-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HRu79uY2eh0DI6/uh7BDHu8FX7xb8cOvtkjeE9z+HPexq3Uy+in++ooYlJPGYPqH PfJy9KhO9f0ULSlO7GQ7gw== 0000950136-03-001976.txt : 20030812 0000950136-03-001976.hdr.sgml : 20030812 20030812153456 ACCESSION NUMBER: 0000950136-03-001976 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20030812 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: APAX MANAGERS INC CENTRAL INDEX KEY: 0001259036 IRS NUMBER: 133782791 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: 445 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: AUDIBLE INC CENTRAL INDEX KEY: 0001077926 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 223407945 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-57711 FILM NUMBER: 03837501 BUSINESS ADDRESS: STREET 1: 65 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 BUSINESS PHONE: 9738372700 MAIL ADDRESS: STREET 1: 65 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 SC 13D 1 file001.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Audible, Inc. ------------- (Name of Issuer) Common Stock, par value $0.01 per share --------------------------------------- (Title of Class of Securities) 05069A 10 4 ----------- (CUSIP Number) Robert M. Friedman, Esq. Swidler Berlin Shereff Friedman, LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174 (212) 973-0111 ------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 1, 2003 -------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Page 1 of 10 Pages) - ------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 2 of 10 Pages SCHEDULE 13D - -------------------------------------------------------------------------------- CUSIP No. 05069A 10 4 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Apax Managers, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 21,415,444 NUMBER OF ---------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY 0 OWNED BY ---------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING 21,415,444 PERSON WITH ---------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 21,415,444 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* N/A - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 40.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 10 Pages ITEM 1. SECURITY AND ISSUER. This Schedule 13D relates to the shares of common stock, par value $0.01 per share (the "Common Stock"), of Audible, Inc., a Delaware corporation (the "Company"). The principal executive offices of the Company are located at 65 Willowbrook Boulevard, Wayne, New Jersey 07470. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed by Apax Managers, Inc. ("Apax Managers" or the "Filing Person"). Apax Managers is a New York corporation the purpose of which is to act as the general partner of certain entities, including Apax Excelsior VI Partners, L.P. (the "General Partner of the Excelsior VI Funds"). The General Partner of the Excelsior VI Funds is a Delaware limited partnership the purpose of which is to act as the general partner of certain private equity funds, including: (i) Apax Excelsior VI, L.P., a Delaware limited partnership ("Excelsior VI"), (ii) Apax Excelsior VI-A C.V., a Dutch limited partnership ("Excelsior VI-A"), (iii) Apax Excelsior VI-B C.V., a Dutch limited partnership ("Excelsior VI-B"), and (iv) Patricof Private Investment Club III, L.P., a Delaware limited partnership ("Patricof Private Investment Club III" and, together with Excelsior VI, Excelsior VI-A and Excelsior VI-B, the "Excelsior VI Funds"). The principal business address of each of Apax Managers, the General Partner of the Excelsior VI Funds and the Excelsior VI Funds is 445 Park Avenue, New York, New York 10022. The name, business address, present principal occupation or employment and citizenship of each executive officer and director of Apax Managers are set forth in Schedule A hereto and are incorporated herein by reference. During the last five years, neither the Filing Person, nor, to the knowledge of the Filing Person, any of (w) the Excelsior VI Funds, (x) the General Partner of the Excelsior VI Funds, or (y) the persons listed on Schedule A hereto, has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On August 1, 2003 (the "Closing Date"), pursuant to a Stock Purchase Agreement, dated as of August 1, 2003, by and among the Company, the Excelsior VI Funds and the other purchasers named therein (the "Series C Purchase Agreement"), the Excelsior VI Funds purchased 740,741 shares (the "Series C Shares") of Series C Convertible Preferred Stock of the Company (the "Series C Stock") for an aggregate purchase price of $4,000,000 in cash. The Series C Purchase Agreement is filed as Exhibit 1 hereto and is incorporated herein by reference. Also on the Closing Date, pursuant to a Stock Purchase Agreement, dated as of July 31, 2003, by and among the Microsoft Corporation, a Washington Corporation, and the Excelsior VI Funds (the "Series A Purchase Agreement" and together with the Series C Purchase Agreement, the "Purchase Agreements"), the Excelsior VI Funds purchased 3,473,967 shares (the "Series A Shares") of Series A Convertible Preferred Stock of the Company (the "Series A Stock") for an aggregate purchase price of $7,500,000 in cash. The funds used by the Excelsior VI Funds to purchase the Series A Shares and the Series C Shares were obtained by such entities from capital contributions by their respective partners. Page 4 of 10 Pages Neither the General Partner of the Excelsior VI Funds, the Filing Person nor any of the individuals listed on Schedule A hereto has contributed any funds or other consideration towards the purchase of the securities of the Company except insofar as they may have partnership interests in any of the Excelsior VI Funds or the General Partner of the Excelsior VI Funds and have made capital contributions to any of the Excelsior VI Funds or the General Partner of the Excelsior VI Funds. ITEM 4. PURPOSE OF TRANSACTION. GENERAL The purpose of the acquisition of the Series A Shares and the Series C Shares by the Excelsior VI Funds pursuant to the Purchase Agreements was to acquire a significant equity interest in the Company and to provide the Company with financing to expand its sales, marketing and business development and for other general corporate purposes. SERIES C CERTIFICATE OF DESIGNATIONS On the Closing Date, the Company filed the Certificate of Designations governing the Series C Stock (the "Series C Certificate of Designations") with the Secretary of State of the State of Delaware and issued to the Excelsior VI Funds the Series C Shares having the terms set forth in the Series C Certificate of Designations. The following discussion provides a description of certain provisions of the Series C Certificate of Designations that may relate to or result in a transaction event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Act. Rank. The Series C Stock ranks, as to dividends and upon liquidation events (as set forth in the Series C Certificate of Designations) senior and prior to the Common Stock, and pari passu with the Series A Stock and the Company's Series B Convertible Preferred Stock (the "Series B Stock"). The Company is prohibited from creating any class of stock ranking on parity with, or senior to, the Series C Stock, without the affirmative vote of the holders of a majority of the Series C Stock, voting separately as a class. Dividends. The holders of the Series C Stock are entitled to receive dividends which shall accrue and compound semi-annually at the rate of 6% per annum until the fourth anniversary of the Closing Date. Voting. On all matters put to a vote to the holders of Common Stock, each holder of shares of Series C Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series C Stock could be converted. Conversion. Each share of Series C Stock is convertible at any time after the Closing Date, at the option of the holder of record thereof, into the number of fully paid and nonassessable shares of Common Stock equal to the quotient of (x) $5.40 divided by (y) the conversion price in effect at the time of conversion. The initial conversion price per share of Series C Stock is $0.54 and is subject to adjustment from time to time as provided in the Series C Certificate of Designations. In the event of conversion of shares of Series C Stock, all accrued and unpaid dividends shall be converted into shares of Common Stock at the then applicable conversion price. Each share of Series C Stock shall automatically be converted at the then effective conversion price into fully paid and nonassessable shares of Common Stock if at any time after the Closing Date (i) the average closing market price of the Common Stock over a period of sixty consecutive trading days (the "Applicable Period") equals or exceeds $3.00 per share (as adjusted for splits, combinations and Page 5 of 10 Pages divisions) and (ii) the average daily trading volume of the Common Stock during the Applicable Period equals or exceeds 330,000 shares per day (as adjusted for splits, combinations and divisions). The foregoing description of the Series C Certificate of Designations is not intended to be complete and is qualified in its entirety by the complete text of the Series C Certificate of Designations, which is filed as Exhibit 2 hereto and is incorporated herein by reference. SERIES C PURCHASE AGREEMENT The following discussion provides a description of certain relevant provisions of the Series C Purchase Agreement that may relate to or result in a transaction event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Act. Board Representation. For so long as the Excelsior VI Funds continue to hold at least fifty percent (50%) of the Series C Shares (or shares of Common Stock issuable upon conversion of the Series C Shares) acquired by such funds on the Closing Date pursuant to the Series C Purchase Agreement, such funds shall be entitled to designate one person for election to the Company's Board of Directors as a Class II director. Participation Right. If at any time on or before the fifth (5th) anniversary of the Series C Purchase Agreement, the Company shall sell and issue equity securities for financing purposes, the Company shall offer to each purchaser under the Series C Purchase Agreement that continues to own 100% of the Series C Shares acquired hereunder (or shares of Common Stock issuable upon conversion of the Series C Shares), by written notice at least ten (10) days prior to the proposed issuance, the opportunity to purchase its pro rata share of such equity securities upon the same terms and conditions as the other participants in such issuance, as set forth in the Company's written notice. The foregoing description of the Series C Purchase Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Series C Purchase Agreement, which is filed as Exhibit 1 hereto and is incorporated herein by reference. SERIES A CERTIFICATE OF DESIGNATIONS On the Closing Date, the Company filed the First Amended and Restated Certificate of Designations governing the Series A Stock (the "Series A Certificate of Designations") with the Secretary of State of the State of Delaware. The following discussion provides a description of certain provisions of the Series A Certificate of Designations that may relate to or result in a transaction event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Act. Rank. The Series A Stock ranks, as to dividends and upon liquidation events (as set forth in the Series A Certificate of Designations) senior and prior to the Common Stock, and pari passu with the Series C Stock and the Series B Stock. The Company is prohibited from creating any class of stock ranking on parity with, or senior to, the Series A Stock, without the affirmative vote of the holders of a majority of the Series A Stock, voting separately as a class. Dividends. The holders of the Series A Stock are entitled to receive dividends which shall accrue and compound semi-annually at the rate of 12% per annum until the fourth anniversary of the Closing Date. Page 6 of 10 Pages Voting. On all matters put to a vote to the holders of Common Stock, each holder of shares of Series A Stock is entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series A Stock could be converted. Conversion. Each share of Series A Stock is convertible at any time after the Closing Date, at the option of the holder of record thereof, into the number of fully paid and nonassessable shares of Common Stock equal to the quotient of (x) $3.75 divided by (y) the conversion price in effect at the time of conversion. The conversion price per share of Series A Stock at the time of the Closing Date was $0.929992634 and is subject to adjustment from time to time as provided in the Series A Certificate of Designations. In the event of conversion of shares of Series A Stock, all accrued and unpaid dividends shall be converted into shares of Common Stock at the then applicable conversion price. Other Events. If at any time on or after the fourth anniversary of the Closing Date, (i) the average daily trading volume of the Common Stock over a period of thirty (30) consecutive trading days is less than 400,000 shares per day (as adjusted for splits, combinations and the like); (ii) funds managed by Apax Partners, Inc. (such funds collectively referred to as "Apax") continue to own at least eighty five percent (85%) of the outstanding shares of Series A Stock and Series C Stock acquired by such funds on or about the Closing Date (or shares of Common Stock into which such shares of Series A Stock or Series C Stock are convertible); and (iii) there has not been a Qualifying Acquisition Event (as defined in the Series A Certificate of Designations) (a) presented to the Board of Directors of the Company that the two Apax designees on the Board of Directors have not supported or (b) presented to the Company's stockholders for approval which proposal has not received the favorable vote of all of Apax's shares of the Company's voting capital stock, then Apax can request in writing that the Board of Directors use its commercially reasonable efforts to sell the Company (such request, a "Sale Request" and the date on which Apax submits such Sale Request, the "Request Date"). Upon receipt of a Sale Request, the Company will use its commercially reasonable efforts to sell the Company in a Qualifying Acquisition Event. If the Company is not successful in its efforts to consummate a Qualifying Acquisition Event within nine (9) months of the Request Date, the Company may take certain actions, as described in the Series A Certificate of Designations, relating to the redemption or placement of the Series A Shares (or shares of Common Stock into which such Series A Shares are convertible). Subject to certain conditions, if, within nine (9) months of the Request Date, a Qualifying Acquisition Event is not consummated and the Company has not effected the first installment of a redemption or placement of the Series A Shares (or shares of Common Stock into which such Series A Shares are convertible), then the holders of shares of Series A Stock shall be entitled to receive preferred dividends that accrue at the rate of fifteen percent (15%) per annum. Such preferred dividends shall be cumulative and shall begin to accrue and compound semi-annually effective as of the Request Date and shall cease to accrue and compound on the third anniversary of the Request Date. The foregoing description of the Series A Certificate of Designations is not intended to be complete and is qualified in its entirety by the complete text of the Series A Certificate of Designations, which is filed as Exhibit 3 hereto and is incorporated herein by reference. SERIES A INVESTOR RIGHTS AGREEMENT On the Closing Date, the Company and the Excelsior VI Funds entered into a Series A Investor Rights Agreement (the "Series A Investor Rights Agreement"). The following discussion provides a description of certain relevant provisions of the Series A Investor Rights Agreement that may relate to or Page 7 of 10 Pages result in a transaction event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Act. Board Representation. For so long as the Excelsior VI Funds continue to hold at least fifty percent (50%) of the Series A Shares (or shares of Common Stock issuable upon conversion of the Series A Shares) acquired by such funds on the Closing Date pursuant to the Series A Purchase Agreement, such funds shall be entitled to designate one person for election to the Company's Board of Directors as a Class II director. Participation Right. If at any time on or before the fifth (5th) anniversary of the Series A Purchase Agreement, the Company shall sell and issue equity securities for financing purposes, the Company shall offer to each purchaser under the Series A Purchase Agreement that continues to own 100% of the Series A Shares acquired hereunder (or shares of Company common stock issuable upon conversion of the Series A Shares), by written notice at least ten (10) days prior to the proposed issuance, the opportunity to purchase its pro rata share of such equity securities upon the same terms and conditions as the other participants in such issuance, as set forth in the Company's written notice. The foregoing description of the Series A Investor Rights Agreement is not intended to be complete and is qualified in its entirety by the complete text of the Series A Investor Rights Agreement, which is filed as Exhibit 4 hereto and is incorporated herein by reference. OTHER PLANS AND PROPOSALS Except as described above or otherwise described in this Schedule 13D, the Filing Person currently has no plans or proposals which relate to or would result in any transaction, event or action enumerated in paragraphs (a) through (j) of Item 4 of Schedule 13D promulgated under the Act. The Filing Person reserves the right, in light of its ongoing evaluation of the Company's financial condition, business, operations and prospects, the market price of the Common Stock, conditions in the securities markets generally, general economic and industry conditions, its business objectives and other relevant factors, to change its plans and intentions at any time, as it deems appropriate. In particular, the Filing Person (and its affiliates) reserves the right, in each case subject to any applicable limitations imposed on the sale of any of their securities of the Company by the Securities Act of 1933, as amended (the "Securities Act"), or other applicable law, to (i) purchase securities of the Company, (ii) sell or transfer securities of the Company beneficially owned by them from time to time in public or private transactions, and (iii) cause any of the Excelsior VI Funds to distribute in kind to their respective partners securities of the Company. To the knowledge of the Filing Person, each of (w) the Excelsior VI Funds, (x) the General Partner of the Excelsior VI Funds and (y) the persons listed on Schedule A hereto may make similar evaluations from time to time or on an ongoing basis. ITEM 5. INTERESTS IN SECURITIES OF THE ISSUER. (a) As of the Closing Date, Apax Managers may be deemed to beneficially own an aggregate of 21,415,444 shares of Common Stock, representing in the aggregate approximately 40.9% of the outstanding Common Stock, based on calculations made in accordance with Rule 13d-3(d) of the Act, which are represented by 740,741 Series C Shares acquired by the Excelsior VI Funds pursuant to the Series C Purchase Agreement and 3,473,967 Series A Shares acquired by the Excelsior VI Funds pursuant to the Series A Purchase Agreement. The number of Series A Shares and Series C Shares acquired by each of the Excelsior VI Funds pursuant to the Purchase Agreements, the number of shares of Common Stock that such Series A and Page 8 of 10 Pages Series C Shares are convertible into and the percentage of the outstanding Common Stock such shares represent are set forth in Schedule B hereto and are incorporated herein by reference.