying Stock Option Plan options
to purchase between 21,000 to 30,000 shares of the Company's Common Stock at an
exercise price of $8.313, the fair market value of the Company's Common Stock on
the grant date. No employee director receives additional compensation for his or
her service as a director.


           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during 2000 were Messrs. Stevens and
Billstrom and General McPeak, all independent, non-employee directors. No
executive officer of the Company serves as a member of the Compensation
Committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.


                          DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value. The following summary describes certain provisions of the Company's
Articles of Incorporation, as amended, and Amended and Restated Bylaws and of
applicable law relating to the Common Stock and Preferred Stock. The summary
does not purport to be complete and is subject, and qualified in its entirety
by, the complete provisions of the Company's Articles of Incorporation, as
amended, and Amended and Restated Bylaws and by provisions of applicable law.

                                       19
<PAGE>

COMMON STOCK

As of January __, 2001, there were _____ shares of Common Stock outstanding held
of record by approximately ___ shareholders. The holders of Common Stock are
entitled to receive dividends as may from time to time be declared by the Board
of Directors out of funds legally available therefor and to one vote per share
on all matters on which the holders of Common Stock are entitled to vote.
Holders of Common Stock do not have any cumulative voting rights or preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share equally and ratably in the Company's assets, if any, remaining after
the payment of all liabilities of the Company and the liquidation preference of
any outstanding class or series of Preferred Stock. The outstanding shares of
Common Stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to those of any series of
Preferred Stock that the Company's Board of Directors may issue in the future,
as described below. The Common Stock is traded on the Nasdaq National Market
under the trading symbol "CSCC."

PREFERRED STOCK

The Company has no current plan to issue Preferred Stock. The Company is
authorized to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the number of shares constituting any such series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights, preemption rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the Company's
shareholders. The issuance of Preferred Stock by the Board of Directors could
adversely affect the rights of holders of Common Stock. The potential issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock, and may adversely affect the
market price of, and the voting and other rights of the holders of, the Common
Stock.

ANTI-TAKEOVER EFFECTS OF OREGON LAW AND THE COMPANY'S AMENDED AND RESTATED
BYLAWS OREGON CONTROL SHARE ACT

The Company is subject to certain provisions of the Oregon Business Corporation
Act (the "Act") that in certain circumstances restrict the ability of
significant shareholders from exercising voting rights (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
that results in the Acquiring Person's holding more than 20%, 33- 1/3% or 50% of
the total voting power of the corporation (a "Control Share Acquisition") cannot
vote the shares the Acquiring Person acquires in the Control Share Acquisition
("control shares") unless voting rights are accorded to the control shares by
(a) a majority of each voting group entitled to vote and (b) the holders of a
majority of the outstanding voting shares, excluding the control shares held by
the Acquiring Person and shares held by the corporation's officers and inside
directors. The term "Acquiring Person" is broadly defined to include persons
acting as a group. The Acquiring Person may, but is not required to, submit to
the corporation a statement setting forth certain information about the
Acquiring Person and its plans with respect to the corporation. The statement
may also request that the corporation call a special meeting of shareholders to
determine whether voting rights will be accorded to

                                       20
<PAGE>

the control shares. If the Acquiring Person does not request a special meeting
of shareholders, the issue of the control shares' voting rights will be
considered at the next annual or special meeting of shareholders. If the
Acquiring Person's control shares are accorded voting rights and represent a
majority of all voting power, shareholders who do not vote in favor of voting
rights for the control shares will have the right to receive the appraised "fair
value" of their shares, which may not be less than the highest price paid per
share by the Acquiring Person for the control shares.

The Company is also subject to certain provisions of the Act that govern
business combinations between corporations and interested shareholders, that
generally provide that if a person or entity acquires 15% or more of the voting
stock of an Oregon corporation (an "Interested Shareholder"), the corporation
and the Interested Shareholder, or any affiliated entity of the Interested
Shareholder, may not engage in certain business combination transactions for
three years following the date the person or entity became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (1) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and by certain employee benefit plans), (2) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (3) the board of directors and the holders of at least 66- 2/3% of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.

CLASSIFIED BOARD OF DIRECTORS

The Company's Amended and Restated Bylaws provide for the Company's Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. At each annual meeting of the Company's shareholders,
directors are elected to succeed the directors in the class whose terms are then
expiring. Classification of the Board of Directors is intended to decrease the
likelihood of precipitous changes in the composition of the Board of Directors
and its powers, and thereby to moderate changes in the Company's policies and
direction that the Board of Directors does not deem to be in the best interests
of the shareholders. Classification may also have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the shareholders, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock, may adversely affect the
market price of the Common Stock and could have the effect of discouraging
certain attempts to acquire the Company or remove incumbent management,
including incumbent members of the Company's Board of Directors, even if some or
a majority of the Company's shareholders deemed such actions to be in their best
interests.


                  SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING

Shareholder proposals to be presented at the 2001 Annual Meeting of Shareholders
must have been received at the Company's principal executive offices no later
than December 18, 2000, in order to be included in the Company's proxy statement
and form of proxy relating to

                                       21
<PAGE>

that meeting. All proposals must have complied with the requirements of Rule
14a-8 under the Securities Exchange Act of 1934. In addition, the Company's
bylaws include advance notice provisions that require shareholders desiring to
bring nominations or other business before an annual shareholders meeting to do
so in accordance with the terms of the advance notice provisions. These advance
notice provisions require that, among other things, shareholders give timely
written notice to the Company's Secretary not more than 90, or less than 60,
days prior to the date of the annual meeting as determined under the Company's
bylaws. The Company reserves the right to reject, rule out of order or take
other appropriate action with respect to any proposal that does not comply with
these and other applicable requirements.


                           FORWARD LOOKING STATEMENTS

This Proxy Statement contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. The Act provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact that
the Company makes in this Proxy Statement are forward-looking. In particular,
statements regarding the exploitation of the assets acquired from Scour, Inc.,
the implementation of the Company's growth strategy for its new digital
distribution channel, and the company's financing needs are forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. However, the absence of these words does not mean
the statement is not forward-looking. The Company cannot guarantee any of the
forward-looking statements, which are subject to risks, uncertainties and
assumptions that are difficult to predict. Actual results may differ materially
from those the Company forecasts in forward-looking statements due to a variety
of factors, including some of those set forth in the Company's report on Form
10-K for the year ended December 31, 1999. The Company does not intend to update
any forward-looking statements due to new information, future events or
otherwise.


