-----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, EbvQ1+lTPF4fAxPigD8CBZqLdbaP1brQlePAA39TywHFik4JoeBzXbbXp0H6SBok Hisr57CaSVrfC8bRidl4VQ== 0000928385-99-001862.txt : 19990520 0000928385-99-001862.hdr.sgml : 19990520 ACCESSION NUMBER: 0000928385-99-001862 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUDIBLE INC CENTRAL INDEX KEY: 0001077926 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-76985 FILM NUMBER: 99630513 BUSINESS ADDRESS: STREET 1: 65 EILLOWBROOK BOULEVARD CITY: WAYNE STATE: NJ ZIP: 07470 BUSINESS PHONE: 9738904070 MAIL ADDRESS: STREET 1: 65 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 S-1/A 1 AMENDMENT NO.1 TO FORM S-1 As filed with the Securities and Exchange Commission on May 18, 1999 Registration 333-76985 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- AUDIBLE, INC. (Exact name of registrant as specified in its charter) Delaware 7375 22-3407945 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) ---------------- Andrew J. Huffman President and Chief Executive Officer Audible, Inc. 65 Willowbrook Boulevard Wayne, N.J. 07470 (973) 890-4070 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Edwin M. Martin, Jr., Esquire Brian D. Goldstein, Esquire Nancy A. Spangler, Esquire Testa, Hurwitz & Thibeault, LLP Piper & Marbury L.L.P. 125 High Street 1200 19th Street, N.W. Boston, MA 02110 Washington, D.C. 20036 (617) 248-7000 (202) 861-3900 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]___________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]___________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]___________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
Proposed Maximum Title of Each Class of Securities To Aggregate Amount of Be Registered Offering Price(1) Registration Fee(2) - ----------------------------------------------------------------------------- Shares of Common Stock, par value $.01 $46,000,000 $0 - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act. (2) A registration fee of $12,788 was paid at the time of the initial filing of this registration statement. ---------------- The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS 13. Other Expenses of Issuance and Distribution The following table sets forth the various expenses payable by us in connection with the sale and distribution of the securities offered hereby, other than underwriting discounts and commissions. All of the amounts shown are estimated except the Securities and Exchange Commission registration fee, the National Association Securities Dealers, Inc. filing fee and the Nasdaq National Market listing fee. Securities and Exchange Commission registration fee................. $12,788 National Association of Securities Dealers, Inc. filing fee......... 5,100 Nasdaq National Market listing fee.................................. 1,000 Transfer agent's and registrar's fees............................... * Printing expenses................................................... * Legal fees and expenses............................................. * Accounting fees and expenses........................................ * Blue Sky filing fees and expenses................................... 10,000 Miscellaneous expenses.............................................. * ------- Total............................................................. * =======
- -------- * To be filed by amendment. 14. Indemnification of Officers and Directors Section 145 of the Delaware General Corporation Law ("Section 145") permits indemnification of directors, officers, agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Our bylaws include provisions to require us to indemnify our directors and officers to the fullest extent permitted by Section 145, including circumstances in which indemnification is otherwise discretionary. Section 145 also empowers us to purchase and maintain insurance that protects our officers, directors, employees and agents against any liabilities incurred in connection with their service in such positions. At present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is being sought nor are we aware of any threatened litigation that may result in claims for indemnification by any officer or director. The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of our directors and officers by the Underwriters, for certain liabilities arising under the Securities Act. 15. Recent Sales of Unregistered Securities During the last three years, we have issued unregistered securities in the transactions described below. These securities were offered and sold by us in reliance upon the exemptions provided for in Section 4(2) of the Securities Act, relating to sales not involving any public offering, Rule 506 of the Securities Act relating to sales to accredited investors and Rule 701 of the Securities Act relating to a compensatory benefit plan. The sales were made without the use of an underwriter and the certificates representing the securities sold contain a restrictive legend that prohibits transfer without registration or an applicable exemption. (1) In July 1996, we issued 2,000,000 shares of Series B preferred stock to a group of accredited investors at a purchase price of $1.50 per share for an aggregate of $3,000,000. (2) In November 1996, we issued an additional 50,000 shares of Series B preferred stock to two accredited investors at a purchase price of $1.50 per share for an aggregate of $75,000. II-1 (3) In November 1996, we issued warrants to purchase an aggregate of 46,082 shares of Series B preferred stock in connection with loans made to us. (4) In March 1997, we issued 2,250,000 shares of Series C preferred stock to a group of accredited investors at a purchase price of $4.00 per share for an aggregate of $9,000,000. (5) In March 1997, we issued warrants to purchase 450,000 shares of common stock to holders of Series C preferred stock in connection with the Series C preferred stock financing. (6) In July 1997, we issued a warrant to purchase 12,188 shares of Series C preferred stock in connection with a loan made to us. (7) In February 1998, we issued 1,350,000 shares of Series D preferred stock to a group of accredited investors at a purchase price of $4.00 per share for an aggregate of $5,400,000. (8) In April 1998, we issued a warrant to purchase 5,000 shares of Series D preferred stock in connection with a loan made to us. (9) In December 1998, we issued an additional 2,500,000 shares of Series D preferred stock to a group of accredited investors at a purchase price of $4.00 per share for an aggregate of $10,000,000. (10) In February 1999, we issued an additional 250,000 shares of Series D preferred stock to an accredited investor at a purchase price of $4.00 per share for an aggregate of $1,000,000. (11) In April 1999, we issued a warrant to purchase 100,000 shares of common stock to an accredited investor. (12) From December 1995 through March 1999, we sold an aggregate of 5,068,180 shares of common stock at purchase prices ranging from $.07 to $4.00 per share, for an aggregate of $1,526,384. 16. Exhibits and Financial Statement Schedules (a) Exhibits Exhibit No. Description 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of Audible, dated March 31, 1997 3.1.1 Certificate of Amendment of Certificate of Incorporation, dated July 22, 1997 3.1.2 Certificate of Amendment of Certificate of Incorporation, dated February 25, 1998 3.1.3 Certificate of Amendment of Certificate of Incorporation, dated December 18, 1998 3.2* Form of Amended and Restated Certificate of Incorporation of Audible 3.3 Bylaws of Audible 3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998 3.4* Form of Amended and Restated Bylaws of Audible 4.1* Specimen stock certificate for shares of common stock of Audible 5.1** Opinion of Piper & Marbury L.L.P. 10.1*+ License Agreement dated November 4, 1998, by and between Microsoft Corporation and Audible 10.2*+ Digital Rights Management Agreement dated November 4, 1998, between Microsoft Corporation and Audible 10.3*+ Development Agreement dated November 12, 1998, by and between RealNetworks, Inc. and Audible 10.4* RealMedia Architecture Partner Program Internet Agreement dated November 12, 1998, between RealNetworks, Inc. and Audible 10.5 Master Lease Agreement dated November 19, 1996, by and between Comdisco, Inc. as lessor, and Audible as lessee 10.5.1 Addendum to Master Lease Agreement dated November 20, 1996, by and between Comdisco, Inc., as lessor, and Audible, as lessee (relating to Exhibit 10.5) II-2 10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred stock at a price of $2.68 per share, dated November 19, 1996, and re-issued as of August 17, 1998, by Audible to Comdisco, Inc. 10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred stock at a price of $4.00 per share, dated July 24, 1997, issued by Audible to Comdisco, Inc. 10.8 Loan and Security Agreement dated April 6, 1998, by and between Silicon Valley Bank, as lender, and Audible, as borrower, for a revolving line of credit of up to $1,000,000 10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to Silicon Valley Bank, entitling Silicon Valley Bank to purchase 5,000 shares of common stock at a price of $4.00 per share 10.10 Security and Loan Agreement dated November 20, 1996, between Audible, as borrower, and Imperial Bank, as lender, for up to $500,000 10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred stock at a price of $3.00 per share, dated November 20, 1996, issued by Audible to Imperial Bank 10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of Audible, in the principal amount of $100,000 10.12.1 Allonge to Note dated April 21, 1999 between Donald Katz and Audible (relating to Exhibit 10.12.1) 10.13 Security Agreement dated March 28, 1997, by and between Donald Katz and Audible 10.14 Amended and Restated Registration Rights Agreement dated February 26, 1998, by and among Audible and certain stockholders named therein 10.14.1 Amendment No. 1 to Amended and Restated Registration Rights Agreement dated December 18, 1998 (relating to Exhibit 10.14) 10.15 1999 Stock Incentive Plan 10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to various investors in connection with the Series C preferred stock financing 10.17 Form of Stock Restriction Agreement by and between Audible and the Named Executive Officers made in connection with various purchases and sales of shares of restricted common stock 10.18 Form of Promissory Note made by the Named Executive Officers in favor