(1) Neither the Filing Person nor, to the knowledge of the Filing Person, (w) the Excelsior VI Funds, (x) the General Partner of the Excelsior VI Funds and (y) the persons listed on Schedule A hereto beneficially owns any shares of Common Stock other than as set forth herein. (b) Apax Managers has the sole power to vote or direct the vote and to dispose or to direct the disposition of all 21,415,444 shares of Common Stock deemed beneficially owned by it. (c) Except as described above in Item 3, no transactions in the securities of the Company were effected by the Filing Person, or, to its knowledge, any of (w) the Excelsior VI Funds, (x) the General Partner of the Excelsior VI Funds and (y) the persons listed on Schedule A hereto, during the past sixty days. (d) Except for the Excelsior VI Funds that may have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, any securities of the Company, no other person is known by the Filing Person to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, any securities of the Company beneficially owned by the Filing Person. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The responses set forth in Items 3 and 4 of this Schedule 13D are incorporated herein by reference in their entirety. REGISTRATION RIGHTS The Series C Purchase Agreement grants to the Excelsior VI Funds certain registration rights relating to the shares of Common Stock issuable upon conversion of the Series C Shares. The Series A Investor Rights Agreement grants to the Excelsior VI Funds certain registration rights relating to the shares of Common Stock issuable upon conversion of the Series A Shares. - ------------- (1) Neither the present filing nor anything contained herein shall be deemed an admission that any of the Excelsior VI Funds beneficially owns any Series A Shares, Series C Shares or shares of Common Stock. Page 9 of 10 Pages ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Stock Purchase Agreement, dated as of August 1, 2003, by and among Audible, Inc., Apax Excelsior VI, L.P., Apax Excelsior VI-A, C.V., Apax Excelsior VI-B, C.V. and Patricof Private Investment Club III, L.P. and the other purchasers named therein. Exhibit 2 Series C Convertible Preferred Stock Certificate of Designations of Audible, Inc. Exhibit 3 First Amended and Restated Series A Convertible Preferred Stock Certificate of Designations of Audible, Inc. Exhibit 4 Series A Investor Rights Agreement, dated as of August 1, 2003, by and among Audible, Inc., Apax Excelsior VI, L.P., Apax Excelsior VI-A, C.V., Apax Excelsior VI-B, C.V. and Patricof Private Investment Club III, L.P. Page 10 of 10 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. August 11, 2003 APAX MANAGERS, INC. By: /s/ Paul Vais -------------------------- Name: Paul Vais Title: Vice President SCHEDULE A ---------- The name, title and present principal occupation of each director and executive officer of Apax Managers, Inc. (the "Apax Managers") are set forth below. The principal business address of each director and executive officer of Apax Managers is c/o Apax Partners, Inc., 445 Park Avenue, 11th Floor, New York, New York 10022 ("Apax Partners"). Each director and executive officer of Apax Managers is a citizen of the United States.
NAME TITLE PRINCIPAL OCCUPATION ---- ----- -------------------- Alan J. Patricof Director, Chairman of the Board and Vice Chairman and General Partner of Apax President Partners George M. Jenkins Director and Vice President General Partner of Apax Partners Gregory M. Case Director and Vice President General Partner of Apax Partners Salem D. Shuchman Director and Vice President General Partner of Apax Partners Paul Vais Director and Vice President General Partner of Apax Partners David Landau Vice President General Partner of Apax Partners Lori Rafield Vice President General Partner of Apax Partners
SCHEDULE B ----------
NUMBER OF SHARES OF COMMON STOCK THAT SUCH NUMBER OF SERIES SERIES A SHARES ARE NUMBER OF PURCHASER A SHARES CONVERTIBLE INTO SERIES C SHARES --------- -------- ---------------- --------------- Apax Excelsior VI, L.P. 2,968,505 11,969,865 632,963 Apax Excelsior VI-A, C.V. 242,483 977,761 51,704 Apax Excelsior VI-B, C.V. 161,539 651,374 34,444 Patricof Private Investment Club III, L.P. 101,440 409,034 21,630 --------- ------- --------- 3,473,967 14,008,034 740,741 NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON STOCK THAT COMMON STOCK THAT SERIES A AND SERIES C PERCENTAGE OF SUCH SERIES C SHARES SHARES ARE OUTSTANDING PURCHASER ARE CONVERTIBLE INTO CONVERTIBLE INTO COMMON STOCK --------- -------------------- ---------------- ------------ Apax Excelsior VI, L.P. 6,329,630 18,299,495 37.1% Apax Excelsior VI-A, C.V. 517,040 1,494,801 4.6% Apax Excelsior VI-B, C.V. 344,440 995,814 3.1% Patricof Private Investment Club III, L.P. 216,300 625,334 2.0% ----------- ------------- ------ 7,407,410 21,415,444 40.9%
EX-1 3 file002.txt SERIES C STOCK PURCHASE AGREEMENT SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ------------------------ This Series C Convertible Preferred Stock Purchase Agreement (together with the schedules and exhibits hereto, the "AGREEMENT") dated as of August 1, 2003, is entered into by and among Audible, Inc., a Delaware corporation (the "COMPANY"), and the persons and individuals, severally but not jointly, identified on Schedule I hereto (each, an "INVESTOR" and collectively, the "INVESTORS"). In consideration of the premises, mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Authorization and Sale of Series C Preferred Shares 1.1 Authorization. The Company has, or before the Closing (as defined in Section 2) will have, duly authorized the issuance of up to 1,111,111 shares of its Series C Convertible Preferred Stock, $0.01 par value per share (the "SERIES C SHARES"), having the rights, restrictions, privileges and preferences set forth in the Certificate of Designation of the Designations, Limitations, Restrictions and Relative Rights of the Series C Convertible Preferred Stock, attached hereto as Exhibit A (the "DESIGNATION"). 1.2 Sale of Shares. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2), the Company will sell and issue to each Investor, and each Investor will, severally but not jointly, purchase from the Company that number of Series C Shares set forth next to such Investor's name on Schedule I hereto at a per share purchase price of $5.40. 1.3 Use of Proceeds. The proceeds from the sale of Series C Shares will be used by the Company to expand sales, marketing and business development and for other general corporate purposes. 2. The Closing. The closing (the "CLOSING") of the sale and purchase of Series C Shares under this Agreement shall take place at the offices of Piper Rudnick LLP, 1775 Wiehle Avenue, Suite 400, Reston, Virginia 20190 at 10 a.m., local time, on the date hereof. At the Closing, the Company will deliver to each Investor a certificate for the number of Series C Shares being purchased by such Investor, registered in the name of such Investor, against payment to the Company of the aggregate purchase price therefor, by wire transfer, check, or other method acceptable to the Company. The date of the Closing is hereinafter referred to as the "CLOSING DATE." 3. Representations of the Company. The Company hereby represents and warrants to each Investor, at and as of the date of this Agreement, as follows: -1- 3.1 Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own, operate and lease its property and to carry on its business as now being conducted. The Company is duly qualified or licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the character of properties occupied, owned or held under lease by the Company, or the nature of the business conducted by the Company, makes such qualification or license necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on the business, operations, assets, liabilities or financial condition of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). 3.2 Valid Issuance. The Series C Shares, when issued and paid for in accordance with this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and (assuming the accuracy of Investors' representation set in Section 4.4 hereof) issued in compliance with all applicable U.S., state and foreign securities laws and will not be subject to any preemptive or other similar rights. 3.3 Capitalization. On the date hereof, the authorized capital stock of the Company consists of: (i) 75,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), 30,997,944 shares of which are issued and outstanding and (ii) 10,000,000 shares of preferred stock (the "PREFERRED STOCK"), par value $0.01 per share, (A) 4,500,000 of which have been designated as Series A Convertible Preferred Stock, par value $0.01 per share (the "SERIES A PREFERRED STOCK"), 3,473,967 of which are issued and outstanding and which are convertible into 14,008,034 shares of Common Stock, and (B) 1,250,000 of which have been designated as Series B Convertible Preferred Stock, par value $0.01 per share, all of which are issued and outstanding and which are convertible into 1,250,000 shares of Common Stock. On the date hereof, there are issued and outstanding options to purchase 7,506,900 shares of Common Stock and issued and outstanding warrants to purchase 3,542,271 shares of Common Stock.. 3.4 Authority. The Company has all requisite corporate power and authority to enter into this Agreement, to sell and issue the Series C Shares and to consummate the other transactions contemplated by this Agreement. The execution and delivery of this Agreement, the issuance and sale of the Series C Shares and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company, and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium, fraudulent transfer or other laws affecting or relating to the rights of creditors generally, (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether arising prior to, or after, the date hereof or considered in a proceeding in equity or at law, or (iii) the effect of federal and state securities laws and principles of public policy on rights of indemnity and contribution. -2- 3.5 No Conflict. The execution and delivery by the Company of this Agreement does not, and the sale and issuance of the Series C Shares and consummation of the other transactions contemplated by this Agreement will not, conflict with, or result in any violation or breach of any provision of, the charter documents of the Company or any contract or agreement filed by the Company with the Commission (as defined below) pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act of 1933, as amended. 3.6 Required Filings and Consents. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("GOVERNMENTAL ENTITY") is required by or with respect to the Company in connection with the execution and delivery of this Agreement, the sale and issuance of the Series C Shares or the consummation of the other transactions contemplated hereby or thereby, except for such filings as may be required under applicable federal and state securities laws. 3.7 Commission Filings. The Company has filed all reports required to be filed with the Securities and Exchange Commission (the "COMMISSION") since July 16, 1999 (collectively, including all exhibits thereto, the "SEC REPORTS". None of such SEC Reports, as of their respective dates (as amended through the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All such SEC Reports, as of their respective dates (as amended through the date hereof), complied in all material respects with the requirements of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). 3.8 Financial Statements. The consolidated financial statements of the Company and its subsidiaries contained in the SEC Reports were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, and present fairly in all material respects, as of the dates and for the periods indicated, the financial position of the Company and its subsidiaries and their results of operations and cash flows for the periods therein set forth, subject in the case of the unaudited consolidated financial statements to later normal, recurring audit adjustments required by GAAP that are not in the aggregate material and to omission of certain footnotes as permitted by GAAP. 3.9 Stockholders' Consent. No consent or approval of the stockholders of the Company is required or necessary for the Company to enter into this Agreement, to sell and issue the Series C Shares or to consummate the other transactions contemplated pursuant to this Agreement (other than stockholder approval of: the option plan expansion contemplated by Section 5.4 below, the Restated Designation (as that term is defined below) and the amendment to the Certificate of Designation contemplated by Section 5.14 below).. 3.10 Litigation. There is no litigation, governmental proceeding, investigation or arbitration pending or, to the knowledge of the Company, threatened against or directly involving the Company that questions the legality or validity of this Agreement or any related -3- agreements or any actions taken or to be taken pursuant to or in connection with this Agreement or any related agreements or which could reasonably be expected to have a Material Adverse Effect. 3.11 Disclosure. The representations and warranties made or contained in this Agreement when taken together, do not contain any untrue statement of a material fact and do not omit to state a material fact required to be stated herein or therein or necessary in order to make such representations and warranties and other material not misleading. 4. Representations of the Investors. Each Investor, severally but not jointly, represents and warrants to the Company as follows: 4.1 Authority. The Investor has all requisite corporate power and authority to enter into this Agreement, to purchase and hold the Series C Shares and to consummate the other transactions to be consummated by the Investor contemplated by this Agreement. The execution and delivery of this Agreement, the purchase of the Series C Shares and the consummation of the other transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Investor. This Agreement has been duly executed and delivered by the Investor, and constitutes the valid and binding obligation of the Investor, enforceable in accordance with its terms, except to the extent limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium, fraudulent transfer or other laws affecting or relating to the rights of creditors generally, (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether arising prior to, or after, the date hereof or considered in a proceeding in equity or at law, or (iii) the effect of federal and state securities laws and principles of public policy on rights of indemnity and contribution. 4.2 No Conflict. The execution and delivery by the Investor of this Agreement does not, and consummation of the transactions contemplated by this Agreement will not conflict with, or result in any violation or breach of any provision of, the charter documents of the Investor. 4.3 Required Filings and Consents. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to the Investor in connection with the execution and delivery of this Agreement, the purchase of the Series C Shares to be purchased by the Investor or the consummation of the other transactions to be consummated by the Investor contemplated hereby, except for such consents, orders, authorizations, declarations, filings, approvals and registrations which, if not obtained or made, could not be expected to have a material adverse effect on the Investor's ability to consummate the transactions contemplated pursuant to this Agreement. 4.4 Investor is an "Accredited Investor". The Investor is an "accredited investor" as defined in Rule 501(a) under the Securities Act of 1933, as amended (the "SECURITIES ACT"). The Investor believes that it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series C Shares. The Investor further -4- represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Series C Shares and the business, properties, prospects and financial condition of the Company; provided, however, that the foregoing shall not diminish or detract from the Investor's ability to rely upon any of the Company's representations or warranties. The Investor acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series C Shares. The Investor is not acquiring the Series C Shares with a view towards distribution in violation of the Securities Act. 5. Conditions to the Obligations of the Investors. The obligation of the Investors to purchase the Series C Shares at the Closing is subject to the fulfillment, or the waiver by Investors, of the following conditions on or before the Closing Date: 5.1 Accuracy of Representations and Warranties. Each representation and warranty of the Company contained in Section 3 shall be true and complete on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date. 5.2 Completion of Due Diligence. The Investors shall have completed their due diligence review of the Company. 5.3 No Change. There shall have been no change in the business or financial condition of the Company between the date hereof and the Closing Date that has caused, or could be reasonably expected to cause, a Material Adverse Effect. 5.4 Option Plan. The Company's Board of Directors shall have approved an expansion of the Company's option plan in a form and manner reasonably acceptable to the Investors and relating to such number of shares of Common Stock as shall be acceptable to the Investors.. 5.5 No Incurrence of Indebtedness. The Company shall not have incurred any indebtedness, except in the ordinary course of its business since July 23, 2003. 5.6 No Change in Capital Structure. There shall have been no change in the Company's capital structure between the date hereof and the Closing Date unless otherwise agreed upon by the Company and the Investors. 5.7 Apax's Purchase of Series A Preferred Stock. Funds managed by Apax Partners, Inc., ("APAX") shall have acquired from Microsoft Corporation all of the Series A Preferred Stock. 5.8 Performance. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the Closing. -5- 5.9 Filing of Designation. The Designation shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date. 5.10 Blue Sky Approvals. The Company shall have taken all actions necessary for the exemptions from the state securities laws in which the Series C Shares are being sold on or before the Closing Date, or at such time thereafter as may be required by the applicable statute. 5.11 Certificates and Documents. The Company shall have delivered to counsel to the Investors: (a) The Company's certificate of incorporation, as in effect immediately prior to the Closing; (b) Certificates, dated within 10 days of the Closing, as to the corporate good standing of the Company issued by the Secretary of State of the State of Delaware and any place where the Company is qualified to do business as a foreign corporation; (c) By-Laws of the Company certified by its Secretary or Assistant Secretary as being in effect as of the Closing Date; and (d) Resolutions of the Board of Directors of the Company, authorizing and approving all matters in connection with this Agreement and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date. 5.12 Legal Opinion. The Investors shall have received an opinion of Piper Rudnick LLP, substantially as set forth as Exhibit B hereto. 5.13 Bertelsmann Review of Restated Designation. Bertelsmann, Inc. ("BERTELSMANN") shall have had the opportunity to review and approve the Restated Designation (as that term is defined below). 