                  WHERE SHAREHOLDERS CAN FIND MORE INFORMATION

The Company files annual, quarterly and other reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information contain additional information about the
Company. Shareholders may read and copy any materials on file with the
Securities and Exchange Commission at its Public Reference Room at 450 Fifth
Street, NW, Judiciary Plaza, Washington, D.C. 20549, as well as at its regional
offices at 500 West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World
Trade Center, Suite 1300, New York, NY 10048. The Company's filings are
available to the public over the Internet at the Securities and Exchange
Commission's website at http://www.sec.gov. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. Shareholders should rely only on the information contained or
incorporated by reference in this Proxy Statement. The Company has not
authorized anyone else to provide shareholders with information that is
different from what is contained or incorporated in this Proxy Statement. This
document is dated January __, 2001. Shareholders should not assume that the
information in this Proxy Statement is accurate as of any later date, and the
mailing of this Proxy Statement to shareholders shall not create any implication
to the contrary.

                                       22
<PAGE>

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows the Company to "incorporate by
reference" certain information the Company files with it, which means that the
Company can disclose important information to shareholders by referring them to
those documents. The information incorporated by reference is an important part
of this Proxy Statement, and information that the Company files later with the
Securities and Exchange Commission will automatically update and supersede this
information. The Company incorporates by reference into this Proxy Statement the
documents listed below and any future filings made with the Securities and
Exchange Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the date of the Special Meeting or any adjournment or
postponement of the Special Meeting:

     1.   CenterSpan's Annual Report on Form 10-K for the year ended December
          31, 1999; and

     2.   CenterSpan's Quarterly Reports on Form 10-Q for the quarters ended
          March 31, June 30 and September 30, 2000.

Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement. The
Company shall provide copies of all documents incorporated by reference in this
Proxy Statement (excluding any exhibits thereto), without charge, to any person
to whom a copy of this Proxy Statement is delivered upon written or oral request
of such person. Requests for such copies should be directed to: CenterSpan
Communications Corporation, 7175 N.W. Evergreen Parkway, Suite 400, Hillsboro,
Oregon 97124, Attention: Corporate Secretary, or upon calling (503) 615-3200.



                                       ---------------------------
                                       Mark B. Conan
                                       Secretary
                                       CenterSpan Communications Corporation

January ___, 2001


                                       23
<PAGE>

TABLE OF APPENDICES

Appendix A -- Common Stock Purchase Agreement
Appendix B -- Form of Warrant


                                       1
<PAGE>

                  APPENDIX A -- COMMON STOCK PURCHASE AGREEMENT




                                      A-1
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION


                         COMMON STOCK PURCHASE AGREEMENT



                                   Dated as of


                                December 18, 2000



                                      A-2
<PAGE>

                                    CONTENTS

<TABLE>
<S>                                                                             <C>
Section 1.   Purchase and Sale of Common Stock..................................  1

Section 2.   Closings...........................................................  1

Section 3.   Representations and Warranties of the Company......................  2

        3.1  Organization and Qualification.....................................  2

        3.2  Enforceability.....................................................  2

        3.3  Securities.........................................................  3

        3.4  No Approvals or Notices Required; No Conflicts With Instruments....  3

        3.5  Capitalization.....................................................  3

        3.6  SEC Documents......................................................  3

        3.7  Full Disclosure....................................................  4

        3.8  Brokers or Finders.................................................  4

Section 4.   Representations and Warranties of the Investor.....................  4

        4.1  Authorization......................................................  4

        4.2  Purchase Entirely for Own Account..................................  5

        4.3  Disclosure of Information; Due Diligence...........................  5

        4.4  Investment Experience; Accredited Investor Status..................  5

        4.5  Restricted Securities..............................................  6

        4.6  Legend.............................................................  6

        4.7  Residency..........................................................  6

        4.8  No Intent to Control the Company...................................  6
</TABLE>

                                      A-3
<PAGE>

<TABLE>
<S>                                                                             <C>
Section 5.   Conditions of Investor's Obligations at the Closings...............  7

        5.1  Conditions to Each Closing.........................................  7

        5.2  Additional Condition of Investors' Obligations at the
             Second Closing.....................................................  7

        5.3  Additional Condition of Investors' Obligations at the
             Third Closing......................................................  8

Section 6.   Conditions of the Company's Obligations at the Closings............  8

        6.1  Conditions to Each Closing.........................................  8

        6.2  Additional Condition of Investors' Obligations at the
             Second Closing.....................................................  8

        6.3  Additional Condition of Investors' Obligations.....................  9

Section 7.   Registration Rights................................................  9

Section 8.   Covenants.......................................................... 11

        8.1  Fulfillment of Closing Conditions For Second and Third Closings.... 11

        8.2  Section 13 Filings................................................. 11

Section 9.   Miscellaneous...................................................... 11

        9.1  Survival of Warranties............................................. 11

        9.2  Successors and Assigns............................................. 11

        9.3  Governing Law...................................................... 12

        9.4  Counterparts....................................................... 12

        9.5  Headings........................................................... 12

        9.6  Notices............................................................ 12

        9.7  Expenses........................................................... 12
</TABLE>

                                      A-4
<PAGE>

<TABLE>
<S>                                                                             <C>
        9.8  Amendments and Waivers............................................. 12

        9.9  Severability....................................................... 13

        9.10 Entire Agreement................................................... 13

SCHEDULES:

        Schedule A: Schedule of Exceptions

</TABLE>


                                      A-5
<PAGE>

                         COMMON STOCK PURCHASE AGREEMENT

     This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
December __, 2000, by and between CENTERSPAN COMMUNICATIONS CORPORATION, an
Oregon corporation (the "Company"), and PETER R. KELLOGG (the "Investor").

                                     RECITAL

     The Company desires to sell to the Investor, and the Investor desires to
purchase from the Company, shares of the Company's Common Stock, no par value
per share ("Common Stock"), upon the terms and subject to the conditions set
forth herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

SECTION 1. PURCHASE AND SALE OF COMMON STOCK

     Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase, and the Company agrees to sell and issue to the Investor, at the
Closings (as defined below), up to an aggregate of 1,428,572 shares (the
"Shares") of Common Stock, at a price of $7.00 per share. Subject to the terms
and conditions of this Agreement, the Company shall purchase, and the Company
shall sell and issue to the Investor (a) at the First Closing (as defined below)
714,286 of the Shares (the "First Tranche Shares"), (b) at the Second Closing
(as defined below), if any, such additional number of Shares (the "Second
Tranche Shares") that when added to the First Tranche Shares, shall represent as
close to, but not equal or be in excess of, 20 percent of the outstanding shares
of the Company as of the date hereof, and (c) at the Third Closing (as defined
below), if any, the remaining Shares (the "Third Tranche Shares") not previously
issued in the First Closing or the Second Closing.

SECTION 2. CLOSINGS

     (a)  The purchase and sale of the First Tranche Shares shall take place at
the offices of Perkins Coie LLP, 1211 S.W. Fifth Avenue, Portland, Oregon, at
10:00 a.m., on December __, 2000, or at such other location and time or upon
such other date as the Company and the Investor shall mutually agree (which time
and place are designated as the "First Closing"). The purchase and sale of the
Second Tranche Shares and the Third Tranche Shares shall take place at such
locations and times and upon such dates (within five business days of the
satisfaction or waiver of all conditions to closing for such Closing as set
forth herein), as the Company and the Investor shall mutually agree (which

                                      A-6
<PAGE>

applicable times and places are designated as the "Second Closing" and the
"Third Closing," respectively; the First Closing, the Second Closing and the
Third Closing are referred to herein, collectively, as the "Closings"). The date
of a Closing is referred to herein as a "Closing Date."