of Audible in connection with various purchases and sales of shares of restricted common stock 10.19 Office Lease dated June 20, 1997, by and between Audible, as tenant, and Passaic Investment LLC, Sixty-Five Willowbrook Investment LLC and Wayne Investment LLC, as tenants-in-common, as landlord 10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as sublessee, and Painewebber Incorporated, as sublessor 10.21*+ Agreement dated April 3, 1999 by and between Audible and Diamond Multimedia Systems, Inc. 10.22* Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft Corporation 11.1 Statement of computation of loss per share 23.1 Consent of KPMG LLP 23.2** Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1 hereto) 24.1 Power of Attorney (included in signature pages) 27 Financial Data Schedule - -------- + Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Act. * Filed herewith. ** To be filed by amendment. (b) Financial Statement Schedules: Schedules have been omitted because the information required to be shown in the schedules is not applicable or is included elsewhere in our financial statements or the notes thereto. II-3 17. Undertakings The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware General Corporation Law or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted form the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act, the Company has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wayne, New Jersey, on the 18th day of May, 1999. AUDIBLE, INC. By: /s/ Andrew J. Huffman ---------------------------------- Andrew J. Huffman President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Andrew J. Huffman President, Chief Executive May 18, 1999 --------------------------------- Officer and Director Andrew J. Huffman (Principal Executive Officer) * Director of Finance and May 18, 1999 --------------------------------- Administration (Principal Anthony Nash Financial Officer) * Chairman of the Board of May 18, 1999 --------------------------------- Directors Donald R. Katz * Director May 18, 1999 --------------------------------- Timothy Mott * Director May 18, 1999 --------------------------------- R. Bradford Burnham * Director May 18, 1999 --------------------------------- Thomas Hirschfeld * Director May 18, 1999 --------------------------------- W. Bingham Gordon * Director May 18, 1999 --------------------------------- Winthrop Knowlton * Director May 18, 1999 --------------------------------- Richard Brass
*By: /s/ Nancy A. Spangler --------------------------------- Nancy A. Spangler Attorney-In-Fact II-5 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of Audible, dated March 31, 1997 3.1.1 Certificate of Amendment of Certificate of Incorporation, dated July 22, 1997 3.1.2 Certificate of Amendment of Certificate of Incorporation, dated February 25, 1998 3.1.3 Certificate of Amendment of Certificate of Incorporation, dated December 18, 1998 3.2* Form of Amended and Restated Certificate of Incorporation of Audible 3.3 Bylaws of Audible 3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998 3.4* Form of Amended and Restated Bylaws of Audible 4.1* Specimen stock certificate for shares of common stock of Audible 5.1** Opinion of Piper & Marbury L.L.P. 10.1*+ License Agreement dated November 4, 1998, by and between Microsoft Corporation and Audible 10.2*+ Digital Rights Management Agreement dated November 4, 1998, between Microsoft Corporation and Audible 10.3*+ Development Agreement dated November 12, 1998, by and between RealNetworks, Inc. and Audible 10.4* RealMedia Architecture Partner Program Internet Agreement dated November 12, 1998, between RealNetworks, Inc. and Audible 10.5 Master Lease Agreement dated November 19, 1996, by and between Comdisco, Inc. as lessor, and Audible as lessee 10.5.1 Addendum to Master Lease Agreement dated November 20, 1996, by and between Comdisco, Inc., as lessor, and Audible, as lessee (relating to Exhibit 10.5) 10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred stock at a price of $2.68 per share, dated November 19, 1996, and re-issued as of August 17, 1998, by Audible to Comdisco, Inc. 10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred stock at a price of $4.00 per share, dated July 24, 1997, issued by Audible to Comdisco, Inc. 10.8 Loan and Security Agreement dated April 6, 1998, by and between Silicon Valley Bank, as lender, and Audible, as borrower, for a revolving line of credit of up to $1,000,000 10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to Silicon Valley Bank, entitling Silicon Valley Bank to purchase 5,000 shares of common stock at a price of $4.00 per share 10.10 Security and Loan Agreement dated November 20, 1996, between Audible, as borrower, and Imperial Bank, as lender, for up to $500,000 10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred stock at a price of $3.00 per share, dated November 20, 1996, issued by Audible to Imperial Bank 10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of Audible, in the principal amount of $100,000 10.12.1 Allonge to Note dated April 21, 1999 between Donald Katz and Audible (relating to Exhibit 10.12.1) 10.13 Security Agreement dated March 28, 1997, by and between Donald Katz and Audible 10.14 Amended and Restated Registration Rights Agreement dated February 26, 1998, by and among Audible and certain stockholders named therein 10.14.1 Amendment No. 1 to Amended and Restated Registration Rights Agreement dated December 18, 1998 (relating to Exhibit 10.14) 10.15 1999 Stock Incentive Plan 10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to various investors in connection with the Series C preferred stock financing 10.17 Form of Stock Restriction Agreement by and between Audible and the Named Executive Officers made in connection with various purchases and sales of shares of restricted common stock 10.18 Form of Promissory Note made by the Named Executive Officers in favor of Audible in connection with various purchases and sales of shares of restricted common stock 10.19 Office Lease dated June 20, 1997, by and between Audible, as tenant, and Passaic Investment LLC, Sixty-Five Willowbrook Investment LLC and Wayne Investment LLC, as tenants-in-common, as landlord 10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as sublessee, and Painewebber Incorporated, as sublessor 10.21*+ Agreement dated April 13, 1999 by and between Audible and Diamond Multimedia Systems, Inc. 10.22* Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft Corporation 11.1 Statement of computation of loss per share 23.1 Consent of KPMG LLP Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1 23.2** hereto) 24.1 Power of Attorney (included in signature pages) 27 Financial Data Schedule - -------- + Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Act. * Filed herewith. ** To be filed by amendment. EX-3.2 2 EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AUDIBLE, INC. AUDIBLE, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Audible, Inc. (formerly Audible Words Corporation). The date of filing of its original Certificate of Incorporation with the Secretary of State was November 3, 1995. 2. This Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of the Corporation and all prior amendments thereto by deleting from the Certificate of Incorporation, as amended, all provisions thereof and substituting in lieu thereof the Amended and Restated Certificate of Incorporation set forth in Paragraph 3 below. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is further amended and restated hereby to read as herein set forth in full: FIRST. Name. The name of the Corporation is: Audible, Inc. ---- SECOND. Registered Office and Agent. The address of the --------------------------- Corporation's registered office in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD. Purpose. The nature of the business or purposes to be ------- conducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. FOURTH. Authorized Capital. The total number of shares of all ------------------ classes of stock which the Corporation shall have authority to issue is 60,000,000 shares, of which (i) 50,000,000 shall be shares of common stock, par value $0.01 per share (the "Common Stock"), and (ii) 10,000,000 shall be shares of preferred stock, par value $0.01 per share (the "Preferred Stock"). A. Common Stock ------------ (1) General. The voting, dividend and liquidation rights of the ------- holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. (2) Voting. The holders of the Common Stock are entitled to one vote ------ for each share held at all meetings of stockholders. There shall be no cumulative voting. (3) Dividends. Dividends may be declared and paid on the Common --------- Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. (4) Liquidation. Upon the dissolution or liquidation of the ----------- Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. (5) Redemption. The Common Stock is not redeemable. ---------- B. Preferred Stock. The Board of Directors expressly is authorized, --------------- subject to limitations prescribed by the Delaware General Corporation Law and the provisions of this Amended and Restated Certificate of Incorporation of the Corporation, to provide, by resolution and by filing a certificate pursuant to the Delaware General Corporation Law, for the issuance from time to time of the shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and other rights of the shares of each such series and to fix the qualifications, limitations and restrictions thereon, including, but without limiting the generality of the foregoing, the following: (1) the number of shares constituting that series and the distinctive designation of that series; (2) the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; -2- (4) whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (5) whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates; (6) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (8) any other relative powers, preferences, and rights of that series, and qualifications, limitations or restrictions on that series. FIFTH. Board of Directors. In furtherance of and not in limitation ------------------ of powers conferred by statute, it is further provided: A. Election of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. Except as otherwise provided in this Amended and Restated Certificate of Incorporation or a certificate of designation relating to the rights of the holders of any class or series of Preferred