5.14 Restated Series B Designation. The Certificate of Designation of Designations, Limitations, Restrictions and Relative Rights of the Series B Convertible Preferred Stock of Audible, Inc. shall be amended pursuant to the amendment in the form attached hereto as Exhibit C. 5.15 Filing of Restated Designation. As set forth in Section 12, the Restated Designation shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date. -6- 6. Conditions to the Obligations of the Company. The obligations of the Company under Section 1.2 of this Agreement are subject to fulfillment, on or before the Closing Date, of each of the following conditions: 6.1 Accuracy of Representations and Warranties. Each representation and warranty contained in Section 4 shall be true and complete on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date. 6.2 Purchase Price. Each Investor shall have delivered to Company the aggregate purchase price for its Series C Shares. 6.3 Blue Sky Approvals. The Company shall have obtained all necessary Blue Sky Law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Series C Shares. 6.4 Apax's Purchase of Series A Preferred Stock. Funds managed by Apax shall have acquired from Microsoft Corporation all of the Series A Preferred Stock. 7. Participation Right. If at any time on or before the fifth (5th) anniversary of this Agreement , the Company shall sell and issue equity securities for financing purposes (a "NEW ISSUANCE"), the Company shall offer to each Investor that continues to own 100% of the Series C Shares acquired hereunder (or shares of Company common stock issuable upon conversion of the Series C Shares), by written notice at least ten (10) days prior to the proposed New Issuance, the opportunity to purchase its pro rata share of such equity securities upon the same terms and conditions as the other participants in such New Issuance, as set forth in the Company's written notice. Each Investors' pro rata share shall be equal to the ratio of (a) the number of shares of the Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock held by such Investor) of which such Investor is deemed to be a holder immediately prior to the date of the New Issuance to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock or upon the exercise of any outstanding warrants or options) immediately prior to the date of the New Issuance. Each Investor may accept the Company's offer as to the full number of shares offered to it, or any lesser number, by written notice thereof given by it to the Company within five (5) days after the delivery to Investor of Company's notice regarding the New Issuance. In such event, the Company shall sell and such Investor shall buy, upon the terms and conditions specified in the notice, the number of shares agreed to be purchased by such Investor. The purchase rights of each Investor set forth in this Section 7 may not be transferred other than to Affiliates of such Investor. For the purposes of this Agreement, "Affiliate" shall have the meaning set forth in Rule 405 promulgated under the Securities Act of 1933, as amended. 8. Information Rights/Confidentiality. -7- 8.1 Information. So long as an Investor continues to hold 50% of the Series C Shares acquired hereunder (or shares of Common Stock issuable upon conversion of the Series C Shares), then: (a) The Company will provide such Investor, within 30 days of the conclusion of each month, a monthly operational update which compares the Company's actual performance during such month with the budgeted projections for such month as well as the prior fiscal year; (b) The Company will provide such Investor, within 45 days of the conclusion of each fiscal quarter, a quarterly financial summary in a form substantially similar to the form provided to the Company by Apax, signed by the Chief Financial Officer of the Company; (c) The Company will provide such Investor, within 90 days of the conclusion of each fiscal year, a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles consistently applied. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing; (d) The Company will provide such Investor, prior to the commencement of each fiscal year, a copy of the annual budget and strategic plan approved by the Company's Board of Directors; and (e) The Company shall provide to such Investor such other information relating to the financial condition, business, prospects or other corporate affairs of the Company as such Investor may from time to time reasonably request. 8.2 Confidentiality/Regulation FD. Each Investor agrees to use, and to cause its authorized representatives to use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any and all confidential information furnished to it by the Company (whether pursuant to this Section 8 or otherwise). Without limiting the generality of the foregoing, each Investor acknowledges and agrees that as a result of the requirements of this Section 8, each Investor will receive from the Company material non-public information regarding the Company (as contemplated by Regulation FD under the Securities Exchange Act of 1934). By its signature below, each Investor hereby agrees to maintain in confidence all of the Company's material non-public information, except that such information may be disclosed to such Investor's legal, accounting and other professional advisors who shall be similarly bound by the confidentiality provisions of this Section 8.2. 9. Covenant. -8- 9.1 Key-Man Insurance. Promptly following the Closing, the Company shall obtain key man insurance on the life of Donald Katz in an amount of not less than $2.5 million, with the proceeds of such insurance being payable to the Company. 9.2 Qualified Small Business Stock. Promptly following the Closing, the Company shall make reasonable efforts to enable the Series C Preferred Stock to qualify as "qualified small business stock" under Section 1202 of the Internal Revenue Code (the "Code"), including making all reports or other filings required by the Code and any related treasury regulations in connection therewith. 10. Registration of Shares. 10.1 Demand Registration. (a) At any time and from time to time, a Holder (as defined below) may make written requests on the Company for the registration under the Securities Act of the shares of Company common stock (the "COMMON STOCK") issuable upon conversion of the Series C Shares (the "CONVERSION SHARES") having an anticipated aggregate offering price (net of discounts and commissions) of at least $5,000,000. The Company shall have no obligation to file more than two (2) registration statements under the Securities Act with respect to such requests; provided, however, that if the Conversion Shares may be registered on Form S-3 (or any successor form with similar "short form" disclosure requirements), the Holders shall have unlimited rights to request registration of its Conversion Shares on Form S-3 (or such successor form), provided, however, that each such registration of Conversion Shares shall have an anticipated aggregate offering price (net of discounts and commissions) of at least $500,000. Each such request described in the preceding two sentences shall be hereinafter referred to as a "DEMAND REGISTRATION." Any Demand Registration will specify the number of Conversion Shares proposed to be sold and will also specify the intended method of disposition thereof. For purposes of this Section 10, "HOLDER" means any person owning of record Conversion Shares that have not been sold to the public or any permitted assignee of record of such Conversion Shares. (b) A registration will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if, after it has become effective, the offering of shares of Common Stock pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of the shares of Common Stock pursuant to the registration at any time within one hundred eighty (180) days after the effective date of the registration statement, such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 10.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 10.1 does not remain effective for a period of at least -9- one hundred eighty (180) days beyond the effective date thereof or, with respect to an underwritten offering of Conversion Shares, until ninety (90) days after the commencement of the distribution by the Holders of the Conversion Shares included in such registration statement, then the Company shall continue to be obligated to effect such registration pursuant to this Section 10.1. The Holders shall be permitted to withdraw all or any part of the Conversion Shares from a Demand Registration at any time prior to the effective date of such Demand Registration. (c) If the Holders so elect, the offering of Conversion Shares pursuant to Demand Registration shall be in the form of an underwritten offering. The Holders shall select one or more nationally recognized firms of investment bankers reasonably acceptable to the Company to act as the lead managing underwriter (the "Underwriter") in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering. 10.2 Piggy-Back Registration (a) If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its respective security holders (other than a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission) or a Demand Registration pursuant to Section 10.1), then the Company shall give prompt written notice of such proposed filing to the Holders as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer Holders the opportunity to register such number of Conversion Shares as each Holder may request (which request shall specify the Conversion Shares intended to be disposed of by such Holder and the intended method of distribution thereof) (a "PIGGY-BACK REGISTRATION"). The Company shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Conversion Shares requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Conversion Shares in accordance with the intended method of distribution thereof. Except as set forth in Section 10.2(c), each Holder shall have the right to withdraw its request for inclusion of its Conversion Shares in any registration statement pursuant to this Section 10.2 by giving written notice to the Company of its request to withdraw, provided, however, that in the event of such withdrawal, such Holder shall be responsible for all fees and expenses (including fees and expenses of counsel) incurred by such Holder prior to such withdrawal except as set forth in Section 10.2(c). The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective. No registration effected under this Section 10.2, and no failure to effect a registration under this Section 10.2, shall relieve the Company of its obligation to effect -10- a registration upon the request of a Holder pursuant to Section 10.1, and no failure to effect a registration under this Section 10.2 and to complete the sale of Conversion Shares in connection therewith shall relieve the Company of any other obligation under this Section 10. (b) Notwithstanding anything to the contrary contained herein, if the managing Underwriter or Underwriters of any underwritten offering described in Section 10.2 have informed, in writing, the Holders that it is their opinion that the total number of shares which the Company, the Holders and any other persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of shares to be offered shall be reduced or limited in the following order of priority: (x) first, the number of shares to be offered by all other holders of securities of the Company other than the Holders or others who have registration rights to the extent necessary to reduce the total number of shares as recommended by such managing Underwriters; and (y) second, if further reduction or limitation is required, the number of shares to be offered for the account of each Holder shall be reduced or limited to the extent necessary to reduce the total number of shares as recommended by such managing Underwriters; provided, however, that the reduction for the account of the Holders shall not result in the aggregate number of shares of the Holders included in the offering to be less than 25% of the total number of shares offered. (c) Withdrawal Election. If, as a result of the proration provisions of Section 10.2(b), a Holder shall not be entitled to include at least 50% of the Conversion Shares in a Piggy-Back Registration that such Holder has requested to be included, such Holder may elect to withdraw its request to include Conversion Shares in such registration (a "WITHDRAWAL ELECTION") without incurring any liability for its fees and expenses; provided, however, that a Withdrawal Election shall be irrevocable and, after making a Withdrawal Election, such Holder shall no longer have any right to include Conversion Shares in the Piggy-Back Registration as to which such Withdrawal Election was made. 10.3 Registration Procedures. Whenever the Company is required to effect or cause the registration of Conversion Shares pursuant to Section 10.1, the Company will use its best efforts to effect the registration and the sale of such Conversion Shares in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering, shall be on Form S-3 (unless the Company does not qualify for use of Form S-3 in a registration involving only a secondary offering as provided in the General Instructions to Form S-3 in such registration, in which case such registration statement shall be a Form S-1) or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use best efforts to cause such registration statement to become and remain effective until the completion of the -11- distribution; provided, however, that the Company shall be required to keep any registration statement effective at least ninety (90) days. (b) The Company will prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 10.3(a) and as to comply with the provisions of the Securities Act with respect to the disposition of all Conversion Shares covered by such registration statement in accordance with the intended method of disposition set forth in such registration statement for such period. (c) The Company will, as far in advance as practical, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish copies of such registration statement as proposed to be filed, together with exhibits thereto, to (i) each Holder participating in the distribution through such registration statement, (ii) not more than one counsel representing such Holders, and (iii) each Underwriter, if any, of the Conversion Shares covered by such registration statement, which documents will be subject to review and approval by the foregoing within five (5) days after delivery, and thereafter as far in advance as practical, furnish to such Holders, counsel and Underwriters, if any, for their review and comment such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents or information as such Holders, counsel or Underwriters may reasonably request in order to facilitate the disposition of the Conversion Shares owned by participating Holders. (d) After the filing of the registration statement, the Company will promptly notify each participating Holder of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (e) The Company will use its best efforts to (i) register or qualify the Conversion Shares under such other securities or blue sky laws of such jurisdictions in the United States as each participating Holder reasonably (in light of each Holder's intended plan of distribution) requests, and (ii) cause such Conversion Shares to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable each Holder to consummate the disposition of the Conversion Shares; provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any jurisdiction where it would not be subject to taxation but for actions taken pursuant to this Section 10.3 or (C) consent to general service of process in any such jurisdiction. -12- (f) The Company will immediately notify each participating Holder, at any time when a prospectus relating to Conversion Shares is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the Holder, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each Holder any such supplement or amendment. (g) The Company and each participating Holder will enter into customary agreements including, if applicable, an underwriting agreement in customary form and which is reasonably satisfactory to the Company (which shall not require the Holders to indemnify the underwriter with respect to misstatements or omissions in the registration statement other than such misstatements or omissions in written material supplied by each Holder). The Company and each holder will also take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Conversion Shares; and the each Holder may, at its option, require that any or all of the representations, warranties and covenants of the Company made to or for the benefit of such Underwriters also be made to and for the benefit of each participating Holder. (h) The Company will make available to each participating Holder (and its counsel) and each Underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available for inspection by each participating Holder, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained to represent a participating Holder (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the disclosure or release of such Records is requested or required pursuant to oral questions, interrogatories, requests for information or documents or a subpoena or other order from a court of competent jurisdiction or other process; provided, however, that prior to any disclosure or release pursuant to clause (ii), the Inspectors shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waive such Inspectors' obligation not to disclose such Records; and, provided further, however, that if failing the entry of a protective order or the waiver by the Company permitting the disclosure or release of such Records, the -13- Inspectors, upon advice of counsel, are compelled to disclose such Records, the Inspectors may disclose that portion of the Records which counsel has advised the Inspectors that the Inspectors are compelled to disclose. Each Holder agrees that information obtained by it solely as a result of such inspections (not including any information obtained from a third party who, insofar as is known to such Holder after reasonable inquiry, is not prohibited from providing such information by a contractual, legal or fiduciary obligation to the Company) shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such information is made generally available to the public. Each Holder further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (i) In connection with an underwritten offering, the Company will participate, to the extent reasonably requested by the managing Underwriter for the offering or the participating Holders, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows"; provided, however, that the Company shall not be obligated to participate in more than one such offering in any 12-month period. The Company may require each participating Holder to promptly furnish in writing to the Company such information regarding the distribution of the Conversion Shares as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD. The Company may exclude any Holder from such registration if such Holder fails to provide such information. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 10.3(f) hereof, such Holder will forthwith discontinue disposition of Conversion Shares pursuant to the registration statement covering such Conversion Shares until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 10.3(f) hereof, and, if so directed by the Company, each Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the most recent prospectus covering such Conversion Shares at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 10.3(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 10.3(f) hereof to the date when the Company shall make available to the Holders a prospectus supplemented or amended to conform with the requirements of Section 10.3(f) hereof. 