     (b)  At each Closing, the Investor shall deliver to the Company, by
cashier's check or wire transfer payable to the Company's order, immediately
available funds in the amount of the purchase price for the Shares purchased at
such Closing. Within 10 business days of such Closing, the Company shall deliver
or cause to be delivered to the Investor a certificate representing the Shares
purchased by the Investor at such Closing.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby represents and warrants to the Investor that, except as
set forth on a Schedule of Exceptions attached hereto as Schedule A:

     3.1  ORGANIZATION AND QUALIFICATION

     The Company is a corporation duly organized and validly existing under the
laws of the State of Oregon. The Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the assets, condition (financial or
other), prospects or business of the Company (a "Company Material Adverse
Effect").

     3.2  ENFORCEABILITY

     The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the
certificates, instruments and documents executed or delivered by it pursuant to
the terms of this Agreement. All corporate action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement and
the performance of all of its obligations under this Agreement has been taken.
This Agreement has been duly executed and delivered by the Company, and this
Agreement is a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as to the effect, if
any, of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (c) the enforceability of provisions
requiring indemnification in connection with the offering, sale or issuance of
securities.

     3.3  SECURITIES

     The Common Stock to be issued pursuant to this Agreement, when issued and
delivered to the Investor pursuant to this Agreement, shall be validly issued,
fully paid and nonassessable and, assuming the accuracy of the representations
and warranties contained in Section 4, issued in compliance with applicable
federal and state securities laws.

                                      A-7
<PAGE>

     3.4  NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS

     The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of law or any judgment, decree, order, regulation or rule of any
court or other governmental authority applicable to the Company; (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any person or entity, except (i) compliance with applicable securities
laws and (ii) such consents, approvals, authorizations, declarations, filings
and registrations (A) which have been or as of the applicable Closing Date will
have been obtained or effected or (B) the failure of which to obtain or effect
would not, both individually and in the aggregate, have a Company Material
Adverse Effect; (c) result in a default (with or without the giving of notice or
lapse of time, or both) under, or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel
any agreement or document filed as an exhibit the Company's SEC Documents (as
defined below), except for such defaults, accelerations, terminations or
creations of such rights which would not, both individually and in the
aggregate, have a Company Material Adverse Effect; or (d) conflict with or
result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of the Company.

     3.5  CAPITALIZATION

     The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, of which 6,255,732 shares were issued and outstanding as of
December 1, 2000, and 5,000,000 shares of preferred stock, par value $0.01 per
share, none of which is issued or outstanding. Such issued and outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.

     3.6  SEC DOCUMENTS

     The Company has furnished the Investor with true and complete copies of (i)
its Annual Report on Form 10-K for the fiscal year ended December 31, 1999, (ii)
all Forms 8-K filed after the date of such Form 10-K, if any, (iii) its
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 2000, and (iv) its Definitive Proxy Statement for the annual
meeting of the Company's shareholders held in May 2000 (collectively, the "SEC
DOCUMENTS"). As of their respective filing dates, each of the SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.

     3.7  FULL DISCLOSURE

     The information furnished by the Company to the Investor or its
representatives in connection with this Agreement (including, without
limitation, the information contained

                                      A-8
<PAGE>

in the SEC Documents, as the same may have been updated by filings by the
Company with the Securities and Exchange Commission after the date hereof but
prior to the applicable Closing Date), when taken together, does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements so made or information so delivered, in light of
the circumstances under which they were made, not misleading.

     3.8  BROKERS OR FINDERS

     The Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
for the Company's warrants to be issued to First Montauk Securities on behalf of
Lucas Capital Management, Inc. or to designees of Lucas Capital Management, Inc.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

     The Investor hereby represents and warrants for itself, and not for any
other Investor that:

     4.1  AUTHORIZATION

     This Agreement constitutes, and when executed and delivered by the Investor
the other agreements contemplated herein to which the Investor is a party will
constitute, valid and legally binding obligations of the Investor, enforceable
in accordance with their respective terms, except as to the effect, if any, of
(a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (c) the enforceability of provisions
requiring indemnification in connection with the offering, sale or issuance of
securities. The Investor has full power and authority to execute, deliver and
perform his obligations under this Agreement and such other agreements and to
own the Common Stock to be received by the Investor hereunder (collectively, the
"Securities").

     4.2  PURCHASE ENTIRELY FOR OWN ACCOUNT

     This Agreement is made with the Investor in reliance upon the Investor's
representation to the Company, which by the Investor's execution of this
Agreement the Investor hereby confirms, that the Securities will be acquired for
investment for the Investor's own account, and not with a view to the
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
a manner contrary to the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws.

                                      A-9
<PAGE>

     4.3  DISCLOSURE OF INFORMATION; DUE DILIGENCE

     The Investor has received and reviewed a copy of each SEC Document. The
Investor represents and acknowledges that he has been solely responsible for his
own "due diligence" investigation of the Company and of the management and
business of the Company, for his own analysis of the merits and risks of this
investment, and for his own analysis of the fairness and desirability of the
terms of the investment; that in taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has acted
solely in his own interests.

     4.4  INVESTMENT EXPERIENCE; ACCREDITED INVESTOR STATUS

     The Investor is an investor in securities of the type of the Common Stock
and acknowledges that the Securities are a speculative risk. The Investor is
able to fend for himself in the transactions contemplated by this Agreement, can
bear the economic risk of its investment (including possible complete loss of
such investment) for an indefinite period of time and has such knowledge and
experience in financial or business matters that he is capable of evaluating the
merits and risks of the investment in the Securities. The Investor understands
that the Securities have not been registered under the Act, or under the
securities laws of any jurisdiction, by reason of reliance upon certain
exemptions, and that the reliance of the Company on such exemptions is
predicated upon the accuracy of the Investor's representations and warranties in
this Section 4. The Investor is familiar with Regulation D promulgated under the
Act and is an "accredited investor" as defined in Rule 501(a) of such
Regulation D.

     4.5  RESTRICTED SECURITIES

     The Investor understands that the Securities are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Act only in certain limited circumstances
and in accordance with the terms and conditions set forth in the legend
described in Section 4.6 below. In this connection, the Investor represents that
he is familiar with Rule 144 promulgated under the Act, as currently in effect,
and understands the resale limitations imposed thereby and by the Act.

     4.6  LEGEND

     It is understood that the certificates evidencing the Securities may bear
the following or a similar legend:

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
     LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
     PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN

                                      A-10
<PAGE>

     EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
     SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
     (ii) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER
     OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION STATING THAT SUCH
     TRANSACTION IS EXEMPT FROM REGISTRATION, OR (iii) THIS CORPORATION
     OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
     REGISTRATION.