Stock, voting separately by class or series, to elect additional directors under specified circumstances, the number of directors of the Corporation shall be as fixed from time to time by or pursuant to the By-Laws of the Corporation. No director of the Corporation need be a stockholder of the Corporation. B. The Board of Directors shall be classified with respect to the time for which they severally hold office into three separate classes, Class I, Class II and Class III, which shall be as nearly equal in number as possible, and shall be adjusted from time to time in the manner specified in the By-Laws of the Corporation to maintain such proportionality. Each intial director in Class I shall hold office for a term expiring at the 2000 annual meeting of stockholders. Each initial director in Class II shall hold office initially for a term expiring at the 2001 annual meeting of stockholders. Each initial director in Class III shall hold office for a term expiring at the 2002 annual meeting of stockholders. Notwithstanding the foregoing provisions of this Article FIFTH, each director shall serve until such director's successor is duly elected and qualified or until such director's earlier death, resignation or removal. At each annual meeting of stockholders, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders -3- held in the third year following the year of their election and until their successors have been duly elected and qualified or until any such director's earlier death, resignation or removal. C. The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. SIXTH. Meetings of Stockholders. Meetings of stockholders may be ------------------------ held within or without the State of Delaware, as the By-Laws of the Corporation may provide. Upon the closing of an underwritten initial public offering of the Corporation's Common Stock pursuant to the effective registration statement under the Securities Act of 1933, as amended, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the General Corporation Law of the State of Delaware and may not be taken by written consent of stockholders without a meeting, unless such consent is unanimous. SEVENTH: Special Meetings of Stockholders. Special meeting of -------------------------------- stockholders may be called at any time by the Chairman of the Board, the President, the Board of Directors, the holders of a majority of the outstanding shares of the Corporation's capital stock and entitled to vote generally in the election of directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. EIGHTH. Limitation on Liability. No director of the Corporation ----------------------- shall be personally liable to the Corporation or to any stockholder of the Corporation for monetary damages for breach of fiduciary dity as a director, provided that this provision shall not limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware or any other statute of the State of Delaware hereafter is amended to authorize the further elimination or limitation of the liability of directors of the corporation, then the liability of a director of the corporation shall be limited to the fullest extent permitted by the statutes of the State of Delaware, as so amended, and such elimination or limitation of liability shall be in addition to, and not in lieu of, the limitation on the liability of a director provided by the foregoing provisions of this Sixth Article. Any repeal of or amendment to this Sixth Article shall be prospective only and shall not adversely affect any limitation on the liability of a director of the corporation existing at the time of such repeal or amendment. -4- NINTH. To the extent permitted by law, the Corporation shall fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. To the extent permitted by law, the Corporation may fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The Corporation may advance expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of such action, suit or proceeding upon the receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to indemnification. The Corporation may advance expenses (including attorneys' fees) incurred by an employee or agent in advance of the final disposition of such action, suit or proceeding upon such terms and conditions, if any, as the Board of Directors deems appropriate. TENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and the Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. 4. This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the Sate of Delaware. 5. This Amended and Restated Certificate of Incorporation was duly adopted by written consent of the stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. -5- IN WITNESS WHEREOF, Audible, Inc. has caused this Certificate to be signed by Andrew J. Huffman, its President and Chief Executive Officer this __ day of ______, 1999. AUDIBLE, INC. By:_________________________________________ Andrew J. Huffman President and Chief Executive Officer -6- EX-3.4 3 EXHIBIT 3.4 EXHIBIT 3.4 AUDIBLE, INC. AMENDED AND RESTATED BY-LAWS Dated _____________, 1999 AUDIBLE, INC. AMENDED AND RESTATED -------------------- BY-LAWS ------- Table of Contents ARTICLE 1 - Stockholders.................................. Section 1.1 Place of Meetings....................... Section 1.2 Annual Meeting.......................... Section 1.3 Special Meetings........................ Section 1.4 Notice of Meetings...................... Section 1.5 Voting List............................. Section 1.6 Quorum.................................. Section 1.7 Adjournments............................ Section 1.8 Voting and Proxies...................... Section 1.9 Action at Meeting....................... Section 1.10 Action without Meeting.................. Section 1.11 Stockholder Nominations and Proposals... ARTICLE 2 - Directors..................................... Section 2.1 General Powers.......................... Section 2.2 Number; Election and Qualification...... Section 2.3 Enlargement of the Board................ Section 2.4 Tenure.................................. Section 2.5 Vacancies............................... Section 2.6 Resignation............................. Section 2.7 Regular Meetings........................ Section 2.8 Special Meetings........................ Section 2.9 Notice of Special Meetings.............. Section 2.10 Meetings by Telephone Conference Calls.. Section 2.11 Quorum.................................. Section 2.12 Action at Meeting....................... Section 2.13 Action by Consent....................... Section 2.14 Removal................................. Section 2.15 Committees.............................. Section 2.16 Compensation of Directors............... ARTICLE 3 - Officers...................................... Section 3.1 Enumeration............................. Section 3.2 Election................................ Section 3.3 Qualification........................... Section 3.4 Tenure.................................. Section 3.5 Resignation and Removal.................
-2- Section 3.6 Vacancies............................................. Section 3.7 Chairman of the Board and Vice-Chairman of the Board.......................................... Section 3.8 President............................................. Section 3.9 Vice Presidents....................................... Section 3.10 Secretary and Assistant Secretaries................... Section 3.11 Treasurer and Assistant Treasurers.................... Section 3.12 Salaries.............................................. ARTICLE 4 - Capital Stock............................................... Section 4.1 Issuance of Stock..................................... Section 4.2 Certificates of Stock................................. Section 4.3 Transfers............................................. Section 4.4 Lost, Stolen or Destroyed Certificates................ Section 4.5 Record Date........................................... ARTICLE 5 - Indemnification............................................. Section 5.1 Indemnification in Actions, Suits or Proceedings Other Than Those by or in the Right of Company.............. Section 5.2 Indemnification in Actions, Suits or Proceedings by or in the Right of the Company........................... Section 5.3 Authorization of Indemnification...................... Section 5.4 Advancement of Expenses............................... Section 5.5 Claims................................................ Section 5.6 Insurance............................................. ARTICLE 6 - General Provisions.......................................... Section 6.1 Fiscal Year........................................... Section 6.2 Corporate Seal........................................ Section 6.3 Waiver of Notice...................................... Section 6.4 Voting of Securities.................................. Section 6.5 Evidence of Authority................................. Section 6.6 Certificate of Incorporation.......................... Section 6.7 Transactions with Interested Parties.................. Section 6.8 Severability.......................................... Section 6.9 Pronouns.............................................. ARTICLE 7 - Amendments.................................................. Section 7.1 By the Board of Directors............................. Section 7.2 By the Stockholders...................................