10.4 Registration Expenses. In connection with the Demand Registrations pursuant to Section 10.1 hereof and any Piggy-Back Registrations under Section 10.2 hereof, the -14- Company shall pay the following registration expenses incurred in connection with the registration thereunder (the "Registration Expenses"): (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Conversion Shares), (iii) processing, duplicating and printing expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing of the Conversion Shares, (vi) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested but not the cost of any audit other than a year end audit), (vii) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, (viii) reasonable fees and expenses of one firm of counsel for the Holders, and (ix) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities. The Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Conversion Shares, or the cost of any special audit required, such costs to be borne by the Holders. 10.5 Indemnification. (a) The Company shall, to the full extent permitted by law, indemnify and hold harmless each Holder, its Affiliates, partners, officers, directors, employees and agents, and each person, if any, who controls or is under common control with such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act of 1934, together with the partners, officers, directors, employees and agents of such controlling person (collectively, the "CONTROLLING PERSONS"), from and against any loss, claim, damage, liability, reasonable attorneys' fees, cost or expense and costs and expenses of investigating and defending any such claim, joint or several, and any action in respect thereof (collectively, the "DAMAGES") to which each Holder, its partners, officers, directors, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Conversion Shares or any amendment or supplement thereto, or arises out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of any federal or state securities laws or any rule or regulation thereof, except insofar as the same are based upon information furnished in writing to the Company by a Holder expressly for use therein, and shall reimburse the Holder, its Affiliates, partners, officers, directors, employees and agents, and each such Controlling Person for any legal and other expenses reasonably incurred by such Holder, its Affiliates, its partners, officers, directors, employees and agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings; provided, however, that the Company shall not be liable to any Holder to the extent that any such Damages (or action or proceeding in respect thereof) arise out of or are based upon an untrue -15- statement or omission made in any preliminary prospectus if (i) such Holder failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by the Holder to the person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or such omission; provided, further, however, that the Company shall not be liable to any Holder in any such case to the extent that any such Damages arise out of or are based upon an untrue statement or omission in any prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Company with copies of such prospectus as so amended or supplemented, such Holder thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Conversion Shares to the person asserting the claim from which such Damages arise. The Company also agrees to indemnify any Underwriters of the Conversion Shares, their officers and directors and each person who controls such Underwriters on substantially the same basis as that of the indemnification of the Holder provided in this Section 10.5(a). (b) Each Holder shall, to the full extent permitted by law, indemnify and hold harmless the Company, its officers, directors, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling person, to the same extent as the foregoing indemnity from the Company to the Holders, but only to the extent the Company's or such person's Damages are attributable to the information related to the Holder, or its plan of distribution, furnished in writing by a Holder or on a Holder's behalf expressly for use in any registration statement or prospectus relating to the Conversion Shares, or any amendment or supplement thereto, or any preliminary prospectus and the aggregate amount which may be recovered from any Holder pursuant to the indemnification provided for in this Section 10.5(a) in connection with any registration and sale of Conversion Shares shall be limited to the net proceeds received by such Holder from the sale of such Conversion Shares. In case any action or proceeding shall be brought against the Company or its officers, directors, employees or agents or any such controlling person or its officers, directors, employees or agents, in respect of which indemnity may be sought against any Holder, such Holder shall have the rights and duties given to the Company, and the Company or its officers, directors, employees or agents, or such controlling person, or its officers, directors, employees or agents, shall have the rights and duties given to such Holder under the preceding paragraph. Each Holder also agrees to indemnify and hold harmless any Underwriters of the Conversion Shares, their officers and directors and each person who controls such Underwriters on substantially the same basis as that of the indemnification each Holder provides to the Company provided in this Section 10.5(b); provided that the aggregate recovery that the Company and any Underwriters can recover from any Holder pursuant to this Section 10.5(b) cannot exceed the net proceeds received by such Holder from the sale of Conversion Shares. The Company shall be entitled to receive indemnities from Underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above, with respect to information so furnished in writing by such persons specifically for inclusion in any prospectus or registration statement; provided, however, that if the Company does not receive such indemnities, the Company will not be relieved of its duties and obligations hereunder. -16- (c) Promptly after receipt by any person in respect of which indemnity may be sought pursuant to Section 10.5(a) or 10.5(b) (an "Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action; provided, however, that the failure to notify the Indemnifying Party shall not relieve it from any liability which it may have to an Indemnified Party otherwise than under Section 10.5(a) or 10.5(b) and except to the extent of any actual prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Company and such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties, or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. (d) If the indemnification provided for in this Section 10.5 is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Holders on the one hand and the Underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and the Holders on the one hand and the Underwriters on the other from the offering of the Conversion Shares, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and the Holders on the -17- one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations, and (ii) as between the Company on the one hand and each Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and each Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Holders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Holders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and the Holders on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Holders or by the Underwriters. The relative fault of the Company on the one hand and each Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 10.5(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10.5(b), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Conversion Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Conversion Shares were offered to the public (less underwriting discounts and commissions) exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. -18- 11. Board of Directors. For so long as funds managed by Apax continue to hold at least fifty percent (50%) of the Series C Shares (or shares of Company common stock issuable upon conversion of the Series C Shares) acquired by such funds at Closing pursuant to this Agreement, such funds managed by Apax shall be entitled to designate one person for election to the Company's Board of Directors as a Class II director (the "INVESTOR REPRESENTATIVE"), which Investor Representative shall be selected by such funds. At the time of each annual meeting of stockholders at which Class II directors are elected, the Company agrees to take all such action as may be required under applicable law: (a) to include the Investor Representative in the slate of nominees for the class of directors in which the Investor Representative is designated to be recommended by the Board of Directors for election by the Company stockholders, and (b) to use its best efforts to cause the election of the Investor Representative to the Board of Directors, including nominating such individual to be elected as a director. In the event that a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal of the Investor Representative, the Company and the remaining directors will cause the vacancy created thereby to be filled by a new designee of funds managed by Apax as soon as possible. 12. Agreement Regarding Series A Preferred Stock. In connection with entering into this Agreement, and as a condition hereto, the funds managed by Apax that are Investor and the Company agree that the terms of the Series A Preferred Stock shall be amended and restated through the filing of the First Amended and Restated Certificate of Designation of the Designations, Limitations, Restrictions and Relative Rights of the Series A Convertible Preferred Stock, attached hereto as Exhibit D (the "RESTATED DESIGNATION"). By their signatures below, such funds managed by Apax, in their capacity as the sole holders of Series A Preferred Stock following their acquisition of the Series A Preferred Stock as contemplated by Section 5.7 above, hereby approves the Restated Designation in all respects. 13. Confidentiality. Neither the Company nor the Investor shall issue any press release or other public announcement regarding, or otherwise disclose, this Agreement or the transactions contemplated herein, or make any filing of this Agreement or other agreements relating to the transactions contemplated herein, without the consent of the other, which consent will not be unreasonably withheld; provided, however, that if a party is required by applicable law to provide public disclosure of this Agreement or the transactions contemplated herein, such party shall use all reasonable efforts to coordinate the disclosure with the other party before issuance, including, but not limited to the submission to the Commission (and any other applicable regulatory or judicial authority) of an application for confidential treatment of certain terms (which terms shall be agreed upon by the Investor and the Company) of this Agreement. Each party shall provide to the other for review a copy of any proposed disclosure of this Agreement or its terms and any application for confidential treatment at least five (5) business days before any such disclosure or application is made and to comply with all reasonable requests from the other party to minimize the extent and scope of any such disclosure. 14. Successors and Assigns. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, assigns, heirs, executors and administrators -19- of the parties hereto. The Series C Shares shall be freely transferable to Affiliates of the Investors. 15. Survival of Representations and Warranties. The representations, warranties and agreements made herein shall survive the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 16. Expenses. Each party shall pay its own costs and expenses incurred with respect to the negotiation, execution, delivery and performance of this Agreement, except that the Company shall pay for an aggregate maximum of (a) $75,000 for legal, accounting and other professional fees and expenses incurred by funds managed by Apax in conjunction with the transactions contemplated by this Agreement and (b) $7,500 for legal fees and expenses incurred by Bertelsmann in connection with its review of this Agreement. 17. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (i) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below: If to an Investor, to such Investor's address as set forth on Schedule I hereto. If to Company: Audible, Inc. 65 Willowbrook Blvd. Wayne, NJ 07470 Attn: Chief Executive Officer Telephone No.: (973) 890-4070 Facsimile No.: (973) 890-2442 with a copy to: Edwin M. Martin, Jr., Esq. Piper Rudnick LLP 1775 Wiehle Avenue, Suite 400 Reston, VA 20190 Telephone No.: (703) 773-4213 Facsimile No.: (703) 773-5000 Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received -20- by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 17. 18. Brokers. The Company is not subject to an existing agreement with any finder and no fees will be paid by the Company to any such finder in regard to the transactions contemplated herein. The Investor is not responsible for the payment of any finder's fees in connection with the transactions contemplated herein. 19. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 20. Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, any term of 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), with the written consent of the Company and Investors who own at least a majority of the Series C Preferred Stock; provided, that any amendments relating to the relative rights of holders of the Series C Preferred Stock shall not inequitably affect one or more Investors. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. 21. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which, when taken together, shall constitute one and the same instrument. 22. Headings. The headings of the sections, subsections, and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part of this Agreement. 23. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. 24. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the choice of law or conflicts of law provisions thereof. {Signature pages follow} -21- IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written. THE "COMPANY": AUDIBLE, INC. By: /s/ Donald Katz -------------------------------------------- Name: Donald Katz Title: Chairman and Chief Executive Officer THE "INVESTORS": APAX EXCELSIOR VI, L.P. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais -------------------------------------------- Name: Paul Vais Title: Vice President APAX EXCELSIOR VI-A, C.V. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais -------------------------------------------- Name: Paul Vais Title: Vice President {Signatures continued on following page} APAX EXCELSIOR VI-B, C.V. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais --------------------------------- Name: Paul Vais Title: Vice President PARTRICOF PRIVATE INVESTMENT CLUB III, L.P. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais --------------------------------- Name: Paul Vais Title: Vice President BERTELSMANN MULTIMEDIA, INC. By: /s/ Robert J. Sorrentino --------------------------------- Name: Robert J. Sorrentino Title: President RANDOM HOUSE VENTURES L.L.C. By: Richard Sarnoff --------------------------------- Name: Richard Sarnoff Title: President SCHEDULE I SCHEDULE OF INVESTORS - ------------------------------------------------ -------------- ---------------- NAME NUMBER OF TOTAL SERIES C PURCHASE SHARES PRICE - ------------------------------------------------ -------------- ---------------- APAX EXCELSIOR VI, L.P. C/O APAX PARTNERS, INC. 632,963 $3,418,000.20 2180 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------------------ -------------- ---------------- APAX EXCELSIOR VI-A, C.V. 51,704 $279,201.60 C/O APAX PARTNERS, INC. 2180 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------------------ -------------- ---------------- APAX EXCELSIOR VI-B, C.V. 34,444 $185,997.60 C/O APAX PARTNERS, INC. 2180 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------------------ -------------- ---------------- PATRICOF PRIVATE INVESTMENT CLUB III, L.P. 21,630 $116,802 C/O APAX PARTNERS, INC. 2180 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------------------- -------------- --------------- BERTELSMANN MULTIMEDIA, INC. 1540 Broadway 185,185 $999,999 New York, NY 10036 - ------------------------------------------------ -------------- ---------------- RANDOM HOUSE VENTURES L.L.C. c/o Random House, Inc. 185,185 $999,999 1745 Broadway New York, NY 10019 - ------------------------------------------------ -------------- ---------------- - ------------------------------------------------ -------------- ---------------- TOTAL 1,111,111 $5,999,999.40 - ------------------------------------------------ -------------- ---------------- EX-2 4 file003.txt SERIES C CERTIFICATE OF DESIGNATION CERTIFICATE OF DESIGNATION OF DESIGNATIONS, LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE SERIES C CONVERTIBLE PREFERRED STOCK OF AUDIBLE, INC. ------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------------------------------- Audible, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "CORPORATION"), by its Chairman, does hereby certify that pursuant to authority expressly vested in the Board of Directors of the Corporation (the "BOARD OF DIRECTORS") by the provisions of the Corporation's Certificate of Incorporation, as amended (the "CERTIFICATE OF INCORPORATION"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors, at a meeting held on August 1, 2003, duly approved and adopted the following resolution which resolution remains in full force and effect on the date hereof: RESOLVED, that pursuant to authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issue of a series of preferred stock having a par value of $0.01 per share, which shall be designated as Series C Convertible Preferred Stock, consisting of 1,111,111 shares and having voting powers, designations, preferences, limitation, restrictions and relative rights as follows: 1. DESIGNATION OF THE SERIES; RANK. 1,111,111 shares of Preferred Stock, par value $0.01 per share, shall be designated as "Series C Convertible Preferred Stock" (the "SERIES C PREFERRED STOCK"). The issuance price of the Series C Preferred Stock shall be $5.40 per share (the "ORIGINAL PURCHASE PRICE"). The Series C Preferred Stock shall rank (a) senior to the Common Stock and any other capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation, dissolution or winding up and (b) pari passu with the Corporation's Series A Convertible Preferred Stock (the "SERIES A PREFERRED STOCK") and its Series B Convertible Preferred Stock (the "SERIES B PREFERRED STOCK") as to dividends and upon liquidation, dissolution or winding up. The date on which the first share of Series C Preferred Stock is issued shall hereinafter be referred to as the "ORIGINAL ISSUE DATE". 2. DIVIDENDS. (a) The holders of shares of Series C Preferred Stock shall be entitled to receive dividends ("PREFERRED DIVIDENDS"), which shall accrue and compound semi-annually at the rate of six percent (6%) per annum (the "DIVIDEND RATE"). The Preferred Dividends on each share of Series C Preferred Stock shall be cumulative and shall begin to accrue and compound from the Original Issue Date (the "ACCRUAL DATE") and shall cease to accrue and compound on the fourth anniversary of the Original Issue Date (the "TERMINATION DATE"). Preferred Dividends will accrue regardless of whether there are profits, surplus or other funds of the Corporation's legally available for payment of dividends. (b) In the event of the conversion of the Series C Preferred Stock pursuant to Section 5 below, all accrued but unpaid Preferred Dividends shall be converted into shares of Common Stock at the then applicable Conversion Price (as that term is defined below). (c) No cash dividends shall be declared or paid upon the Common Stock, any other preferred stock or other securities of the Corporation (other than dividends on the Series A Preferred Stock) unless equivalent dividends, on an as-converted basis, are declared and paid concurrently on the Series C Preferred Stock and all accrued and unpaid dividends, including the Preferred Dividends, have been paid on the Series C Preferred Stock. 3. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary bankruptcy, liquidation, dissolution or winding up of the Corporation (a "LIQUIDATION"), before any distribution of assets shall be made to the holders of Common Stock, the holders of each share of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders (the "AVAILABLE ASSETS") an amount equal to the Original Purchase Price (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares (an "ADJUSTMENT")) plus all dividends, including the Preferred Dividends set forth in Section 2 above, accrued and unpaid on such share up to the date of distribution to the holders of Series C Preferred Stock of the Available Assets to which they are entitled. After payment of the preference amount set forth in this Section 3(a), the holders of Series C Preferred Stock shall not be entitled to receive any additional amounts. (b) Nothing set forth in Section 3(a) above is intended to restrict the distribution that would be received by a holder of Series C Preferred Stock if, prior to a Liquidation, such holder elected to convert its shares of Series C Preferred Stock into Common Stock pursuant to Section 5 below. (c) The payment of the preference amount set forth in Section 3(a) shall be made pro rata and on a pari passu basis with the preferential amounts payable upon Liquidation to the holders of the Corporation's Series A Preferred Stock and Series B Preferred Stock. (d) If upon any such Liquidation the Available Assets shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series C Preferred Stock and any class or series of stock ranking on liquidation on a parity with the Series C Preferred Stock shall share ratably in the distribution of the Available Assets in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (e) The preferences described in Sections 3(a), 3(c) and 3(d) shall collectively be known as the "LIQUIDATION PREFERENCE." (f) The merger, reorganization, consolidation, sale of all or substantially all the assets of the Corporation or recapitalization of the Corporation into, by or with another corporation (as applicable) or other similar transaction or series of related transactions in which 50% or more of the voting power of the Corporation is disposed or in which the stockholders of the Corporation immediately prior to such merger, reorganization, consolidation, sale of all or substantially all the assets of the Corporation or recapitalization own less than 50% of the Corporation's voting power immediately after such merger, reorganization, consolidation or recapitalization, or the sale of all or substantially all the assets of the Corporation (any such event an "ACQUISITION EVENT"), shall be deemed to be a Liquidation for purposes of this Certificate of Incorporation, unless the holders in interest of at least 50% of the then outstanding shares of Series C Preferred Stock, acting together as a single class, elect otherwise by giving written notice thereof to the Corporation at least three (3) days before the effective date of such event. The amount deemed distributed for purposes of determining the Liquidation Preference for the holders of shares of Series C Preferred Stock upon any Acquisition Event shall be the cash or the value of the property, rights or securities distributed to such holders by the acquiring person, firm or other entity. The value of such property, rights or other securities shall be determined in good faith by the Board of Directors of the Corporation. (g) Written notice of such Liquidation, stating a payment date, the Liquidation Preference and the place where said Liquidation Preference shall be payable, shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile or electronic mail, not less than twenty (20) days prior to the payment date stated therein, to the holders of record of the Series C Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. 4. VOTING. (a) Except as otherwise expressly provided herein or as required by applicable law, the holder of each share of Series C Preferred Stock will be entitled to vote on all matters submitted to a vote or consent of stockholders. Each share of Series C Preferred Stock will entitle the holder thereof to such a number of votes per share equal to the number of shares of Common Stock into which such share of Series C Convertible Preferred Stock is then convertible pursuant to Section 5 hereof (other than shares of Common Stock issuable pursuant to Section 2(b) hereof) as of the record date for the determination of stockholders entitled to vote on such matter, or if no record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as otherwise provided herein or required by applicable law, the holders of shares of Series C Preferred Stock and Common Stock (as well as Series A Preferred Stock and Series B Preferred Stock) will vote together as a single class on all matters submitted to a vote or consent of stockholders. (b) The Corporation shall not, without first obtaining the written consent or affirmative vote of the holders in excess of 50% of the then outstanding shares of Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting, as the case may be, separately as a class: (i) amend or modify the Corporation's Certificate of Incorporation or Bylaws if such action would alter the preferences, rights, privileges or powers of the Series C Preferred Stock or decrease the total number of authorized shares of Series C Preferred Stock; (ii) authorize, increase the number of or issue any additional shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock or any equity security of the Corporation ranking senior to, or on parity with, whether upon liquidation, dissolution, winding up, the payment of dividends or otherwise, the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock (other than additional shares of Series A Preferred Stock payable as dividends); or (iii) take any other action that would alter the preferences, rights, privileges or powers of the Series C Preferred Stock. (c) The Corporation shall not, without first obtaining the written consent or affirmative vote of the holders in excess of 50% of the voting power of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single class on an as converted basis, given in writing or by vote at a meeting, consenting or voting, as the case may be: (i) reclassify any capital stock of the Corporation into shares ranking senior to, or on a parity with, the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock; (ii) effect any recapitalization or reorganization of the capital stock of the Corporation, or liquidate or dissolve the Corporation; (iii) make any material change in the Corporation's business or strategic direction (as such business and strategic direction is in place on the Original Issue Date); (iv) declare or pay any dividend or distribution on the Common Stock or purchase, redeem or otherwise acquire or retire for value shares of Common Stock or other securities convertible into or exercisable for shares of Common Stock (except for acquisitions of Common Stock by the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of services to the Corporation); or (v) incur any long-term indebtedness or enter into any commitments to incur long term indebtedness (whether by issuance, guarantee or otherwise) or pledge, or create any lien, on any of the Corporation's assets, except for (A) lease transactions entered into in the ordinary course of business and (B) long-term indebtedness (and pledges of assets to secure such a loan or loans) incurred for (x) operating purposes in the ordinary course of business including working capital needs, improvements and expansion; and (y) financing for the purchase of assets; provided that the maximum aggregate amount outstanding at any time of any such long term indebtedness shall not exceed $4,000,000. 5. CONVERSION. The holders of shares of Series C Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"): (a) Optional Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Original Purchase Price by (ii) the Conversion Price (as defined below) in effect at the time of conversion. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series C Preferred Stock without payment of additional consideration by the holder thereof (the "CONVERSION PRICE") shall initially be $0.54. Such initial Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in Section 5(e) below. The provisions of Section 2(b) shall also apply. In the event of a Liquidation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on Liquidation to the holders of shares of Series C Preferred Stock. (b) Mandatory Conversion. Each share of Series C Preferred Stock shall automatically be converted at the then effective Conversion Price in the manner provided herein into fully paid and nonassessable shares of Common Stock if at any time after the Original Issue Date (i) the average closing market price of the Common Stock over a period of sixty consecutive trading days (the "APPLICABLE PERIOD") equals or exceeds $3.00 per share (as adjusted for splits, combinations and divisions) and (ii) the average daily trading volume of the Common Stock during the Applicable Period equals or exceeds 330,000 shares per day (as adjusted for splits, combinations and divisions). For purposes of this Section 5(b), the average closing market price of the Common Stock shall be based on the closing price on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, based on the reported closing price in the over-the-counter market as furnished by the National Quotation Bureau, Inc., or, if such firm is not then engaged in the business of reporting such prices, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Corporation. (c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the shares of Series C Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Whether or not a holder would otherwise be entitled to a fractional share shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (d) Mechanics of Conversion. (i) In order for a holder of shares of Series C Preferred Stock to optionally convert shares of Series C Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C Preferred Stock at the office of the stock transfer agent for the shares of Series C Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own stock transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney-in-fact duly authorized in writing. The date of receipt of such certificates and notice by the stock transfer agent (or by the Corporation if the Corporation serves as its own stock transfer agent) shall be the conversion date (the "CONVERSION DATE"). The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of shares of Series C Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (ii) The Corporation shall, at all times when the Series C Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the shares of Series C Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series C Preferred Stock. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series C Preferred Stock, in addition to such other remedies as shall be available to the holder of such shares of Series C Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. (iii) All shares of Series C Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of Series C Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to eliminate the authorized Series C Preferred Stock or reduce the authorized number thereof as may be appropriate accordingly. (e) Adjustments to Conversion Price: (i) Special Definitions. For purposes of this Subsection 5(e), the following definitions shall apply: (A) "OPTION" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities (as defined below) or restricted stock of the Corporation. (B) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock or Preferred Stock. (C) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Subsection 5(e)(iii) below, deemed to be issued) by the Corporation after the Original Issue Date, other than: (I) shares of Common Stock issued or issuable upon conversion of shares of the Corporation's outstanding Preferred Stock; (II) shares of Common Stock issued or issuable as a dividend or distribution on the Series A Preferred Stock; (III) shares of Common Stock issued or issuable upon the exercise or conversion of options, warrants and other convertible securities outstanding on the Original Issue Date; (IV) up to an aggregate of 3,000,000 shares (subject to adjustment for stock splits, stock dividends and subdivisions): (a) underlying options granted to, or shares of Common Stock acquired by, employees, directors or consultants of the Corporation pursuant to an option plan or other compensation arrangement approved by the Board of Directors and any shares issued upon exercise of such options; (b) shares of Common Stock or Convertible Securities issued or issuable to financial institutions or lenders in connection with credit financing arrangements; and (c) shares of Common Stock or Convertible Securities issued or issuable to vendors, partners or other parties in connection with strategic partnerships, relationship or other similar business arrangements; (V) any shares of Common Stock or Convertible Securities issued for which the holders of at least a majority of the Series C Preferred Stock agree in writing that such shares shall not be deemed Additional Shares of Common Stock; and (VI) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (I), (II), (III), (IV) and (V) or this clause (VI). (ii) No Adjustment of Conversion Price. Any provision herein to the contrary, no adjustment in the number of shares of Common Stock into which the shares of Series C Preferred Stock are convertible shall be made, by adjustment in the applicable Conversion Price thereof, unless the consideration per share (determined pursuant to Subsection 5(e)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares. (iii) Issue of Options and Convertible Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities and, upon the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding; and (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities, provided that no readjustment pursuant to this clause (B) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 5(e)(iii)), without consideration or for a Net Consideration Per Share less than the Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest tenth of a cent) determined by multiplying the Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares issued or issuable upon the conversion of shares of each series of Preferred Stock) plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to conversion; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares issued or issuable upon the conversion of shares of each series of Preferred Stock) plus the number of such Additional Shares of Common Stock so issued; provided, that, for the purpose of this Subsection 5(e)(iv), immediately after any Additional Shares of Common Stock are deemed issued pursuant to Subsection 5(e)(iii) (whether or not excluded from the definition of "Additional Shares of Common Stock" by virtue of clauses (II), (III), (IV) or (V) of Subsection 5(e)(i)(C)), such Additional Shares of Common Stock shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Subsection 5(e), the "NET CONSIDERATION PER SHARE" shall mean the per share consideration received by the Corporation for the issue of any Additional Shares of Common Stock and shall be computed as follows: (A) Cash and Property. Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 5(e)(iii), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Combinations or Consolidation of Common Stock. If, at any time after the Original Issue Date, the number of shares of Common Stock outstanding are decreased by a combination or consolidation of the outstanding shares of Common Stock, by reclassification or otherwise, then following the record date fixed for such combination (or the date of such combination, if no record date is fixed), the applicable Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be increased so that the number of shares of Common Stock issuable on conversion of each share of Series C Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock. (vii) Adjustment for Stock Dividends, Splits, Etc. If the Corporation shall at any time after the applicable Original Issue Date fix a record date for the subdivision, split-up or stock dividend of shares of Common Stock, then, following the record date fixed for the determination of holders of shares of Common Stock entitled to receive such subdivision, split-up or dividend (or the date of such subdivision, split-up or dividend, if no record date is fixed), the Conversion Price in effect immediately prior to such subdivision, split-up or dividend shall, concurrently with the effectiveness of such subdivision, split-up or dividend, be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series C Preferred Stock shall be increased in proportion to such increase in outstanding shares; provided, however, that the Conversion Price shall not be decreased at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (viii) Adjustment for Merger or Reorganization, etc. In case of any consolidation, recapitalization or merger of the Corporation with or into another entity or the sale of all or substantially all of the assets of the Corporation to another entity (other than a subdivision or combination provided for elsewhere in this Section 5 and other than a consolidation, merger or sale which is treated as a Liquidation pursuant to Section 3), each share of Series C Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such shares of Series C Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment shall be made in the application of the provisions in this Section 5 with respect to the rights and interest thereafter of the holders of the shares of Series C Preferred Stock, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the shares of Series C Preferred Stock. (f) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the shares of Series C Preferred Stock against impairment. (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of Series C Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of the shares of Series C Preferred Stock. (h) Notice of Record Date. In the event: (i) that the Corporation takes a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or any other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation or an Acquisition Event; then the Corporation shall cause to be filed at its principal office or at the office of the stock transfer agent of the Series C Preferred Stock, and shall cause to be mailed to the holders of the Series C Preferred Stock at their last addresses as shown on the records of the Corporation or such stock transfer agent, at least ten days prior to the record date specified in (A) below or twenty days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. {Signature on following page} IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed by its Chairman, Donald Katz, this 1st day of August, 2003. AUDIBLE, INC. By: /s/ Donald Katz ---------------------- Name: Donald Katz Title: Chairman EX-3 5 file004.txt SERIES A INVESTOR RIGHTS AGREEMENT AUDIBLE, INC. SERIES A INVESTOR RIGHTS AGREEMENT THIS SERIES A INVESTOR RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of the 1st day of August, 2003, by and among AUDIBLE, INC., a Delaware corporation (the "COMPANY") and Apax Excelsior VI Partners, L.P., Apax Excelsior VI-A C.V., Apax Excelsior VI-B C.V. and Patricof Private Investment Club III, L.P. (collectively, the "INVESTOR"). RECITALS WHEREAS, pursuant to that certain Stock Purchase Agreement of even date herewith by and between