     4.7  RESIDENCY

     For purposes of the application of state securities laws, the Investor
represents that he is a resident of the state set forth opposite the Investor's
name on Schedule A hereto.

     4.8  NO INTENT TO CONTROL THE COMPANY

     The Investor represents to the Company that he has no intention to control
the Company and that he is not purchasing the Shares with a view to exerting
control of the Company. As used herein, "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Company, whether through the ownership of voting securities
or by contract or otherwise.

SECTION 5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT THE CLOSINGS

     5.1  CONDITIONS TO EACH CLOSING

     The obligations of the Investor under Section 1 of this Agreement are
subject to the fulfillment at or before the applicable Closing of each of the
following conditions:

     (a)  REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 3 hereof shall be true in all material respects
on and as of the applicable Closing Date with the same effect as though such
representations and warranties had been made as of such Closing Date, other than
such representations and warranties as are made as of another date.

     (b)  PERFORMANCE. The Company shall have performed and complied in all
material respects with all agreements, obligations and covenants contained in
this Agreement that are required to be performed or complied with by it on or
before the applicable Closing Date.

     (c)  COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company
shall deliver to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 5.1(a) and (b)have been fulfilled.

     (d)  QUALIFICATION. The offer and sale of the shares of Common Stock to be
sold to the Investor at the applicable Closing shall be qualified or exempt from

                                      A-11
<PAGE>

qualification under all applicable federal and state securities laws, which
qualification or exemption the Company shall have exercised its reasonable best
efforts to obtain.

     5.2  ADDITIONAL CONDITION OF INVESTORS' OBLIGATIONS AT THE SECOND CLOSING

     In addition to those conditions set forth in Section 5.1, the obligations
of the Investor under Section 1 of this Agreement with respect to the Second
Tranche Shares are subject to the obtaining, prior to the Second Closing, of (a)
the vote of the Company's shareholders, if any, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market, Inc. for the
issuance and sale of the Second Tranche Shares or (b) confirmation from the
Nasdaq Stock Market that such shareholder approval will not be required prior to
issuance and sale of the Second Tranche Shares.

     5.3  ADDITIONAL CONDITION OF INVESTORS' OBLIGATIONS AT THE THIRD CLOSING

     In addition to those conditions set forth in Section 5.1, the obligations
of the Investor under Section 1 of this Agreement with respect to the Third
Tranche Shares are subject to the obtaining, prior to the Third Closing, of (a)
the vote of the Company's shareholders, if any, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market, Inc. for the
issuance and sale of the Third Tranche Shares or (b) confirmation from the
Nasdaq Stock Market that such shareholder approval will not be required prior to
issuance and sale of the Third Tranche Shares.

SECTION 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSINGS

     6.1  CONDITIONS TO EACH CLOSING

     The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment at or before the applicable Closing of each of the
following conditions:

     (a)  REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Investor contained in Section 4 shall be true in all material respects on
and as of the applicable Closing Date with the same effect as though such
representations and warranties had been made as of such Closing Date.

     (b)  QUALIFICATION. The offer and sale to the Investor of the shares of
Common Stock to be sold to the Investor at the applicable Closing shall be
qualified or exempt from qualification under all applicable federal and state
securities laws, which qualification or exemption the Company shall have
exercised its reasonable best efforts to obtain.

     6.2  ADDITIONAL CONDITION OF THE COMPANY'S OBLIGATIONS AT THE SECOND
     CLOSING

     In addition to those conditions set forth in Section 5.1, the obligations
of the Company under Section 1 of this Agreement with respect to the Second
Tranche Shares are subject to the obtaining, prior to the Second Closing, of (a)
the vote of the Company's

                                      A-12
<PAGE>

shareholders, if any, as may be required by the applicable rules and regulations
of the Nasdaq Stock Market, Inc. for the issuance and sale of the Second Tranche
Shares or (b) confirmation from the Nasdaq Stock Market that such shareholder
approval will not be required prior to issuance and sale of the Second Tranche
Shares.

     6.3  ADDITIONAL CONDITION OF THE COMPANY'S OBLIGATIONS

     In addition to those conditions set forth in Section 5.1, the obligations
of the Company under Section 1 of this Agreement with respect to the Third
Tranche Shares are subject to the obtaining, prior to the Third Closing, of (a)
the vote of the Company's shareholders, if any, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market, Inc. for the
issuance and sale of the Third Tranche Shares or (b) confirmation from the
Nasdaq Stock Market that such shareholder approval will not be required prior to
issuance and sale of the Third Tranche Shares.

SECTION 7. REGISTRATION RIGHTS

     (a)  Subject to Section 7(b) below, the Company shall file with respect to
the Shares purchased under this Agreement, a registration statement on Form S-3
(or any successor form) on or before the 180th day after the First Closing Date
to register such Shares under the Act. The Company shall use commercially
reasonable efforts to have the registration statement declared effective and to
maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses contained therein) for at least
two years from the effective date thereof.

     (b)  The Company shall not be obligated to effect any such registration
pursuant to Section 7(a):

          (1)  if Form S-3 is not available for such offering by the Investor;

          (2)  if the Company shall furnish to the Investor a certificate signed
     by the President or Chief Executive Officer of the Company stating that in
     the good faith judgment of the Board of Directors of the Company, it would
     be materially 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 applicable Form S-3
     registration statement for a period of not more than ninety (90) days after
     the expiration of the 180-day period set forth above; or

          (3)  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.

     (c)  The Company shall notify the Investor in writing at least thirty (30)
days prior to filing any registration statement under the Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration

                                      A-13
<PAGE>

statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any registration under Section
7(a) of this Agreement or to any employee benefit plan or a corporate
reorganization) and will afford the Investor an opportunity to include in such
registration statement all or any part of the shares of Common Stock purchased
pursuant to this Agreement and then held by the Investor, subject to the
provisions of Section 7(d) below. If the Investor wants to include in any such
registration statement all or any part of such shares held by the Investor, the
Investor shall within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of shares the Investor wishes to include
in such registration statement.

     (d)  If a registration statement under which the Company gives notice under
Section 7(c) is for an underwritten offering, then the Company shall so advise
the Investor. In such event, the right of the Investor to include any of the
Investor's shares of Common Stock in a registration pursuant to Section 7(c)
shall be conditioned upon the Investor's participation in such underwriting and
the inclusion of the Investor's shares in the underwriting on the same terms and
conditions as the other participants in such offering, including, without
limitation, entering into an underwriting agreement in customary form with the
managing underwriter or underwriters selected for such underwriting (including a
market stand-off agreement of up to 180 days if required by such underwriters).
Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares from the registration and the underwriting,
and the number of shares that may be included in the registration and the
underwriting shall be allocated, FIRST, to the Company, SECOND, to each holder
of registration rights granted by the Company before the date of this Agreement
that contractually require the Company to include such holder's shares on a
priority basis, and THIRD, to the Investor and any other holder of registration
rights granted by the Company (excluding those covered above), on a pro rata
basis based on the total number of shares of Common Stock then sought to be
included by each in such offering. If the Investor disapproves of the terms of
any such underwriting, the Investor may elect to withdraw therefrom by written
notice to the Company and the underwriter(s), delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
shares excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.