-3- AMENDED AND RESTATED BY-LAWS OF AUDIBLE, INC. ARTICLE 1 - Stockholders ------------------------ 1.1 Place of Meeting. All meetings of stockholders shall be held at such ----------------- place within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President or, if not so designated, at the registered office of the Company. 1.2 Annual Meeting. The annual meeting of stockholders for the election --------------- of directors and for the transaction of such other business as may properly be brought before the meeting shall be held at such date, time and place as may be fixed by the Board of Directors or the President. If this date shall fall upon a legal holiday at the place of the meeting, then such meeting shall be held on the next succeeding business day at the same hour. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. 1.3 Special Meetings. Special meetings of stockholders may be called at ----------------- any time by the Chairman of the Board, the President, the Board of Directors or the holders of a majority of the outstanding shares of the Company's capital stock and entitled to vote generally in the election of directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided by law, written ------------------- notice of each meeting of stockholders, whether annual or special, shall be given not less than ten nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Company. 1.5 Voting List. The officer who has charge of the stock ledger of the ------------ Company shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, at a place within the city where the meeting is to be held. The list shall also be produced and kept at the time and -4- place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. 1.6 Quorum. Except as otherwise provided by law, the Certificate of ------- Incorporation or these By-Laws, the holders of a majority of the shares of the capital stock of the Company issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. 1.7 Adjournments. Any meeting of stockholders may be adjourned to any ------------ other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. 1.8 Voting and Proxies. Each stockholder shall have one vote for each ------------------- share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent and delivered to the Secretary of the Company. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period. 1.9 Action at Meeting. When a quorum is present at any meeting, the ------------------ holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. 1.10 Action without Meeting. Upon the closing of an underwritten initial ----------------------- public offering of the Company's Common Stock pursuant to the effective registration statement under the Securities Act of 1933, as amended, any action required or permitted to be taken at any annual or special meeting of stockholders of the Company may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the General Corporation Law of the State of Delaware and may not be taken by written consent of stockholders without a meeting, unless such consent is unanimous. -5- 1.11 Stockholder Nominations and Proposals. (a) No proposal for a ------------------------------------- stockholder vote (a "Stockholder Proposal") shall be submitted to the stockholders of the Company unless the stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all Persons (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) acting in concert with the Proponent; (ii) the names and addresses of the Proponent and the Persons identified in clause (i), as they appear on the Company's books (if they so appear); (iii) the class and number of shares of the Company beneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all information material thereto; (v) a description of all arrangements or understandings between the Proponent and any other Persons (including the names of such other Persons) in connection with the Stockholder Proposal and any material interest of the Proponent or such Persons in such Stockholder Proposal and (vi) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and stockholders to consider the Stockholder Proposal. Upon receipt of the Stockholder Proposal and prior to the stockholders' meeting at which such Stockholder Proposal will be considered, if the Board of Directors or a designated committee or the officer who will preside at the meeting of the stockholders determines that the information provided in a Stockholder Proposal does not satisfy the requirements of this Section 1.11 or is otherwise not in accordance with applicable law, the Secretary of the Company shall promptly notify the Proponent of the deficiency in the notice. Such Proponent shall have the opportunity to cure the deficiency by providing additional information to the Secretary within the period of time, not to exceed five days from the date such deficiency notice is given to the Proponent, determined by the Board of Directors, such committee or such officer. If the deficiency is not cured within such period, or if the Board of Directors, such committee or such officer determines that the additional information provided by the Proponent, together with the information previously provided, does not satisfy the requirements of this Section 1.11 or is otherwise not in accordance with applicable law, then such Stockholder Proposal shall not be presented for action at the stockholders' meeting in question. (b) Only persons who are selected and recommended by the Board of Directors or the nominating committee thereof, or who are nominated by the stockholders in accordance with the procedures set forth in this Section 1.11, shall be eligible for election or qualified to serve as directors. Nominations of individuals for election to the Board of Directors at any annual meeting or special meeting of the stockholders at which directors are to be elected may be made by any stockholder of the Company entitled to vote for the election of directors at that meeting by compliance with the procedures set forth in this Section 1.11 except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of Preferred Stock of the Company to nominate and elect a specified number of directors in certain circumstances. Nominations by stockholders shall be made by written notice (a "Nomination Notice"), which shall set forth (i) as to each individual nominated (A) the name, date of birth, business address and residence address of such nominee; (B) the business experience during the past five years of such nominee, including his or her principal occupations or employment during such period, the name and principal business of any Company or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and the level of professional competence as may be sufficient to permit assessment of his or her prior business experience; (C) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other -6- equity interest of any Company, partnership or other entity; (D) any directorships held by such nominee in any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; (E) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state, or other law, or any proceeding in bankruptcy, which conviction, judgment, order, finding, decree or proceeding may be material to the evaluation of the ability or integrity of the nominee; and (F) any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (ii) as to the person submitting the Nomination Notice and any Person acting in concert with such Person, (w) the name and business address of such person and Persons, (x) the name and business address of such person and Persons as they appear on the books of the Company (if they so appear); (y) the class and number of shares of the Company which are beneficially owned by such person and Persons, and (z) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to section 14 of the Exchange Act and the rules and regulations promulgated thereunder. A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice. If the presiding officer at any stockholders' meeting determines that a nomination was not made in accordance with the procedures prescribed by these By-laws, he shall so declare to the meeting and the defective nomination shall be disregarded. (c) Nomination Notices and Stockholder Proposals must be delivered to the Secretary at the principal executive office of the Company or mailed and received at the principal executive offices of the Company (a) in the case of any annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that (i) in the event that the annual meeting is called for a date that is not within 30 days before or 60 days after such anniversary date, or (ii) in the case of the annual meeting of stockholders held during the 1999 fiscal year of the Company, notice by the stockholder in order to be timely must be so received no later than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. ARTICLE 2 - Directors --------------------- 2.1 General Powers. The business and affairs of the Company shall be --------------- managed by or under the direction of a Board of Directors, who may exercise all of the powers of the Company except as otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. -7- 2.2 Number; Election and Qualification. The number of directors which ----------------------------------- shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors, but in no event shall be less than one. The number of directors may be decreased at any time and from time to time by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one of more directors. Unless otherwise provided in the Certificate of Incorporation, the Board of Directors shall divide the directors into three classes, which shall be as equal in number as possible; and, when the number of directors is changed, shall determine the class or classes to which the increased or decreased number of directors shall be apportioned, which shall be done so as to maintain as equal a number of directors in each class as possible; provided, however, that -------- ------- no decrease in the number of directors shall affect the term of any director then in office. Directors need not be stockholders of the Company. 2.3 Enlargement of the Board. The number of directors may be increased at ------------------------- any time and from time to time by a majority of the directors then in office. 2.4 Tenure. The directors shall be elected at the annual meeting of ------- stockholders by such stockholders as have the right to vote on such election. At each annual meeting of stockholders, directors elected to succeed those whose terms are expiring shall be elected for a term of office expiring at the annual meeting of stockholders held in the third year following their election and until their respective successors are elected and qualified, or until such director's earlier death, resignation or removal. 2.5 Vacancies. Any vacancy in the Board of Directors, however occurring, ---------- including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, resignation or removal. 2.6 Resignation. Any director may resign by delivering his written ------------ resignation to the Company at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 2.7 Regular Meetings. Provided that meetings are held at least once ----------------- during each of the Company's fiscal quarters, regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. -8- 2.8 Special Meetings. Special meetings of the Board of Directors may be ----------------- held at any time and place, within or without the State of Delaware, designated in a call by any member of the Board of Directors or the President of the Company. 