Investor and Microsoft Corporation, Investor is acquiring from Microsoft Corporation 100% of the issued and outstanding shares of the Company's Series A Convertible Preferred Stock, $0.01 par value per share (the "SERIES A STOCK"); WHEREAS, in connection with its acquisition of the Series A Stock, the Investor has agreed to make certain changes to the rights and preferences of the Series A Stock; and WHEREAS, in connection with its acquisition of the Series A Stock and the changes to the rights and preferences of the Series A Stock, Company and Investor have agreed to enter into this Agreement in order to provide certain rights to Investor. NOW, THEREFORE, in consideration of the foregoing recitals, premises and the covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. No Assumption of Prior Agreement. Investor specifically acknowledges and agrees that while it is acquiring 100% of the outstanding Series A Stock from Microsoft Corporation, it is not acquiring, and will not acquire, any of the rights or obligations of Microsoft Corporation under that certain Series A Convertible Preferred Stock Purchase Agreement dated as of February 8, 2001 by and among the Company and Microsoft Corporation (unless such rights or obligations are otherwise set forth in this Agreement). Section 2. Participation Right. If at any time on or before the fifth (5th) anniversary of this Agreement, the Company shall sell and issue equity securities for financing purposes (a "NEW ISSUANCE"), the Company shall offer to Investor (for so long as Investor continues to own 100% of the Series A Stock acquired on the date hereof (or shares of the Company's common stock, par value $0.01 (the "Common Stock") issuable upon conversion of the Series A Stock)), by written notice at least ten (10) days prior to the proposed New Issuance, the opportunity to purchase its pro rata share of such equity securities upon the same terms and conditions as the other participants in such New Issuance, as set forth in the Company's written notice. Investor's pro rata share shall be equal to the ratio of (a) the number of shares of the Common Stock (including all shares of Common Stock issued or issuable upon conversion of all Company preferred stock held by Investor) of which such Investor is deemed to be a holder immediately prior to the date of the New Issuance to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Company's preferred stock or upon the exercise of any outstanding warrants or options) immediately prior to the date of the New Issuance. Investor may accept the Company's offer as to the full number of shares offered to it, or any lesser number, by written notice thereof given by it to the Company within five (5) days after the delivery to Investor of Company's notice regarding the New Issuance. In such event, the Company shall sell and Investor shall buy, upon the terms and conditions specified in the notice, the number of shares agreed to be purchased by Investor. The purchase rights of Investor set forth in this Section 2 may not be transferred other than to Affiliates of Investor. For the purposes of this Agreement, "Affiliate" shall have the meaning set forth in Rule 405 promulgated under the Securities Act of 1933, as amended. Section 3. Board of Directors. For so long as Investor continues to hold at least fifty percent (50%) of the Series A Stock (or shares of Company common stock issuable upon conversion of the Series A Stock) acquired by such funds on the date hereof, Investor shall be entitled to designate one person for election to the Company's Board of Directors (the "INVESTOR REPRESENTATIVE"), which Investor Representative shall be selected by Investor. The Investor Representative shall be elected to the Board of Directors as of the date hereof as a Class II director by a resolution of the Board of Directors. At the time of each annual meeting of stockholders at which Class II directors are elected, the Company agrees to take all such action as may be required under applicable law: (a) to include the Investor Representative in the slate of nominees for the class of directors in which the Investor Representative is designated to be recommended by the Board of Directors for election by the Company stockholders, and (b) to use its best efforts to cause the election of the Investor Representative to the Board of Directors, including nominating such individual to be elected as a director. In the event that a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal of the Investor Representative, the Company and the remaining directors will cause the vacancy created thereby to be filled by a new designee of Investor as soon as possible. Section 4. Registration of Shares. 4.1 Demand Registration. (a) At any time and from time to time, Investor may make written requests on the Company for the registration under the Securities Act of the shares of Company common stock (the "COMMON STOCK") issuable upon conversion of the Series A Stock (the "CONVERSION SHARES") having an anticipated aggregate offering price (net of discounts and commissions) of at least $5,000,000. The Company shall have no obligation to file more than two (2) registration statements under the Securities Act with respect to such requests; provided, however, that if the Conversion Shares may be registered on Form S-3 (or any successor form with similar "short form" disclosure requirements), the Investor shall have unlimited rights to request registration of its Conversion Shares on Form S-3 (or such successor form), provided, however, that each such registration of Conversion Shares shall have an anticipated aggregate offering price (net of discounts and commissions) of at least $500,000. Each such request described in the preceding two sentences shall be hereinafter referred to as a "DEMAND REGISTRATION." Any Demand Registration will specify the number of Conversion Shares proposed to be sold and will also specify the intended method of disposition thereof. (b) A registration will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the Securities and Exchange Commission (the "Commission") and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if, after it has become effective, the offering of shares of Common Stock pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of the shares of Common Stock pursuant to the registration at any time within one hundred eighty (180) days after the effective date of the registration statement, such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 4.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 4.1 does not remain effective for a period of at least one hundred eighty (180) days beyond the effective date thereof or, with respect to an underwritten offering of Conversion Shares, until ninety (90) days after the commencement of the distribution by the Investor of the Conversion Shares included in such registration statement, then the Company shall continue to be obligated to effect such registration pursuant to this Section 4.1. The Investor shall be permitted to withdraw all or any part of the Conversion Shares from a Demand Registration at any time prior to the effective date of such Demand Registration. (c) If the Investor so elects, the offering of Conversion Shares pursuant to Demand Registration shall be in the form of an underwritten offering. The Investor shall select one or more nationally recognized firms of investment bankers reasonably acceptable to the Company to act as the lead managing underwriter (the "Underwriter") in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering. 4.2 Piggy-Back Registration (a) If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its respective security holders (other than a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission) or a Demand Registration pursuant to Section 4.1), then the Company shall give prompt written notice of such proposed filing to the Investor as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer Investor the opportunity to register such number of Conversion Shares as Investor may request (which request shall specify the Conversion Shares intended to be disposed of by Investor and the intended method of distribution thereof) (a "PIGGY-BACK REGISTRATION"). The Company shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Conversion Shares requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Conversion Shares in accordance with the intended method of distribution thereof. Except as set forth in Section 4.2(c), Investor shall have the right to withdraw its request for inclusion of its Conversion Shares in any registration statement pursuant to this Section 4.2 by giving written notice to the Company of its request to withdraw, provided, however, that in the event of such withdrawal, Investor shall be responsible for all fees and expenses (including fees and expenses of counsel) incurred by Investor prior to such withdrawal except as set forth in Section 4.2(c). The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective. No registration effected under this Section 4.2, and no failure to effect a registration under this Section 4.2, shall relieve the Company of its obligation to effect a registration upon the request of Investor pursuant to Section 4.1, and no failure to effect a registration under this Section 4.2 and to complete the sale of Conversion Shares in connection therewith shall relieve the Company of any other obligation under this Section 4. (b) Notwithstanding anything to the contrary contained herein, if the managing Underwriter or Underwriters of any underwritten offering described in Section 4.2 have informed, in writing, the Investor that it is their opinion that the total number of shares which the Company, the Investor and any other persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of shares to be offered shall be reduced or limited in the following order of priority: (x) first, the number of shares to be offered by all other holders of securities of the Company other than the Investor or others who have registration rights to the extent necessary to reduce the total number of shares as recommended by such managing Underwriters; and (y) second, if further reduction or limitation is required, the number of shares to be offered for the account of Investor shall be reduced or limited to the extent necessary to reduce the total number of shares as recommended by such managing Underwriters; provided, however, that the reduction for the account of the Investor shall not result in the aggregate number of shares of the Investor included in the offering to be less than 25% of the total number of shares offered. (c) Withdrawal Election. If, as a result of the proration provisions of Section 4.2(b), Investor shall not be entitled to include at least 50% of the Conversion Shares in a Piggy-Back Registration that Investor has requested to be included, Investor may elect to withdraw its request to include Conversion Shares in such registration (a "WITHDRAWAL ELECTION") without incurring any liability for its fees and expenses; provided, however, that a Withdrawal Election shall be irrevocable and, after making a Withdrawal Election, Investor shall no longer have any right to include Conversion Shares in the Piggy-Back Registration as to which such Withdrawal Election was made. 4.3 Registration Procedures. Whenever the Company is required to effect or cause the registration of Conversion Shares pursuant to Section 4.1, the Company will use its best efforts to effect the registration and the sale of such Conversion Shares in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering, shall be on Form S-3 (unless the Company does not qualify for use of Form S-3 in a registration involving only a secondary offering as provided in the General Instructions to Form S-3 in such registration, in which case such registration statement shall be a Form S-1) or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use best efforts to cause such registration statement to become and remain effective until the completion of the distribution; provided, however, that the Company shall be required to keep any registration statement effective at least ninety (90) days. (b) The Company will prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 4.3(a) and as to comply with the provisions of the Securities Act with respect to the disposition of all Conversion Shares covered by such registration statement in accordance with the intended method of disposition set forth in such registration statement for such period. (c) The Company will, as far in advance as practical, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish copies of such registration statement as proposed to be filed, together with exhibits thereto, to (i) Investor, (ii) not more than one counsel representing Investor, and (iii) each Underwriter, if any, of the Conversion Shares covered by such registration statement, which documents will be subject to review and approval by the foregoing within five (5) days after delivery, and thereafter as far in advance as practical, furnish to Investor, counsel and Underwriters, if any, for their review and comment such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents or information as Investor, counsel or Underwriters may reasonably request in order to facilitate the disposition of the Conversion Shares owned by the participating Investor. (d) After the filing of the registration statement, the Company will promptly notify Investor of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (e) The Company will use its best efforts to (i) register or qualify the Conversion Shares under such other securities or blue sky laws of such jurisdictions in the United States as Investor reasonably (in light of Investor's intended plan of distribution) requests, and (ii) cause such Conversion Shares to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable Investor to consummate the disposition of the Conversion Shares; provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any jurisdiction where it would not be subject to taxation but for actions taken pursuant to this Section 4.3 or (C) consent to general service of process in any such jurisdiction. (f) The Company will immediately notify Investor, at any time when a prospectus relating to Conversion Shares is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the Investor, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to Investor any such supplement or amendment. (g) The Company and Investor will enter into customary agreements including, if applicable, an underwriting agreement in customary form and which is reasonably satisfactory to the Company (which shall not require the Investor to indemnify the underwriter with respect to misstatements or omissions in the registration statement other than such misstatements or omissions in written material supplied by Investor). The Company and Investor will also take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Conversion Shares; and Investor may, at its option, require that any or all of the representations, warranties and covenants of the Company made to or for the benefit of such Underwriters also be made to and for the benefit of Investor. (h) The Company will make available to Investor (and its counsel) and each Underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available for inspection by Investor, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained to represent Investor (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the disclosure or release of such Records is requested or required pursuant to oral questions, interrogatories, requests for information or documents or a subpoena or other order from a court of competent jurisdiction or other process; provided, however, that prior to any disclosure or release pursuant to clause (ii), the Inspectors shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waive such Inspectors' obligation not to disclose such Records; and, provided further, however, that if failing the entry of a protective order or the waiver by the Company permitting the disclosure or release of such Records, the Inspectors, upon advice of counsel, are compelled to disclose such Records, the Inspectors may disclose that portion of the Records which counsel has advised the Inspectors that the Inspectors are compelled to disclose. Investor agrees that information obtained by it solely as a result of such inspections (not including any information obtained from a third party who, insofar as is known to Investor after reasonable inquiry, is not prohibited from providing such information by a contractual, legal or fiduciary obligation to the Company) shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such information is made generally available to the public. Investor further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (i) In connection with an underwritten offering, the Company will participate, to the extent reasonably requested by the managing Underwriter for the offering or Investor, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows"; provided, however, that the Company shall not be obligated to participate in more than one such offering in any 12-month period. The Company may require Investor to promptly furnish in writing to the Company such information regarding the distribution of the Conversion Shares as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD. The Company may exclude Investor from such registration if Investor fails to provide such information. Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(f) hereof, Investor will forthwith discontinue disposition of Conversion Shares pursuant to the registration statement covering such Conversion Shares until Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.3(f) hereof, and, if so directed by the Company, Investor will deliver to the Company all copies, other than permanent file copies then in Investor's possession, of the most recent prospectus covering such Conversion Shares at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 4.3(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 4.3(f) hereof to the date when the Company shall make available to the Investor a prospectus supplemented or amended to conform with the requirements of Section 4.3(f) hereof. 4.4 Registration Expenses. In connection with the Demand Registrations pursuant to Section 4.1 hereof and any Piggy-Back Registrations under Section 4.2 hereof, the Company shall pay the following registration expenses incurred in connection with the registration thereunder (the "Registration Expenses"): (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Conversion Shares), (iii) processing, duplicating and printing expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing of the Conversion Shares, (vi) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested but not the cost of any audit other than a year end audit), (vii) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, (viii) reasonable fees and expenses of one firm of counsel for the Investor, and (ix) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities. The Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Conversion Shares, or the cost of any special audit required, such costs to be borne by the Investor. 