     (e)  Notwithstanding the foregoing, the Investor may not have any shares of
Common Stock registered pursuant to any registration statement initiated in
connection with the Company's acquisition of assets of Scour Inc.

                                      A-14
<PAGE>

SECTION 8. COVENANTS

     8.1  FULFILLMENT OF CLOSING CONDITIONS FOR SECOND AND THIRD CLOSINGS

     The Company shall use commercially reasonable efforts to cause the
conditions to closing for the Second Closing and the Third Closing to be
fulfilled as soon as practicable after the date hereof.

     8.2  SECTION 13 FILINGS

     The Investor agrees to timely make all filings and take all other action
required by Section 13 of the Exchange Act and the rules and regulations
promulgated thereunder required as a result of the Investors' purchase of Shares
hereunder or otherwise.

SECTION 9. MISCELLANEOUS

     9.1  SURVIVAL OF WARRANTIES

     The warranties, representations and covenants contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement and
the Closing.

     9.2  SUCCESSORS AND ASSIGNS

     The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors, permitted assigns, heirs and
legal representatives of the 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 permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. The rights to cause the Company to
register shares of common stock pursuant to Section 7 may be assigned by the
Investor to a transferee or assignee of such shares that acquires at least
250,000 shares (appropriately adjusted for any stock dividend, stock split, or
combination applicable to the Common Stock), and who assumes the Investor's
obligations hereunder; 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 shares with respect to which such registration
rights are being assigned; provided, further, in each of the foregoing
instances, that such assignment shall be effective only if immediately following
such transfer the further disposition of such shares by the transferee or
assignee is restricted under the Act.

     9.3  GOVERNING LAW

     This Agreement shall be governed by and construed under the laws of the
State of Oregon as applied to agreements among persons domiciled in Oregon
entered into and to be performed entirely within the State of Oregon.

                                      A-15
<PAGE>

     9.4  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.

     9.5  HEADINGS

     The headings used in this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement.

     9.6  NOTICES

     Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or three days after deposit in the
United States Mail, postage prepaid, registered or certified with return receipt
requested and addressed to the party to be notified, if to the Company, at 7175
NW Evergreen Parkway, Suite 400, Hillsboro, Oregon 97124, Attention: Chief
Financial Officer, or, if to the Investor, at the address indicated for the
Investor on Schedule A hereto, or at such other address as any such party may
designate by ten days' advance written notice to the other parties given in the
foregoing manner.

     9.7  EXPENSES

     The Company shall pay all costs and expenses incurred by it with respect to
the preparation and performance of this Agreement. The Investor shall pay all
costs and expenses incurred thereby with respect to the preparation and
performance of this Agreement.

     9.8  AMENDMENTS AND WAIVERS

     This Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Investor.

     9.9  SEVERABILITY

     If one or more provisions of this Agreement is held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.

                                      A-16
<PAGE>

     9.10 ENTIRE AGREEMENT

     This Agreement constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements with respect to the subject matter hereof, other than any
confidentiality agreements entered into in connection with the transactions
contemplated hereby.


                     [This space intentionally left blank.]



                                      A-17
<PAGE>

     IN WITNESS WHEREOF, the parties have duly executed this Common Stock
Purchase Agreement as of the date first above written.



                                       CENTERSPAN COMMUNICATIONS CORPORATION


                                       By:
                                          -----------------------------------
                                          Name:
                                          Title:



                                       INVESTOR:



                                       --------------------------------------
                                                  Peter R. Kellogg



                                      A-18
<PAGE>

                                   SCHEDULE A

                             SCHEDULE OF EXCEPTIONS



SECTION 3.2: See Section 3.4 below.

SECTION 3.4: Nasdaq approval is being requested prior to the issuance of the
             Second Tranche Shares. Shareholder approval is required prior to
             issuance of the Third Tranche Shares.


                                      A-19
<PAGE>

                          APPENDIX B -- FORM OF WARRANT

<PAGE>

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE LAW. NO INTEREST HEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN
CONSENT OF THIS CORPORATION.


No. W-L-__                                                 Warrant to purchase
Issued: December __, 2000                                  _________ shares of
                                                           Common Stock (subject
                                                           to adjustment)


                      CENTERSPAN COMMUNICATIONS CORPORATION
                                  COMMON STOCK
                                PURCHASE WARRANT


THIS CERTIFIES THAT, for value received, _________________ (the "Holder") is
entitled to exercise this Warrant to purchase from the Company
___________________ (________) fully paid and nonassessable shares of the
Company's Common Stock, $0.01 par value per share (the "Common Stock"), on the
terms and subject to the conditions set forth herein. The shares of Common Stock
issuable upon the exercise of this Warrant are referred to herein as the
"Warrant Shares." The number of Warrant Shares issuable upon exercise of this
Warrant and the Exercise Price (as defined below) are subject to adjustment as
provided herein. The term "Warrant" as used herein shall include this Warrant
and any warrants delivered in substitution hereof as provided herein.

1.1  TERM OF WARRANT

This Warrant may be exercised by the Holder at any time prior to the earlier of
(a) December 18, 2005, or (b) the closing of a Corporate Transaction (as defined
below) (the "Exercise Period"). As used herein, the term "Corporate Transaction"
means the sale of all or substantially all the assets of the Company or the
acquisition of the Company by another entity by means of a merger,
consolidation, reorganization or any other transaction or series of related
transactions resulting in the exchange of the outstanding shares of the Company
for securities or consideration issued or caused to be issued by the acquiring
entity or any of its affiliates and as a result of which the shareholders of the
Company immediately prior to such transaction hold or receive, by virtue of
their ownership of securities of the Company, less than fifty percent (50%) of
the capital stock of the resulting entity.

                                      B-1
<PAGE>

1.2  EXERCISE PRICE

The Exercise Price at which this Warrant may be exercised shall be $9.00 per
share of Common Stock, as adjusted from time to time pursuant to Section 4
hereof.

1.3  METHOD OF EXERCISE

     1.3.1 PROCEDURE FOR EXERCISE

This Warrant may be exercised by the Holder, in whole or in part (but not for
less than 25,000 shares at a time, or such lesser amount then issuable upon the
full exercise of this Warrant), by delivering to the Company (i) this Warrant,
(ii) cash, a wire transfer of funds or a check payable to the Company in the
amount of the Exercise Price multiplied by the number of shares for which this
Warrant is being exercised (the "Purchase Price"), and (iii) the form of
Election to Purchase attached hereto as Annex A, duly completed and executed by
the Holder. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above.