2.9 Notice of Special Meetings. Notice of any special meeting of the --------------------------- Board of Directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) by giving notice to such director in person or by telephone at least 24 hours in advance of the meeting, (ii) by sending a facsimile, telegram or telex, or delivering written notice by hand, to his last known business or home address at least 24 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 2.10 Meetings by Telephone Conference Calls. Directors or any members of --------------------------------------- any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. 2.11 Quorum. A majority of the total number of the whole Board of ------- Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present 2.12 Action at Meeting. At any meeting of the Board of Directors at which ------------------ a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these By-Laws. 2.13 Action by Consent. Any action required or permitted to be taken at ------------------ any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be, consent to the action in writing, and the written consents are filed with the minutes of proceedings of the Board or committee. 2.14 Removal. Any one or more or all of the directors may be removed, with -------- or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that the directors elected by the holders of a particular class or series of stock may be removed without cause only by vote of the holders of a majority of the outstanding shares of such class or series. 2.15 Committees. The Board of Directors may, by resolution passed by a ----------- majority of the whole Board, designate one or more committees, each committee to consist of one or more of -9- the directors of the Company. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Company Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company and may authorize the seal of the Company to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the Board of Directors. 2.16 Compensation of Directors. Directors may be paid such compensation -------------------------- for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the Company or any of its parent or subsidiary Companies in any other capacity and receiving compensation for such service. ARTICLE 3 - Officers -------------------- 3.1 Enumeration. The officers of the Company shall consist of a ------------ President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate. 3.2 Election. The President, Treasurer and Secretary shall be elected --------- annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting. 3.3 Qualification. No officer need be a stockholder. Any two or more -------------- offices may be held by the same person. 3.4 Tenure. Except as otherwise provided by law, by the Certificate of ------- Incorporation or by these By-Laws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. 3.5 Resignation and Removal. Any officer may resign by delivering his ------------------------ written resignation to the Company at its principal office or to the President or Secretary. Such -10- resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of directors then in office. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the Company. 3.6 Vacancies. The Board of Directors may fill any vacancy occurring in ---------- any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of ----------------------------------------------------- Directors may appoint a Chairman of the Board and may designate the Chairman of the Board as Chief Executive Officer. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors. 3.8 President. Unless the Board of Directors otherwise determines, the ---------- President shall be the Chief Operating Officer of the Company. Unless the Board of Directors has designated the Chairman of the Board as Chief Executive Officer, the President shall also be the Chief Executive Officer of the Company. The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the Company. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders, if he is a director, at all meetings of the Board of Directors. The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe. 3.9 Vice Presidents. Any Vice President shall perform such duties and ---------------- possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors. -11- 3.10 Secretary and Assistant Secretaries. The Secretary shall perform such ------------------------------------ duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents. Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting. 3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such ----------------------------------- duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the Company, to deposit funds of the Company in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the Company. The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability, or refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer. 3.12 Salaries. Officers of the Company shall be entitled to such salaries, --------- compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors. -12- ARTICLE 4 - Capital Stock ------------------------- 4.1 Issuance of Stock. Unless otherwise voted by the stockholders and ------------------ subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the Company or the whole or any part of any unissued balance of the authorized capital stock of the Company held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine. 4.2 Certificates of Stock. Every holder of stock of the Company shall be ---------------------- entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the Company. Each such certificate shall be signed by, or in the name of the Company by, the Chairman or Vice-Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company. Any or all of the signatures on the certificate may be a facsimile. Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-Laws, applicable securities laws or any agreement among any number of shareholders or among such holders and the Company shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction. 4.3 Transfers. Except as otherwise established by rules and regulations ---------- adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the Company by the surrender to the Company or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the Company or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the Company shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Company in accordance with the requirements of these By-Laws. 4.4 Lost, Stolen or Destroyed Certificates. The Company may issue a new --------------------------------------- certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the Company or any transfer agent or registrar. 4.5 Record Date. The Board of Directors may fix in advance a date as a ------------ record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, -13- or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE 5 - Indemnification --------------------------- 5.1 Indemnification in Actions, Suits or Proceedings Other Than Those by -------------------------------------------------------------------- or in the Right of the Company. (a) The Company shall indemnify any person who - ------------------------------ was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another Company, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a ---- ---------- presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful. (b) The Company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was an employee or agent of the Company, or is or was serving at the request of the Company as an employee or agent of another Company, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts -14- paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, ---- ---------- shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful. 5.2 Indemnification in Actions, Suits or Proceedings by or in the Right of ---------------------------------------------------------------------- the Company. (a) The Company shall indemnify any person who was or is a party - ----------- or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at the request of the Company as a director of officer of another Company, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interest of the Company. No such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (b) The Company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was an employee or agent of the Company, or is or was serving at the request of the Company as an employee or agent of another Company, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company. No such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. 5.3 Authorization of Indemnification. Any indemnification under this -------------------------------- Article 5 shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person or persons have met the applicable standard of conduct set forth in Sections 5.1 and -15- 5.2 hereof. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. 5.4 Advancement of Expenses. The Company may advance expenses (including ----------------------- attorneys' fees) incurred by a director or officer in advance of the final disposition of such action, suit or proceeding upon the receipt of an undertaking by or on behalf of the director of officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to indemnification. The Company may advance expenses (including attorneys' fees) incurred by an employee or agent in advance of the final disposition of such action, suit or proceeding upon such terms and conditions, if any, as the Board of Directors deems appropriate. 5.5 Claims. If a claim for indemnification or payment of expenses under ------ this Article 5 is not paid with 60 days after a written claim therefor is received by the Company, the claimant may recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting the claim. In any such action, the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. 5.6 Insurance. The Company shall have power to purchase and maintain --------- insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Article. ARTICLE 6 - General Provisions ------------------------------ 6.1 Fiscal Year. Except as from time to time otherwise designated by the ------------ Board of Directors, the fiscal year of the Company shall begin on the first day of January in each year and end on the last day of December in each year. 6.2 Corporate Seal. The corporate seal shall be in such form as shall be --------------- approved by the Board of Directors. 