4.5 Indemnification. (a) The Company shall, to the full extent permitted by law, indemnify and hold harmless Investor, its Affiliates, partners, officers, directors, employees and agents, and each person, if any, who controls or is under common control with Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act of 1934, together with the partners, officers, directors, employees and agents of such controlling person (collectively, the "CONTROLLING PERSONS"), from and against any loss, claim, damage, liability, reasonable attorneys' fees, cost or expense and costs and expenses of investigating and defending any such claim, joint or several, and any action in respect thereof (collectively, the "DAMAGES") to which Investor, its partners, officers, directors, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Conversion Shares or any amendment or supplement thereto, or arises out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of any federal or state securities laws or any rule or regulation thereof, except insofar as the same are based upon information furnished in writing to the Company by Investor expressly for use therein, and shall reimburse the Investor, its Affiliates, partners, officers, directors, employees and agents, and each such Controlling Person for any legal and other expenses reasonably incurred by Investor, its Affiliates, its partners, officers, directors, employees and agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings; provided, however, that the Company shall not be liable to Investor to the extent that any such Damages (or action or proceeding in respect thereof) arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) Investor failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by the Investor to the person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or such omission; provided, further, however, that the Company shall not be liable to any Investor in any such case to the extent that any such Damages arise out of or are based upon an untrue statement or omission in any prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Company with copies of such prospectus as so amended or supplemented, Investor thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Conversion Shares to the person asserting the claim from which such Damages arise. The Company also agrees to indemnify any Underwriters of the Conversion Shares, their officers and directors and each person who controls such Underwriters on substantially the same basis as that of the indemnification of the Investor provided in this Section 4.5(a). (b) Investor shall, to the full extent permitted by law, indemnify and hold harmless the Company, its officers, directors, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling person, to the same extent as the foregoing indemnity from the Company to the Investor, but only to the extent the Company's or such person's Damages are attributable to the information related to the Investor, or its plan of distribution, furnished in writing by Investor or on Investor's behalf expressly for use in any registration statement or prospectus relating to the Conversion Shares, or any amendment or supplement thereto, or any preliminary prospectus and the aggregate amount which may be recovered from Investor pursuant to the indemnification provided for in this Section 4.5(a) in connection with any registration and sale of Conversion Shares shall be limited to the net proceeds received by Investor from the sale of such Conversion Shares. In case any action or proceeding shall be brought against the Company or its officers, directors, employees or agents or any such controlling person or its officers, directors, employees or agents, in respect of which indemnity may be sought against Investor, Investor shall have the rights and duties given to the Company, and the Company or its officers, directors, employees or agents, or such controlling person, or its officers, directors, employees or agents, shall have the rights and duties given to Investor under the preceding paragraph. Investor also agrees to indemnify and hold harmless any Underwriters of the Conversion Shares, their officers and directors and each person who controls such Underwriters on substantially the same basis as that of the indemnification Investor provides to the Company provided in this Section 4.5(b); provided that the aggregate recovery that the Company and any Underwriters can recover from Investor pursuant to this Section 4.5(b) cannot exceed the net proceeds received by Investor from the sale of Conversion Shares. The Company shall be entitled to receive indemnities from Underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above, with respect to information so furnished in writing by such persons specifically for inclusion in any prospectus or registration statement; provided, however, that if the Company does not receive such indemnities, the Company will not be relieved of its duties and obligations hereunder. (c) Promptly after receipt by any person in respect of which indemnity may be sought pursuant to Section 4.5(a) or 4.5(b) (an "Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action; provided, however, that the failure to notify the Indemnifying Party shall not relieve it from any liability which it may have to an Indemnified Party otherwise than under Section 4.5(a) or 4.5(b) and except to the extent of any actual prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Company and such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties, or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. (d) If the indemnification provided for in this Section 4.5 is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Investor on the one hand and the Underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and the Investor on the one hand and the Underwriters on the other from the offering of the Conversion Shares, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and the Investor on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations, and (ii) as between the Company on the one hand and Investor on the other, in such proportion as is appropriate to reflect the relative fault of the Company and Investor in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Investor on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Investor bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and the Investor on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Investor or by the Underwriters. The relative fault of the Company on the one hand and Investor on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and Investor agree that it would not be just and equitable if contribution pursuant to this Section 4.5(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.5(b), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Conversion Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and Investor shall not be required to contribute any amount in excess of the amount by which the total price at which the Conversion Shares were offered to the public (less underwriting discounts and commissions) exceeds the amount of any damages which Investor has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 5. Successors and Assigns. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, assigns, heirs, executors and administrators of the parties hereto. Investor may not transfer either the Series A Stock or its rights hereunder to any party without the prior written consent of the Company; provided, however, that no such consent will be required with respect to a transfer of Series A Stock (or rights hereunder) to an Affiliate of Investor. 6. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (i) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below: If to Investor: c/o Apax Partners, Inc. 2180 Sand Hill Road Menlo Park, CA 94025 with a copy to: Robert M. Friedman, Esq. Swidler Berlin Shereff Friedman, LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Tel: (212) 891-9310 Fax: (212) 891-9598 If to Company: Audible, Inc. 65 Willowbrook Blvd. Wayne, NJ 07470 Attn: Chief Executive Officer Telephone No.: (973) 890-4070 Facsimile No.: (973) 890-2442 with a copy to: Edwin M. Martin, Jr., Esq. Piper Rudnick LLP 1775 Wiehle Avenue, Suite 400 Reston, VA 20190 Telephone No.: (703) 773-4213 Facsimile No.: (703) 773-5000 Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 6. 7. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 8. Amendments and Waivers. Any term of 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), with the written consent of the Company and the Investor. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which, when taken together, shall constitute one and the same instrument. 10. Headings. The headings of the sections, subsections, and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part of this Agreement. 11. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the choice of law or conflicts of law provisions thereof. {Signatures on begin on the following page} IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. AUDIBLE, INC. By: /s/ Donald Katz --------------------------------------- Name: Donald Katz Title: Chairman and Chief Executive Officer APAX EXCELSIOR VI, L.P. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais ----------------------------------- Name: Paul Vais Title: Vice President APAX EXCELSIOR VI-A, C.V. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais ----------------------------------- Name: Paul Vais Title: Vice President {Signatures continued on following page} APAX EXCELSIOR VI-B, C.V. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais ---------------------------------- Name: Paul Vais Title: Vice President PARTRICOF PRIVATE INVESTMENT CLUB III, L.P. By: Apax Excelsior VI Partners, L.P., Its General Partner By: Apax Managers, Inc. Its General Partner By: /s/ Paul Vais ---------------------------------- Name: Paul Vais Title: Vice President EX-4 6 file005.txt 1ST AMEND. & RESTATED SER. A CERT. OF DESIGNATION FIRST AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF DESIGNATIONS, LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF AUDIBLE, INC. ------------------------------------- Pursuant to Section 242 of the General Corporation Law of the State of Delaware -------------------------------------- This is to certify that the Board of Directors of Audible, Inc., a Delaware corporation (the "CORPORATION"), pursuant to authority conferred upon it by the Certificate of Incorporation of the Corporation, has at a meeting of the Board of Directors held on August 1, 2003, established the amendment and restatement of the terms of its Series A Convertible Preferred Stock, $0.01 par value. The Board of Directors of the Corporation (the "BOARD OF DIRECTORS") has obtained approval for this First Amended and Restated Certificate of Designation from the holders of a majority of the outstanding shares of the Corporation's Series A Preferred Stock in accordance with the terms of the Corporation's Certificate of Incorporation, the previously filed Certificate of Designation and the provisions of Section 242 of the General Corporation Law of the State of Delaware. The date on which this First Amended and Restated Certificate of Designation shall be filed with the Secretary of State of the State of Delaware is referred to as the "AMENDMENT DATE." The terms established by the prior Certificate of Designation for the Series A Convertible Preferred Stock (the "Series A Certificate of Designation") shall be and hereby are amended and restated as follows: 1. DESIGNATION OF THE SERIES; RANK. 4,500,000 shares of Preferred Stock, par value $0.01 per share, shall be designated as "Series A Convertible Preferred Stock" (the "SERIES A PREFERRED STOCK"). The issuance price of the Series A Preferred Stock shall be $3.75 per share (the "ORIGINAL PURCHASE PRICE"). The Series A Preferred Stock shall rank (a) senior to the Common Stock and any other capital stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon liquidation, dissolution or winding up and (b) pari passu with the Corporation's Series B Convertible Preferred Stock (the "Series B Preferred Stock") and the Corporation's Series C Convertible Preferred Stock (the "Series C Preferred Stock") as to dividends and upon liquidation, dissolution or winding up. The date on which the first share of Series A Preferred Stock was issued shall hereinafter be referred to as the "ORIGINAL ISSUE DATE". 2. DIVIDENDS. (a) The holders of shares of Series A Preferred Stock shall be entitled to receive dividends ("PREFERRED DIVIDENDS"), which shall accrue and compound semi-annually at the rate of twelve percent (12%) per annum (the "DIVIDEND RATE"). The Preferred Dividends on each share of Series A Preferred Stock shall be cumulative and shall begin to accrue and compound from the Original Issue Date (or, in the case of shares of Series A Preferred Stock issued after the Original Issue Date, from the date of issuance of such shares) (the "ACCRUAL DATE") and shall cease to accrue and compound on the fourth anniversary of the Amendment Date. Preferred Dividends will accrue regardless of whether there are profits, surplus or other funds of the Corporation's legally available for payment of dividends. (b) In the event of the conversion of the Series A Preferred Stock pursuant to Section 5 below, all accrued but unpaid Preferred Dividends shall be converted into shares of Common Stock at the then applicable Conversion Price (as that term is defined below). (c) No cash dividends shall be declared or paid upon the Common Stock, any other preferred stock or other securities of the Corporation unless equivalent dividends, on an as-converted basis, are declared and paid concurrently on the Series A Preferred Stock and all accrued and unpaid dividends, including the Preferred Dividends, have been paid on the Series A Preferred Stock. 3. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary bankruptcy, liquidation, dissolution or winding up of the Corporation (a "LIQUIDATION"), before any distribution of assets shall be made to the holders of Common Stock, the holders of each share of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders (the "AVAILABLE ASSETS") an amount equal to the Original Purchase Price (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares (an "ADJUSTMENT")) plus all dividends, including the Preferred Dividends set forth in Section 2 above, declared and unpaid on such share up to the date of distribution to the holders of Series A Preferred Stock of the Corporation assets to which they are entitled. After payment of the preference amount set forth in this Section 3(a), the holders of Series A Preferred Stock shall not be entitled to receive any additional amounts. (b) Nothing set forth in Section 3(a) above is intended to restrict the distribution that would be received by a holder of Preferred Stock if, prior to a Liquidation, such holder elected to convert its shares of Preferred Stock into Common Stock pursuant to Section 5 below. (c) The payment of the preference amount set forth in Section 3(a) shall be made pro rata and on a pari passu basis with the preferential amounts payable upon Liquidation to the holders of the Series B Preferred Stock and Series C Preferred Stock. (d) If upon any such Liquidation the Available Assets shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock and any class or series of stock ranking on liquidation on a parity with the Series A Preferred Stock shall share ratably in the distribution of the Available Assets in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (e) The preferences described in Sections 3(a), 3(c) and 3(d) shall collectively be known as the "LIQUIDATION PREFERENCE." (f) The merger, reorganization, consolidation, sale of all or substantially all the assets of the Corporation or recapitalization of the Corporation into, by or with another corporation (as applicable) or other similar transaction or series of related transactions in which 50% or more of the voting power of the Corporation is disposed or in which the stockholders of the Corporation immediately prior to such merger, reorganization, consolidation, sale of all or substantially all the assets of the Corporation or recapitalization own less than 50% of the Corporation's voting power immediately after such merger, reorganization, consolidation or recapitalization, or the sale of all or substantially all the assets of the Corporation (any such event an "ACQUISITION EVENT"), shall be deemed to be a Liquidation for purposes of this Certificate of Incorporation, unless the holders in interest of at least 50% of the then outstanding shares of Series A Preferred Stock, acting together as a single class, elect otherwise by giving written notice thereof to the Corporation at least three (3) days before the effective date of such event. The amount deemed distributed for purposes of determining the Liquidation Preference for the holders of shares of Series A Preferred Stock upon any Acquisition Event shall be the cash or the value of the property, rights or securities distributed to such holders by the acquiring person, firm or other entity. The value of such property, rights or other securities shall be determined in good faith by the Board of Directors of the Corporation. (g) Written notice of such Liquidation, stating a payment date, the Liquidation Preference and the place where said Liquidation Preference shall be payable, shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile or electronic mail, not less than twenty (20) days prior to the payment date stated therein, to the holders of record of the Series A Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. 4. VOTING. (a) Except as otherwise expressly provided herein or as required by applicable law, the holder of each share of Series A Preferred Stock will be entitled to vote on all matters submitted to a vote or consent of stockholders. Each share of Series A Preferred Stock will entitle the holder thereof to such a number of votes per share equal to the number of shares of Common Stock into which such share of Series A Convertible Preferred Stock is then convertible pursuant to Section 5 hereof (other than shares of Common Stock issuable pursuant to Section 2(b) hereof relating to Preferred Dividends that have accrued subsequent to the Amendment Date) as of the record date for the determination of stockholders entitled to vote on such matter, or if no record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as otherwise provided herein or required by applicable law, the holders of shares of Series A Preferred Stock and Common Stock (as well as the Series B Preferred Stock and Series C Preferred Stock) will vote together as a single class on all matters submitted to a vote or consent of stockholders. (b) The Corporation shall not, without first obtaining the written consent or affirmative vote of the holders of in excess of 50% of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting, as the case may be, separately as a class: (i) amend the Corporation's Certificate of Incorporation if such action would alter the preferences, rights, privileges or powers of the Series A Preferred Stock or decrease the total number of authorized shares of Series A Preferred Stock; (ii) authorize or issue any new or existing class or series of capital stock senior to the Series A Preferred Stock; or (iii) reclassify any Common Stock into shares having any preference over the Series A Preferred Stock. (c) The Corporation shall not, without first obtaining the written consent or affirmative vote of the holders of in excess of 50% of the voting power of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single class on an as converted basis, given in writing or by vote at a meeting, consenting or voting, as the case may be: (i) reclassify any capital stock of the Corporation into shares ranking senior to, or on a parity with, the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock; (ii) effect any recapitalization or reorganization of the capital stock of the Corporation, or liquidate or dissolve the Corporation; (iii) make any material change in the Corporation's business or strategic direction (as such business and strategic direction is in place on the Original Issue Date); (iv) declare or pay any dividend or distribution on the Common Stock or purchase, redeem or otherwise acquire or retire for value shares of Common Stock or other securities convertible into or exercisable for shares of Common Stock (except for acquisitions of Common Stock by the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of services to the Corporation); or (v) incur any long-term indebtedness or enter into any commitments to incur long term indebtedness (whether by issuance, guarantee or otherwise) or pledge, or create any lien, on any of the Corporation's assets, except for (A) lease transactions entered into in the ordinary course of business and (B) long-term indebtedness (and pledges of assets to secure a such loan or loans) incurred for (x) operating purposes in the ordinary course of business including working capital needs, improvements and expansion; and (y) financing for the purchase of assets; provided that the maximum aggregate amount outstanding at any time of any such long term indebtedness shall not exceed $4,000,000. 