     1.3.2 NET EXERCISE RIGHTS

Notwithstanding the payment provisions set forth above, the Holder may elect to
receive Warrant Shares in an amount equal to the value (as determined below) of
this Warrant by surrender of this Warrant at the principal office of the
Company, together with notice of such election, in which case the Company shall
issue to the Holder the number of Warrant Shares determined as follows:

                        X =  Y (A-B)
                             -------
                                A

WHERE: X = THE NUMBER OF WARRANT SHARES TO BE ISSUED TO THE HOLDER
       Y = THE NUMBER OF WARRANT SHARES SUBJECT TO THE PORTION OF THIS WARRANT
           BEING EXERCISED
       A = THE FAIR MARKET  VALUE (AS  DEFINED  BELOW) OF ONE WARRANT SHARE
       B = THE EXERCISE PRICE

For purposes of the above calculation, the fair market value of a Warrant Share
shall be the average of the closing bid and asked prices of the Company's Common
Stock as quoted on the Nasdaq National Market System or on any exchange on which
such Common Stock is then listed, whichever is applicable, for the five trading
days prior to the date of exercise of this Warrant.

2.   DELIVERY OF STOCK CERTIFICATES

Within 10 days after the payment of the Purchase Price following the exercise of
this Warrant, the Company, at its expense, shall issue in the name of the Holder
(a) a certificate for the number of fully paid and nonassessable Warrant Shares
to which the Holder shall be entitled upon such exercise and payment and (b) a
new Warrant of like tenor to purchase up to that number of Warrant Shares, if
any, not previously purchased by the Holder if this Warrant has not expired.

                                      B-2
<PAGE>

3.   COVENANTS AS TO WARRANT SHARES

     3.1  RESERVATION OF WARRANT SHARES

The Company shall at all times have authorized and reserve and keep available,
free from preemptive rights, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon the exercise of this Warrant, the number
of Warrant Shares deliverable upon full exercise of this Warrant.

     3.2  ISSUANCE OF WARRANT SHARES

The Company covenants that all Warrant Shares shall, upon issuance thereof in
accordance with the terms of this Warrant, be (a) duly authorized, validly
issued, fully paid and nonassessable and (b) free from all liens, pledges,
charges and security interests created by the Company.

4.   ADJUSTMENTS

     4.1  ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES

The Exercise Price and the number of Warrant Shares issuable upon the exercise
of this Warrant shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of such Exercise Price pursuant to this Section
4, this Warrant shall thereafter entitle the Holder to purchase, at the Exercise
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment, and dividing the product thereof by the Exercise Price
resulting from such adjustment.

     4.2  ADJUSTMENT OF EXERCISE PRICE UPON EXTRAORDINARY COMMON STOCK EVENT

Upon the happening of an Extraordinary Common Stock Event (as defined below)
after the issuance date of this Warrant, the Exercise Price shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Extraordinary Common Stock Event and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Exercise Price. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events.

"Extraordinary Common Stock Event" shall mean (x) the issuance of additional
shares of Common Stock (or other securities or rights convertible into or
entitling the holder thereof to receive additional shares of Common Stock ) as a
dividend or other distribution on outstanding Common Stock of the Company, (y) a
split or subdivision of outstanding shares of Common Stock into a greater number
of shares of Common Stock, or (z) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.

                                      B-3
<PAGE>

     4.3  CAPITAL REORGANIZATION OR RECLASSIFICATION

If the Common Stock issuable upon the exercise of this Warrant shall be changed
into the same or a different number of shares of any class or classes of stock
of the Company, whether by capital reorganization, reclassification or otherwise
(other than an Extraordinary Common Stock Event), then and in each such event
the Holder shall have the right thereafter to exercise this Warrant for the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by holders of the number
of shares of Common Stock into which this Warrant might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the Holder after the reorganization,
recapitalization or change to the end that the provisions of this Section 4
(including adjustment of the Exercise Price then in effect and the number of
shares issuable upon exercise of this Warrant) shall be applicable after that
event as nearly equivalent as may be practicable.

     4.4  NOTICE OF ADJUSTMENT

Whenever the number of shares of Common Stock or other stock or property
issuable upon the exercise of this Warrant or the Exercise Price is adjusted,
then and in each such case the Company shall promptly deliver a notice to the
Holder, which notice shall state the Exercise Price resulting from such
adjustment and/or the increase or decrease, if any, in the number of shares of
Common Stock or other stock or property issuable upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.

     4.5  OTHER NOTICES

In the event that the Company shall propose at any time:

     (a)  to declare any dividend or distribution upon its Common Stock, whether
     in cash, property, stock or other securities, whether or not a regular cash
     dividend and whether or not out of earnings or earned surplus;

     (b)  to offer for subscription to the holders of its Common Stock any
     additional shares of stock of any class or series or other rights;

     (c)  to effect any reclassification or recapitalization of the shares of
     its Common Stock outstanding involving a change in the Common Stock; or

     (d)  to merge or consolidate with or into any other corporation, to sell,
     lease or convey all or substantially all of its property or business, or to
     liquidate, dissolve or wind up;

then, in connection with each such event, the Company shall send to the Holder:

          (i)  at least 20 days' prior written notice of the date on which a
     record shall be taken for such dividend, distribution or subscription
     rights (and specifying the date on which the holders of Common Stock shall
     be entitled thereto) or for

                                      B-4
<PAGE>

     determining rights to vote in respect of the matters referred to in (c) and
     (d) above; and

          (ii) in the case of the matters referred to in (c) and (d) above, at
     least 20 days' prior written notice of the date when the same shall take
     place (and, if applicable, specifying the date on which the holders of the
     Common Stock shall be entitled to exchange their shares of Common Stock for
     securities or other property deliverable upon the occurrence of such
     events).

5.   FRACTIONAL SHARES

No fractional shares shall be issued upon the exercise of this Warrant, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share, determined on the basis of the total number of shares of Common
Stock issuable upon such aggregate conversion.

6.   TRANSFERS

     6.1  RESTRICTIONS ON TRANSFER

No Warrant Shares or any interest therein may be transferred unless (a) such
transfer is registered under the Securities Act of 1933, as amended (the
"Securities Act"), (b) the Company has received an opinion of legal counsel for
the Holder reasonably satisfactory to the Company stating that the transfer is
exempt from the registration requirements of the Securities Act, or (c) the
Company otherwise satisfies itself that such transfer is exempt from
registration.

     6.2  TRANSFERS

The Company shall register on the books of the Company maintained at its
principal office the permitted transfer of this Warrant upon surrender to the
Company of this Warrant, with the form of Assignment attached hereto as Annex B
duly completed and executed by the Holder. Upon any such registration of
transfer, a new Warrant, in substantially the form of this Warrant, evidencing
this Warrant so transferred shall be issued, at the Company's expense, to the
transferee, and a new Warrant, in substantially the form of this Warrant,
evidencing the portion of this Warrant, if any, not so transferred shall be
issued, at the Company's expense, to the Holder.