6.3 Waiver of Notice. Whenever any notice whatsoever is required to be ----------------- given by law, by the Certificate of Incorporation or by these By-Laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or by telegraph, cable or any other available method, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. 6.4 Voting of Securities. Except as the directors may otherwise --------------------- designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act -16- as, proxy or attorney-in-fact for this Company (with or without power of substitution) at, any meeting of stockholders or shareholders of any other Company or organization, the securities of which may be held by this Company. 6.5 Evidence of Authority. A certificate by the Secretary, or an ---------------------- Assistant Secretary, or a temporary Secretary as to any action taken by the stockholders, directors, a committee or any officer or representative of the Company shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action. 6.6 Certificate of Incorporation. All references in these By-Laws to the ----------------------------- Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Company, as amended and in effect from time to time. 6.7 Transactions with Interested Parties. No contract or transaction ------------------------------------- between the Company and one or more of the directors or officers, or between the Company and any other Company, partnership, association, another organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the Company as of the time it is authorized, approved or, ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 6.8 Severability. Any determination that any provision of these By-Laws ------------- is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws. -17- 6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer --------- to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. ARTICLE 7 - Amendments ---------------------- 7.1 By the Board of Directors. These By-Laws may be altered, amended or -------------------------- repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. 7.2 By the Stockholders. These By-Laws may be altered, amended or -------------------- repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the Company issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting. Notwithstanding the foregoing, the affirmative vote of the holders of at least 66-2/3% of the outstanding stock shall be required to alter, amend or repeal Sections 2.2 and 2.3 of Article 2. -18- EX-4.1 4 EXHIBIT 4.1 Exhibit 4.1 COMMON STOCK COMMON STOCK NUMBER [AUDIBLE LOGO] SHARES INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF DELAWARE CERTAIN DEFINITIONS AUDIBLE, INC. CUSIP __________ THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF AUDIBLE, INC. (hereinafter called the Corporation), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: AUDIBLE, INC. DELAWARE 1999 SEAL] /s/ ANDREW J. HUFFMAN /s/ DONALD KATZ PRESIDENT SECRETARY COUNTERSIGNED AND REGISTERED: (NEW YORK, NEW YORK) TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE AUDIBLE, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM- as tenants in common UNIF GIFT MIN ACT- _________________Custodian______________ TEN ENT- as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right of survivorship and under Uniform Gifts to Minors Act not as tenants in common -- - -------------------------------------- (State) Additional abbreviations may also be used though not in the above list. For Value received, _________________________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - ------------------------------------------------------------------------------ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE ________________________________________________________________________________ __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated,________________________ X________________________________________________ X________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER. SIGNATURE GUARANTEED:___________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.1 5 EXHIBIT 10.1 EXHIBIT 10.1 A G R E E M E N T (As Amended) This Agreement (this "Agreement") is entered into as of November 4, 1998, (the "Effective Date"), as amended, April 22, 1999, by and between MICROSOFT CORPORATION, a Washington corporation with principal offices at One Microsoft Way, Redmond, Washington 98052 (hereinafter "Microsoft"), and AUDIBLE, INC., a Delaware corporation with principal offices at 65 Willowbrook Boulevard, Wayne, New Jersey 07040 (hereinafter "Audible"). WHEREAS, Audible is the creator and provider of an Internet-based service that permits customers to use a computer with an Internet browser to select and download spoken word audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information in a secure Audible-proprietary file format, via the World Wide Web (currently using the URL "http://www.audible.com"), and to play back such Content using Audible's proprietary software or transfer to other devices (such as the Audible Mobile Player) for portable playback; WHEREAS, Microsoft develops, markets and licenses computer software, including operating systems software and applications; WHEREAS, Audible and Microsoft both desire for Audible to undertake certain development work with respect to Audible's proprietary software, pursuant to the terms and conditions of this Agreement; WHEREAS, Microsoft desires to license the versions of Audible's software developed pursuant to this Agreement for inclusion in certain Microsoft products, and Audible desires to license said software to Microsoft, pursuant to the terms and conditions of this Agreement; WHEREAS, Audible and Microsoft both desire that Microsoft shall become an authorized distributor of said software pursuant to the terms and conditions of this Agreement; and WHEREAS, Audible and Microsoft desire to work together to integrate Audible's Content portfolio and security technology to operate with hardware and software designed by or for Microsoft for "electronic books" capable of visually displaying text and simultaneously delivering an audio reading of the displayed text. NOW THEREFORE, in consideration of the premises stated above, the mutual covenants of the parties and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: DEFINITIONS ----------- For purposes of this Agreement, in addition to the capitalized terms defined elsewhere herein, the following terms shall have the meanings described below: Affiliate means (a) an entity that controls, is controlled by, or is under --------- common control with a party; or (b) an entity that shall purchase or succeed to all or substantially all of the assets of that party. "Control" means ownership, directly or indirectly, of more than fifty percent (50%) of the outstanding shares or securities (representing the right to vote for the election of directors or other managing authority), or if the entity does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, "control" means more than fifty percent (50%) of the ownership interest representing the right to make the decisions for such corporation, company or other entity. A corporation, company or other entity shall be deemed to be an Affiliate only so long as such control. ASF means Microsoft's Active Streaming Format version 1.0. --- Audible Software for Windows CE means the version of the Client Software to ------------------------------- be developed by Audible under Section 1.2 of this Agreement to run on Windows CE enabling playback of audio content, and which is capable of running as a component of Windows CE for the Palm-size PC and Windows CE for the AutoPC. The Audible Software for Windows CE shall include reasonable documentation for such software, including complete source code and design documentation. audible.com means the Internet-based service controlled or sponsored by ----------- Audible which permits customers to use a computer with an Internet browser to select, download and license copies of Content, for pay, in an Audible- proprietary file format, via a World Wide Web site currently using the URL "http://www.audible.com" Audible Media Player Filter means a Direct Show filter to be developed by --------------------------- Audible under Section 1.1 of this Agreement to enable the Windows Media Player on Windows and current Windows NT platforms to access the Content. The Audible Media Player Filter shall include reasonable documentation for such software, including complete source code and design documentation. Audible Mobile Players means the portable playback device available to End ---------------------- Users from Audible for the purpose of downloading Content and playing it under certain terms and conditions promulgated by Audible. AudibleReady means the "AudibleReady" mark adopted by Audible to signify ------------ that designated equipment and software may be used to access Audible's Content, which designated equipment and software must meet the standards promulgated by Audible. Windows CE for the AutoPC means the version of Windows CE, including the ------------------------- user interface and associated applications, developed by Microsoft for a computing device designed for use specifically in vehicles such as automobiles. Client Software means Audible's proprietary software that is used as of the --------------- Effective Date to download and play back the Content. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -2- CODEC means the software implementation of a compressor/decompressor ----- algorithm, which enables computing devices to play audio stored in a compatible compression format. Confidential Information shall have the meaning set forth in the Non- ------------------------ Disclosure Agreement referenced in Section 15.1. Content means Spoken Word Audio files consisting of licensed and original ------- literary, business, and entertainment works and other types of spoken word information which Audible has the right to distribute via the World Wide Web to be accessed by computing devices. Content Payments means (a) payments made by Audible to third parties for ---------------- the use or licensing or other distribution rights for specific Content items whether (i) calculated on the basis of usage of the specific Content items, or (ii) on the basis of a flat fee, advance or other sum not derived from usage of the Content, which shall be attributable to specific items within the Content on an amortized basis over a reasonable period of time, and (b) costs incurred by Audible in the creation of original Content directly or through its agents and contractors. Customized Software means the Audible Media Player Filter, the Audible ------------------- Software for Windows CE, and any other software developed by Audible as a result of or in connection with the Development Work. Dedicated Reading Machines means a new class of hardware devices under -------------------------- development by Microsoft and its development partners and by other third parties that both (a) are designed and marketed to be used mainly for the purpose of both reading text from and listening to spoken word audio and (b) are capable of simultaneously displaying the text that corresponds with the audio that is playing, provided that neither (i) personal computers (PCs), laptop computers and general-purpose Windows CE based devices which are primarily designed for other purposes, nor (ii) audio-only devices, such as the Audible Mobile Player, shall qualify as Dedicated Reading Machines even if such devices satisfy the requirements of (a) and (b) above. Development Work means the work to be performed by Audible and its agents ---------------- under Section 1 of this Agreement. End User means a current or prospective customer to whom Audible or its -------- distributors offer to license Content for such customer's own use and not for resale or redistribution. First Option Payment means the sum of One Million Five Hundred Thousand -------------------- Dollars to be paid by Microsoft to Audible under Section 7.1 of this Agreement. Gross Content Revenue means the amount of actual gross cash receipts --------------------- derived by Audible from the licensing of Content by Audible to End Users who access the Content through a version of the Customized Software distributed directly or indirectly by Microsoft. Integrated E-book Title means a single file that contains both text and ----------------------- audio renditions of the same work and is readable by a Dedicated Reading Machine. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -3- Integration means the combination of a version of the Customized Software with ----------- Microsoft Products for distribution by Microsoft as permitted under this Agreement. Intellectual Property means any copyrights, moral rights, maskworks, patents --------------------- (including patent improvements), patent applications, patent rights, trade secrets, trademarks, trade names, service marks or other intellectual property rights under applicable law of any applicable country. Manager shall mean someone in the management chain of the applicable party who ------- is a senior executive in terms of responsibility, and who is familiar with the administration of this Agreement. Microsoft Products means computer hardware and/or software products developed, ------------------ licensed, and/or marketed by or for Microsoft. Net Content Revenue means the Gross Content Revenues, less (a) any Content ------------------- Payments, (b) Revenue Sharing Payments, (c) sales or use taxes, excise taxes, value-added taxes, and duties, and (d) any payments made by Audible to Microsoft for digital rights management, in each case attributable to the licensing of Content by Audible to End Users who access the Content through a Microsoft- distributed version of the Customized Software. Windows NT Media Services means Microsoft's computer software currently titled ------------------------- "Windows NT Media Services" and its successors, which enables computer servers to distribute streaming audio and video. NRE Expenditures means the costs incurred by Audible in connection with ---------------- Audible's development work pursuant to Sections 1.2, 1.3 and 1.4(a)(i) of this Agreement which shall consist of (a) the time spent by individuals on behalf of Audible in performing the work at a reasonable labor charge, including any overtime compensation and including direct program management, (b) an allocation for Audible's administrative expenses attributable to the implementation and management of the work, fixed at [* * *]% of labor charges under subsection (a), (c) the cost of calls, faxes, copying, media, meals and local transportation outside of regular business hours, and other third party charges incurred by Audible in relation to the work, (d) the cost of materials, equipment, supplies, and licenses directly used in connection with the work, (e) reasonable travel and living expenses of Audible's staff and agents when away from their normal place of business to perform the work, and (f) other reasonable expenses incurred by Audible directly to perform the work. OEMs means Microsoft-approved original equipment manufacturers of computing ---- equipment distributed with Microsoft Products. Windows CE for Palm-size PC means the version of Windows CE, including the -------------- ------------ user interface and associated applications, developed by Microsoft for a palm size computing device. Plus! means Microsoft's collection of add-on software applications for ----- Microsoft's Windows 98 operating system and/or Microsoft's Windows NT 5.x operating system. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -4- Revenue Sharing Payments means payments (other than Content Payments) ------------------------ made by Audible to third parties with respect to obtaining distribution rights, OEM rights, promotion, and licensing of Client Software and Content in conjunction with Microsoft Products. Sample Windows Media Content means five sample titles or portions of ---------------------------- titles of non-secured promotional Content of Audible's choice in the ASF format compatible with Windows NT Media Services to be provided by Audible on audible.com for access and use by End Users. Secure or secured means encrypted or protected by any other method ----------------- designed to prevent unauthorized use. Spoken Word Audio means recorded or broadcast spoken word audio content for ----------------- sale in the form of audio book distribution, text based audio programming, time shifted conference proceedings, soundtracks from television broadcasts, audio business programming, and/or time shifted radio distribution. SiteBuilder Network means Microsoft's web-based information service to ------------------- assist web developers located at the URL www.microsoft.com/sitebuilder. Term means an initial period of five years from the Effective Date and any ---- renewals and extensions of this Agreement. Update shall mean a significant error correction, maintenance release, ------ major upgrade, improvement, extension and successor or replacement version of a computer software product. Updates shall be in source code and object code form. Windows 9x means Microsoft Windows 95 and 98 operating systems. ---------- Windows CE means the 32 bit operating system and successor versions, ---------- designed for use with embedded, portable and mobile computing devices and designated by Microsoft as the Windows CE operating system. Windows Media Player means Microsoft's software for the playback of -------------------- streaming media on Windows 9x and Windows NT-based computers. Windows NT means Microsoft's Windows NT operating systems for workstations. ---------- 1. INTEGRATION OF PRODUCTS - AUDIBLE'S ROLE ---------------------------------------- 1.1 The Media Player. Audible, with the assistance and development tools ---------------- from Microsoft described in Article 2 below, shall develop the Audible Media Player Filter. As part of that effort, Audible shall: a. develop the Audible Media Player Filter in accordance with written specifications mutually agreed to by both parties and consistent with Windows Media Player APIs to download and securely play back Audible Content on Windows and Windows NT desktops; and _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -5- b. create an HTML-based web page that will, when accessed by a user of Windows Media Player dynamically assemble an application from Microsoft- provided components and other software components, which application, when combined with the Audible Media Player Filter and other required user interface elements, facilitates Windows Media Player-based playback of Content. Audible shall use and make secure one or more Microsoft-provided CODECs, as necessary to decode the Audible Content using the Windows Media Player through the Web page described in the preceding sentence. 1.2. The Windows CE Platform. Audible, with the assistance and ----------------------- development tools from Microsoft described in Article 2 below, shall develop the Audible Software for Windows CE in accordance with written specifications mutually agreed to by both parties. The Audible Software for Windows CE shall initially be designed for Windows CE for the Palm-size PC and Windows CE for the AutoPC. Other versions of Windows CE may be added to this Development Work as determined by mutual written agreement of Microsoft and Audible, including agreement regarding any compensation to be paid to Audible for its additional development effort. 1.3. Synchronize Sound With Text. Audible shall exercise reasonable --------------------------- efforts, jointly with Microsoft, to evaluate and implement the use of the ASF file format, or such other formats as agreed to by the parties, to synchronize sound content with text for use in then-current versions of Windows 9x, Windows NT and Windows CE. Prior to commencement of Development Work under this Section 1.4, the parties shall agree to a reasonable project statement that will guide the direction and scope of the efforts. The parties expect that this project will result in a design document, a specification, and finally an implementation of the specification, all of which shall be owned by Microsoft (except that any Intellectual Property of Audible, preexisting as of the commencement of Development Work under Section 1.3 or created by Audible outside of any development work for Microsoft, applied in the performance of the work shall continue to be the property of Audible for all purposes and shall only be deemed licensed to Microsoft for the purposes of using the work product created under this Section). 