5. OPTIONAL CONVERSION. The holders of shares of Series A Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"): (a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Original Purchase Price by (ii) the Conversion Price (as defined below) in effect at the time of conversion. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series A Preferred Stock without payment of additional consideration by the holder thereof (the "CONVERSION PRICE") was initially $.9375. As a result of previous adjustments to the Conversion Price, the Conversion Price at the time of the filing of the First Amended and Restated Certificate of Designation is $.929992634. Such initial Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in Section 5(d) below. The provisions of Section 2(b) shall also apply. In the event of a Liquidation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on Liquidation to the holders of shares of Series A Preferred Stock. (b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the shares of Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Whether or not a holder would otherwise be entitled to a fractional share shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (c) Mechanics of Conversion. (i) In order for a holder of shares of Series A Preferred Stock to convert shares of Series A Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series A Preferred Stock at the office of the stock transfer agent for the shares of Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own stock transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series A Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney-in-fact duly authorized in writing. The date of receipt of such certificates and notice by the stock transfer agent (or by the Corporation if the Corporation serves as its own stock transfer agent) shall be the conversion date (the "CONVERSION DATE"). The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of shares of Series A Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (ii) The Corporation shall, at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the shares of Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such shares of Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. (iii) All shares of Series A Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of Series A Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to eliminate the authorized Series A Preferred Stock or reduce the authorized number thereof as may be appropriate accordingly. (d) Adjustments to Conversion Price: (i) Special Definitions. For purposes of this Subsection 5(d), the following definitions shall apply: (A) "OPTION" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities (as defined below) or restricted stock of the Corporation. (B) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock or Preferred Stock. (C) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Subsection 5(e)(iii) below, deemed to be issued) by the Corporation after the Original Issue Date, other than: (I) shares of Common Stock issued or issuable upon conversion of shares of the Corporation's outstanding Preferred Stock; (II) shares of Common Stock issued or issuable as a dividend or distribution on the Series A Preferred Stock; (III) shares of Common Stock issued or issuable upon the exercise or conversion of options, warrants and other convertible securities outstanding on the Original Issue Date; (IV) up to an aggregate of 3,000,000 shares (subject to adjustment for stock splits, stock dividends and subdivisions): (a) underlying options granted to, or shares of Common Stock acquired by, employees, directors or consultants of the Corporation pursuant to an option plan or other compensation arrangement approved by the Board of Directors and any shares issued upon exercise of such options; (b) shares of Common Stock or Convertible Securities issued or issuable to financial institutions or lenders in connection with credit financing arrangements; and (c) shares of Common Stock or Convertible Securities issued or issuable to vendors, partners or other parties in connection with strategic partnerships, relationship or other similar business arrangements; (V) any shares of Common Stock or Convertible Securities issued for which the holders of at least a majority of the Series C Preferred Stock agree in writing that such shares shall not be deemed Additional Shares of Common Stock; and (VI) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (I), (II), (III), (IV) and (V) or this clause (VI). (ii) No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding but subject to the provisions of Subsection 5(d)(vii), no adjustment in the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible shall be made, by adjustment in the applicable Conversion Price thereof, unless the consideration per share (determined pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares. (iii) Issue of Options and Convertible Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities and, upon the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding; and (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities, provided that no readjustment pursuant to this clause (B) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 5(d)(iii)), without consideration or for a Net Consideration Per Share less than the Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest tenth of a cent) determined by multiplying the Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares issued or issuable upon the conversion of shares of such series of Preferred Stock) plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to conversion; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares issued or issuable upon the conversion of shares of each series of Preferred Stock) plus the number of such Additional Shares of Common Stock so issued; provided, that, for the purpose of this Subsection 5(d)(iv), immediately after any Additional Shares of Common Stock are deemed issued pursuant to Subsection 5(d)(iii) (whether or not excluded from the definition of "Additional Shares of Common Stock" by virtue of clauses (II), (III), (IV) or (V) of Subsection 5(d)(i)(C)), such Additional Shares of Common Stock shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Subsection 5(d), the "NET CONSIDERATION PER SHARE" shall mean the per share consideration received by the Corporation for the issue of any Additional Shares of Common Stock and shall be computed as follows: (A) Cash and Property. Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 5(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Combinations or Consolidation of Common Stock. If, at any time after the Original Issue Date, the number of shares of Common Stock outstanding are decreased by a combination or consolidation of the outstanding shares of Common Stock, by reclassification or otherwise, then following the record date fixed for such combination (or the date of such combination, if no record date is fixed), the applicable Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be increased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock. (vii) Adjustment for Stock Dividends, Splits, Etc. If the Corporation shall at any time after the applicable Original Issue Date fix a record date for the subdivision, split-up or stock dividend of shares of Common Stock, then, following the record date fixed for the determination of holders of shares of Common Stock entitled to receive such subdivision, split-up or dividend (or the date of such subdivision, split-up or dividend, if no record date is fixed), the Conversion Price in effect immediately prior to such subdivision, split-up or dividend shall, concurrently with the effectiveness of such subdivision, split-up or dividend, be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be increased in proportion to such increase in outstanding shares; provided, however, that the Conversion Price shall not be decreased at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (viii) Adjustment for Merger or Reorganization, etc. In case of any consolidation, recapitalization or merger of the Corporation with or into another entity or the sale of all or substantially all of the assets of the Corporation to another entity (other than a subdivision or combination provided for elsewhere in this Section 5 and other than a consolidation, merger or sale which is treated as a Liquidation pursuant to Section 3), each share of Series A Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such shares of Series A Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment shall be made in the application of the provisions in this Section 5 with respect to the rights and interest thereafter of the holders of the shares of Series A Preferred Stock, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the shares of Series A Preferred Stock. (e) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the shares of Series A Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of the shares of Series A Preferred Stock. (g) Notice of Record Date. In the event: (i) that the Corporation takes a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or any other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation or an Acquisition Event; then the Corporation shall cause to be filed at its principal office or at the office of the stock transfer agent of the Series A Preferred Stock, and shall cause to be mailed to the holders of the Series A Preferred Stock at their last addresses as shown on the records of the Corporation or such stock transfer agent, at least ten days prior to the record date specified in (A) below or twenty days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. 6. OTHER EVENTS. (a) If at any time on or after the fourth anniversary of the Amendment Date, (i) the average daily trading volume of the Common Stock over a period of thirty (30) consecutive trading days (an "Applicable Period") is less than 400,000 shares per day (as adjusted for splits, combinations and the like); (ii) funds managed by Apax Partners, Inc. (such funds collectively referred to as "Apax") continue to own at least eighty five percent (85%) of the outstanding shares of Series A Preferred Stock and Series C Preferred Stock acquired by such funds on or about the Amendment Date (or shares of Common Stock into which such shares of Series A Preferred Stock or Series C Preferred Stock are convertible); and (iii) there has not been a Qualifying Acquisition Event (as defined below) (a) presented to the Board of Directors that the two Apax designees on the Board of Directors have not supported or (b) presented to the Corporation's stockholders for approval which proposal has not received the favorable vote of all of Apax's shares of the Corporation's voting capital stock, then Apax can request in writing that the Board of Directors use its commercially reasonable efforts to sell the Corporation (such request, a "Sale Request" and the date on which Apax submits such Sale Request, the "Request Date"). Upon receipt of a Sale Request, the Corporation will use its commercially reasonable efforts to sell the Corporation in a Qualifying Acquisition Event. (b) If the Corporation is not successful in its efforts to consummate a Qualifying Acquisition Event within nine (9) months of the Request Date, the Corporation may take one of the following actions within nine (9) months of the Request Date: (i) redeem on a date (the "Initial Redemption Installment Date") within nine (9) months of the Request Date, and agree to redeem on the first and second anniversaries of the Initial Redemption Installment Date, at a redemption price of $5,000,000 per redemption date, that number of shares of Series A Preferred Stock equal to (x) $5,000,000 divided by (y) the aggregate market price of the shares of Common Stock into which each share of Series A Preferred Stock is convertible at such time until such time as no such shares of Series A Preferred Stock are held by Apax; or (ii) effect a placement and sale on a date (the "Initial Placement Installment Date") within nine (9) months of the Request Date, and agree to effect a placement on or before the first and second anniversaries of the Initial Placement Installment Date, of $5,000,000 of Series A Preferred Stock (or shares of Common Stock into which such shares of Series A Preferred Stock are convertible), per placement date at a consideration equal to at least eighty-five percent (85%) of the aggregate market price of such shares of Common Stock (or, in the case of a sale of Series A Preferred Stock, at least eighty-five percent (85%) of the aggregate market price of the shares of Common Stock into which each share of Series A Preferred Stock is convertible at such time). (c) If, subsequent to the Request Date, the average daily trading volume of the Common Stock over an Applicable Period equals or exceeds 400,000 shares per day (as adjusted for splits, combinations and divisions), then the Sale Request shall be deemed rescinded; provided that, Apax may make another Sale Request if the conditions specified in Sections 6(a)(i) and (ii) are subsequently met. (d) Subject to Section 6(c) above and 6(e) below, if, within nine (9) months of the Request Date, a Qualifying Acquisition Event is not consummated and the Corporation has not effected the first installment of a redemption pursuant to Section 6(b)(i) or effected the first installment of a placement pursuant to Section 6(b)(ii), then the holders of shares of Series A Preferred Stock shall be entitled to receive Preferred Dividends that accrue at the rate of fifteen percent (15%) per annum (the "Additional Preferred Dividends"). The Additional Preferred Dividends shall be cumulative and shall begin to accrue and compound semi-annually effective as of the Request Date (the "Additional Preferred Dividends Accrual Date") and shall cease to accrue and compound on the third anniversary of the Additional Preferred Dividends Accrual Date. From and after the Additional Preferred Dividends Accrual Date, the term "Preferred Dividends" shall be construed to include Additional Preferred Dividends. (e) Notwithstanding the foregoing, the following provisions shall apply with respect to the application of the provisions of this Section 6: (i) If the sale of the Corporation in a Qualifying Acquisition Event or either of the actions set forth in Sections 6(b)(i) and (ii) (each such circumstance, an "Action") requires the consent or approval of the Corporation's Board of Directors and the two Apax designees on the Board of Directors do not vote in favor of such Action, then the Corporation shall have no further obligations under this Section 6 and the provisions requiring the payment of Additional Preferred Dividends will be of no force and effect; (ii) If an Action requires the consent or approval of the Corporation's stockholders and Apax does not vote all of its shares of the Corporation's voting capital stock in favor of such Action, then the Corporation shall have no further obligations under this Section 6 and the provisions requiring the payment of Additional Preferred Dividends will be of no force and effect; (iii) In the event that the Corporation elects to take the Action specified in Section 6(b)(ii), Apax shall cooperate in good faith with the Corporation in order to effectuate the redemption, including delivery by Apax to the Corporation for cancellation of stock certificates representing the shares being redeemed; (iv) In the event that the Corporation elects to take the Action specified in Section 6(b)(iii), the Corporation shall provide notice to Apax at least twenty (20) days prior to the anticipated date of the sale and placement. Within five (5) days of the delivery of such notice, Apax shall provide the Corporation with written confirmation, which confirmation shall be binding on Apax, that it will consummate the sale of its capital stock so long as the market price threshold set forth in Section 6(b)(iii) is met. Further, Apax shall be required to execute and deliver all documentation reasonably necessary and desirable to implement a placement and sale (whether requested by the placement agent, the purchaser or otherwise). If Apax fails to deliver such a written confirmation, indicates that it does not want the Corporation to proceed with the placement and sale or does not deliver the documentation reasonably necessary and desirable to implement the placement and sale, then the Corporation shall have no further obligations under this Section 6 and the provisions requiring the payment of Additional Preferred Dividends will be of no force and effect; (v) If the Additional Preferred Dividends begin to accrue pursuant to Section 6(d) above and at any time thereafter a Qualifying Acquisition Event is (a) presented to the Board of Directors for approval and the two Apax designees on the Board of Directors do not vote in favor of such Qualifying Acquisition Event or (b) presented to the Corporation's stockholders for approval and Apax does not vote all of its shares of the Corporation's voting capital stock in favor of such Qualifying Acquisition Event, then upon the earlier of either event, the Additional Preferred Dividends shall immediately cease accruing and the Corporation shall have no further obligations under this Section 6; and (vi) "Qualifying Acquisition Event" shall mean any Acquisition Event in which (a) the aggregate consideration paid in such Acquisition Event is equal to or greater than 85% of the Corporation's market capitalization (determined at the time that a binding agreement with respect to such Acquisition Event is entered into) and (b) the transaction consideration in such Acquisition Event is in the form of (I) cash or (II) securities of a publicly-traded company whose weekly average trading volume for the four (4) weeks before the Corporation's Board of Directors approves the Acquisition Event is equal to or greater than the number of shares of such acquiring company that it is projected that Apax will receive in the Acquisition Event with respect to its shares of Series A Preferred Stock. (f) For purposes of this Section 6, the market price of the Common Stock as of a given date shall be the average closing price over the period of twenty (20) consecutive trading days immediately prior to and including such date as reported on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average closing price over the period of four (4) weeks immediately prior to and including such date in the over-the-counter market as furnished by the National Quotation Bureau, Inc., or, if such firm is not then engaged in the business of reporting such prices, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Corporation; provided, however, that for purposes of Section 6(b)(iii), the market price shall mean the closing price immediately prior to the consummation of a placement and sale. {Signature on following page} IN WITNESS WHEREOF, the Corporation has caused this First Amended and Restated Certificate of Designation to be duly executed by its Chairman, Donald Katz, this 1st day of August, 2003. AUDIBLE, INC. By: /s/ Donald Katz ------------------- Name: Donald Katz Title: Chairman -----END PRIVACY-ENHANCED MESSAGE-----