7.   LEGEND

Legends setting forth or referring to the applicable restrictions set forth in
Section 6.1 may be placed on this Warrant, any replacement hereof or any
certificate representing the Warrant Shares, and a stop transfer restriction or
order shall be placed on the books of the Company and with any transfer agent
until such securities may be sold or otherwise transferred in accordance with
Section 6.1.

8.   HOLDER AS OWNER

The Company may deem and treat the holder of record of this Warrant as the
absolute owner hereof for all purposes regardless of any notice to the contrary.

                                      B-5
<PAGE>

9.   NO SHAREHOLDER RIGHTS

This Warrant shall not entitle the Holder to any voting rights or any other
rights as a shareholder of the Company or to any other rights whatsoever except
the rights stated herein; and no dividend or interest shall be payable or shall
accrue in respect of this Warrant or the Warrant Shares, until and to the extent
that this Warrant shall be exercised.

10.  REGISTRATION RIGHTS

     (a)  Subject to Section 10(b) below, the Company shall file, with respect
to the shares of Common Stock issuable under this Warrant, a registration
statement on Form S-3 (or any successor form) on or before the 180th day after
December __, 2000 to register the shares issuable upon the exercise of this
Warrant under the Securities Act. The Company shall use commercially reasonable
efforts to have the registration statement declared effective and to maintain
the effectiveness of such registration statement (and maintain the current
status of the prospectus or prospectuses contained therein) for at least two
years after the effective date thereof.

     (b)  The Company shall not be obligated to effect any such registration
pursuant to Section 10(a):

          (1)  if Form S-3 is not available for such offering by the Holder;

          (2)  if the Company shall furnish to the Holder a certificate signed
     by the President or Chief Executive Officer of the Company stating that in
     the good faith judgment of the Board of Directors of the Company, it would
     be materially 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 ninety (90) days after the
     expiration of the 180-day period set forth above; or

          (3)  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.

     (c)  The Company shall notify the Holder in writing at least thirty (30)
days prior to filing any registration statement under the Securities Act for
purposes of effecting a public offering of securities of the Company (including,
but not limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 10(a) of this Warrant or to any employee benefit plan
or a corporate reorganization) and will afford the Holder an opportunity to
include in such registration statement all or any part of the shares issuable
upon the exercise of this Warrant, subject to the provisions of Sections 10(d)
and 10(e) below. If the Holder wants to include in any such registration
statement all or any part of the shares issuable upon the exercise of this
Warrant, the Investor shall within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of shares of Common Stock
the Investor wishes to include in such registration statement.

                                      B-6
<PAGE>

     (d)  If a registration statement under which the Company gives notice under
Section 10(c) is for an underwritten offering, then the Company shall so advise
the Holder. In such event, the right of the Holder to include any of the shares
issuable upon the exercise of this Warrant in a registration pursuant to Section
10(c) shall be conditioned upon the Holder's participation in such underwriting
and the inclusion of the Holder's shares of Common Stock in the underwriting on
the same terms and conditions as the other participants in such offering,
including, without limitation, entering into an underwriting agreement in
customary form with the managing underwriter or underwriters selected for such
underwriting (including a market stand-off agreement of up to 180 days if
required by such underwriters). Notwithstanding any other provision of this
Warrant, if the managing underwriter(s) determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, FIRST, to the
Company, SECOND, to each holder of registration rights granted by the Company
before the issuance date of this Warrant that contractually require the Company
to include such holder's shares on a priority basis, and THIRD, to the Holder
and any other holder of registration rights granted by the Company (excluding
those covered above), on a pro rata basis based on the total number of shares of
Common Stock then sought to be included by each in such offering. If the Holder
disapproves of the terms of any such underwriting, the Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter(s),
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any shares of Common Stock excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration.

11.  GOVERNING LAW; CONSTRUCTION

     The validity and interpretation of the terms and provisions of this Warrant
shall be governed by the laws of the State of Oregon. The descriptive headings
of the several sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
thereof.

12.  LOST WARRANT CERTIFICATE

     Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) indemnification reasonably satisfactory to the Company or (in
the case of mutilation) the surrender of this Warrant for cancellation, the
Company will execute and deliver to the Holder, without charge, a new Warrant of
like denomination.

13.  WAIVERS AND AMENDMENTS

     This Warrant or any provision hereof may be amended or waived only by a
statement in writing signed by the Company and the Holder.

14.  NOTICES

     Any notice required by the provisions of this Warrant to be given to the
Holder shall be deemed given two days after being deposited in the United States
mail, postage

                                      B-7
<PAGE>

prepaid and addressed to such Holder's address appearing on the books of the
Company.

     Any notice required by the provisions of this Warrant to be given to the
Company shall be deemed given two days after being deposited in the United
States mail, postage prepaid and addressed to CenterSpan Communications
Corporation, 7175 NW Evergreen Parkway, Suite 400, Hillsboro, OR 97124,
Attention: Chief Financial Officer, or at such other address as specified in a
notice delivered to the Holder as set forth above.

15.  BINDING EFFECT

     This Warrant shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of and be enforceable by the Holder and
its successors and permitted assigns. The rights to cause the Company to
register shares of common stock pursuant to Section 7 may not be assigned by the
Investor without the prior written consent of the Company.

16.  INVESTMENT INTENT, ETC.

     By accepting this Warrant, the Holder represents that (a) the Holder is
acquiring this Warrant and the Warrant Shares issuable upon exercise hereof for
investment and not with a view to, or for sale in connection with, any
distribution thereof; (b) the Holder can bear the economic risk of an investment
in the Warrant Shares (including possible complete loss of such investment) for
an indefinite period of time; (c) the Holder understands that this Warrant and
the Warrant Shares have not been registered under the Securities Act, or under
the securities laws of any jurisdiction, by reason of reliance upon certain
exemptions, and that the reliance of the Company on such exemptions is
predicated upon the accuracy of the Holder's representations in this Section;
(d) the Holder is familiar with Rule 144 under the Securities Act, as currently
in effect, and understands the resale limitations that are or would be imposed
thereby and by the Securities Act on this Warrant and the Warrant Shares to the
extent such securities are characterized as "restricted securities" under the
United States federal securities laws inasmuch as they are acquired from the
Company in a transaction not involving a public offering; (e) the Holder has
received and reviewed a copy of each SEC Document (as defined below) and the
Holder believes the Holder has been given access to full and complete
information regarding the Company and has utilized such access to the Holder's
satisfaction for the purpose of obtaining information about the Company,
particularly, representatives of the Holder have had adequate opportunities to
ask questions of, and receive answers from, senior executives of the Company
concerning the Company and to obtain any additional information, to the extent
reasonably available, necessary to verify the accuracy of information provided
to the Holder about the Company; (f) the Holder (x) either alone or with the
assistance of the Holder's professional advisor, is a sophisticated investor, is
able to fend for his or herself in the transactions contemplated by this
Warrant, and has such knowledge and experience in financial and business matters
that the Holder is capable of evaluating the merits and risks of the prospective
investment in this Warrant and the Warrant Shares or (y) is an accredited
investor as such term is defined in Rule 501(a) under the Securities Act and as
defined pursuant to the provisions of state securities laws applicable to the
Holder providing for an exemption from registration or qualification of the
offer and sale of this

                                      B-8
<PAGE>

Warrant and the Warrant Shares; (g) the Holder has obtained, to the extent he or
she deems necessary, his or her own professional advice with respect to the
risks inherent in the investment in this Warrant and the Warrant Shares, the
condition of the Company and the suitability of the investment in this Warrant
and the Warrant Shares in light of the Holder's financial condition and
investment needs; and (h) the Holder is a resident of the state set forth on the
signature page of this Warrant.

     As used herein, the term "SEC Documents" means, collectively, the following
documents of the Company filed with the SEC: (i) its Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, (ii) all Forms 8-K filed after the
date of such Form 10-K, if any, (iii) its Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30, and September 30, 2000, and (iv) its
Definitive Proxy Statement for the annual meeting of the Company's shareholders
held in May 2000.

     IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.


                                       CENTERSPAN COMMUNICATIONS CORPORATION


                                       By
                                         ----------------------------------
                                       Name:
                                       Title:


The undersigned hereby confirms its
acknowledgements and representations
in Section 16 of this Warrant.


-----------------------------------
[Name]


Holder's State of Residency: [New York][New Jersey]



                                      B-9
<PAGE>

                                     ANNEX A

                          FORM OF ELECTION TO PURCHASE


To CenterSpan Communications Corporation:

The undersigned hereby elects to purchase ___________ shares of Common Stock of
CenterSpan Communications Corporation issuable upon the exercise of the within
Warrant, and requests that a certificate for such shares shall be issued in the
name of the undersigned holder and delivered to the address indicated below and,
if said number of shares shall not be all the shares which may be purchased
pursuant to the within Warrant, that a new Warrant evidencing the right to
purchase the balance of such shares be registered in the name of, and delivered
to, the undersigned at the undersigned's address stated below.

The undersigned hereby certifies to the Company that the undersigned's
representations set forth in Section 16 of the within Warrant are true and
correct on the date hereof as if made by the undersigned on the date hereof.

[Payment enclosed in the amount of $____________]

[The undersigned elects that the Warrant be exercised in accordance with
Section 1.3.2 thereof.]

Dated:
      --------------------

Name of holder of Warrant:
                          ------------------------------------------------------
                                               (please print)
                  Address:
                          ------------------------------------------------------
                  Signature:
                            ----------------------------------------------------



                                      B-10
<PAGE>

                                     ANNEX B

                               FORM OF ASSIGNMENT

FOR VALUE RECEIVED, ______________________________________ hereby sells, assigns
and transfers to the assignee set forth below all of the rights of the
undersigned in and to the number of Warrant Shares (as defined in and evidenced
by the foregoing Warrant) set opposite the name of such assignee below and in
and to the foregoing Warrant with respect to said Warrant Shares:


Name of Assignee                 Address                        Number of Shares
----------------                 -------                        ----------------






If the total of said Warrant Shares shall not be all such shares which may be
purchased pursuant to the foregoing Warrant, the undersigned requests that a new
Warrant evidencing the right to purchase the balance of such shares be issued in
the name of, and delivered to, the undersigned at the undersigned's address
stated below.

Dated:
      --------------------
Name of holder of Warrant:
                          ------------------------------------------------------
                                              (please print)
                  Address:
                          ------------------------------------------------------
                  Signature:
                            ----------------------------------------------------


                                      B-11
<PAGE>


--------------------------------------------------------------------------------

                                     PROXY

                      CENTERSPAN COMMUNICATIONS CORPORATION

                     7175 N.W. EVERGREEN PARKWAY, SUITE 400
                            HILLSBORO, OR 97124-5839

          PROXY FOR THE __________, 2001 ANNUAL MEETING OF SHAREHOLDERS

     This Proxy is solicited by the Board of Directors of CenterSpan
Communications Corporation (the "Company"). The undersigned shareholder(s) of
the Company hereby appoint Frank Hausmann and Mark B. Conan and each of them,
as proxies, each with the power of substitution to represent and to vote, as
designated in this Proxy, all the shares of Common Stock of the Company held
of record by the undersigned as of January 8, 2001, at the Special Meeting of
Shareholders to be held at __:__ [a.m.][p.m.], ________, 2001 at
_____________, located at _______________, Portland, Oregon, and at any and
all adjournments thereof.

       (Continued, and to be marked, dated and signed, on the other side)


  --------------------------- FOLD AND DETACH HERE ---------------------------

     Please mark your votes as indicated in this example |X|

     1.   PROPOSAL 1 - To approve the sale of up to 714,286 additional shares of
the Company's Common Stock to an investor in a private placement.

                       THE BOARD OF DIRECTORS UNANIMOUSLY
                      RECOMMENDS A VOTE FOR THE APPROVAL OF
                                  PROPOSAL 1.

     2.   PROPOSAL 2 - To approve amendments to the 1998 Stock Option Plan,
including an increase in the number of shares available under the 1998 Stock
Option Plan, from 3,100,000 to 4,100,000 shares.

                       THE BOARD OF DIRECTORS UNANIMOUSLY
                      RECOMMENDS A VOTE FOR THE APPROVAL OF
                                  PROPOSAL 2.

     3.   PROPOSAL 3 - To approve and ratify two option grants previously made
by the Company to an officer outside the 1998 Stock Option Plan.

<PAGE>

                       THE BOARD OF DIRECTORS UNANIMOUSLY
                     RECOMMENDS A VOTE FOR THE APPROVAL OF
                                  PROPOSAL 3.

     4.   Upon such other matters as may properly come before, or incident to
the conduct of the Special Meeting, the Proxy holders shall vote in such manner
as they determine to be in the best interests of the Company. Management is not
presently aware of any such matters to be presented for action at the meeting.

         IF NO SPECIFIC DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS,
               THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.

     I do ( ) do not ( ) plan to attend the meeting. (Please check)

     The shareholder signed below reserves the right to revoke this Proxy at any
time prior to its exercise by written notice delivered to the Company's
Secretary at the Company's corporate offices at 7175 NW Evergreen Parkway, Suite
400, Hillsboro, Oregon 97124, prior to the Special Meeting. The power of the
Proxy holders shall also be suspended if the shareholder signed above appears at
the Annual Meeting and elects in writing to vote in person.


Signature                              Signature
         -------------------------              -------------------------

Date
    ----------------

     NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.

  --------------------------- FOLD AND DETACH HERE ---------------------------





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