1.4. The Electronic Book Platform. (a) Within [* * *] days of Microsoft ---------------------------- requesting a port and providing file format specifications Audible shall port Content from Audible's portfolio that Audible has rights to port: (i) to the ASF file format or, in the alternative, to any such single file format that Microsoft reasonably determines to utilize for Electronic Books content; (ii) at Microsoft's request, to other file formats, provided Microsoft and Audible shall first agree upon reasonable compensation and terms for Audible performing such work; and (iii) at Microsoft's request, to future versions of the ASF file format released during the Term as mutually agreed to by the parties and, if mutually agreed, subject to _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -6- Microsoft's payment of reasonable amounts to Audible to reimburse the costs of porting to such future versions; In any case stated in (i), (ii) or (iii), as long as such file format reasonably provides adequate security for Audible's Content and generally meets Audible's business and technical needs, Audible shall port as much of its Content portfolio as Microsoft requests and for which Microsoft agrees to pay NRE Expenditures pursuant to Section 8.3. Audible shall offer such ported Content to End Users on substantially similar terms and conditions, and through substantially similar distribution channels (including without limitation audible.com), as Audible offers its other Content to End Users. If Audible determines in good faith that, given then-existing Audible resources, the Microsoft requested porting cannot be finished in [* * * ] days, then parties will discuss in good faith whether Microsoft will fund the acquisition of additional resources as part of the NRE Expenditure reimbursement, or whether the parties will extend the period for completing the porting. (b) Audible shall have no obligation to commence any Development Work under this Section 1.4 until such time as Microsoft has selected the file format under Section 1.4(a)(i) and provided Audible with specifications for the selected file format. 1.5. API Specifications. The Development Work under Section 1.1 shall be ------------------ consistent with Microsoft's Windows Media Player API specification. 1.6 Audible Branding. Audible shall, in a manner to be mutually agreed by ---------------- the parties and in compliance with Section 5.3(d) below, include Audible branding and promotional information in the Development Work under Sections 1.1 and 1.2. 1.7 Implementation Schedule. Time is of the essence in the performance of ----------------------- both parties under this Agreement. Audible's timely progress in the Development Work depends on the timely performance of Microsoft's obligations under this Agreement. 1.8 Media Player Timing. Audible shall release to the public from ------------------- audible.com the Audible Media Player Filter for Windows 98 and Windows NT 4.0, as set forth in this Agreement, no later than the last to occur of (a) [* * *] days after Audible releases similar software for any product or technology competitive with the Windows Media Player, or (b) [* * *] days after the commercial release of the Windows Media Player for Windows 98 and Windows NT 4.0. 1.9 Audible Software for Windows CE Timing. Audible shall provide to -------------------------------------- Microsoft the Audible Software for Windows CE, as set forth in this Agreement, on a time schedule indicated by Microsoft and agreed by Audible as necessary for required testing and modification to be included in the commercial release of Windows CE for Palm-sized PC device and the AutoPC. 1.10 Non-Exclusivity. Subject to Section 9 below, the Development Work --------------- will be performed by Audible on a non-exclusive basis and shall not affect the right of Audible to perform research and development efforts for others or on its own behalf with respect to the same _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -7- or similar technologies as are the subject of this Agreement, provided that Audible shall take necessary steps to ensure that no Microsoft Intellectual Property is used or made available in connection with such other research or development efforts (unless such Intellectual Property is otherwise licensed for the use). Except as stated in Sections 7.1, 9, and 16, Audible shall have the right to use, reproduce, modify and distribute, in its discretion, derivatives of the Development Work and to use, make, license and sell products based thereon, during and after the Term of this Agreement. This shall include the right to permit the installation of the Customized Software or any portion thereof as an OEM and an after-market product for Windows-based equipment. Except as otherwise expressly provided herein, this Agreement does not grant to Microsoft any right or interest in and to any future developments by or on behalf of Audible or any new products and services offered by Audible. 1.11 Representatives; Meeting. Audible hereby agrees to have at least one ------------------------ Manager designated as the primary contact person on its behalf for matters relating to this Agreement and its implementation. Audible hereby further agrees that, at least semi-annually, during the period commencing on the Effective Date and ending on the termination or expiration of the Term, upon the written notice by Microsoft, it will meet, at a mutually agreeable time and location, to confidentially discuss the progress of work under this Agreement, product trends, implementation issues, areas of collaboration, and other related items. Audible will bear its own expenses regarding such meetings. 1.12 Sample Windows Media Content. Audible shall create the Sample ---------------------------- Windows Media Content in accordance with written technical specifications approved in advance by Microsoft, and shall deliver the Sample Windows Media Content as provided in Section 5.1. 2. INTEGRATION OF PRODUCTS - MICROSOFT'S ROLE ------------------------------------------ 2.1. The Media Player. In connection with Audible's Development Work ---------------- under Section 1.1 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance and development tools to Audible for use solely in connection with the development of the Audible Media Player Filter for Windows 9x and Windows NT. 2.2. The Windows CE Platform. In connection with Audible's Development ----------------------- Work under Section 1.2 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance and development tools to Audible for use solely in connection with development of the Audible Software for Windows CE for Windows CE for Palm-size PC and Windows CE for AutoPC and such other Windows CE-based platforms as Microsoft and Audible may determine. 2.3. The Electronic Book Platform. In connection with Audible's ---------------------------- development obligations under Sections 1.3 and 1.4 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance and development tools for use solely in connection with synchronization of sound with text under Section 1.3 and porting Content under Section 1.4. Without limitation to the foregoing, _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -8- Microsoft shall, with Audible's assistance, specify the interfaces, APIs, and other technical specifications necessary to synchronize Content with text content. 2.4. Other Software. In connection with all Development Work, Microsoft -------------- shall provide, [* * * ], the Microsoft retail packaged software product set forth in Exhibit D. 2.5 Test Equipment. Microsoft shall provide to Audible [* * *], to the -------------- extent available, production models of Auto PC and Palm-sized PC devices for use to implement the Development Work. 2.6 Representatives; Meeting. Microsoft hereby agrees to have at least ------------------------ one Manager designated as the primary contact person on its behalf for matters relating to this Agreement and its implementation. Microsoft hereby further agrees that, at least semi-annually, during the period commencing on the Effective Date and ending on the termination or expiration of the Term, upon the written notice by Audible, it will meet, at a mutually agreeable time and location, to confidentiality discuss the progress of work under this Agreement, product trends, implementation issues, areas of collaboration, and other related items. Microsoft party will bear its own expenses regarding such meetings. 2.7 Non-exclusive Relationship. Except as explicitly provided in -------------------------- Sections 7.1, 9 and 16 (as applicable), nothing in this Agreement will be construed as restricting Microsoft's or Audible's ability to acquire, license, develop, manufacture or distribute for itself, or have others acquire, license, develop, manufacture or distribute for it, similar technology performing the same or similar functions as the technology contemplated by this Agreement, or to market and distribute such similar technology in addition to the technology contemplated by this Agreement. 3. TEST, ACCEPTANCE, UPDATES, AND MAINTENANCE ------------------------------------------ 3.1 Testing. Microsoft shall evaluate the final version of each item of ------- Customized Software and shall submit a written acceptance or rejection to Audible within [* * *] days after Microsoft's receipt of each such item. Acceptance shall be in writing, and Microsoft shall not unreasonably withhold or delay its acceptance. (a) If Microsoft identifies and documents for Audible errors in the Development Work during the [* * *] period prior to acceptance, then Audible shall acknowledge each severity one (critical) error within [* * *], and correct any substantial or material error within the time specified in Exhibit C. (b) If Audible fails to make any error corrections discovered before acceptance in the correction period specified herein, then Microsoft may, at its option: (i) accept and retain the Development Work with rights as set forth in Section 4.1; (ii) extend the correction period; or (iii) only with respect to the initial delivery of each component of the Customized Software, terminate this Agreement upon written notice to Audible, with effects after termination as set forth in Section 14. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -9- Notwithstanding the above, the individual components of the Development Work shall be deemed accepted upon commercial distribution of the component in question, and upon completion of the [* * *] period stated above without any report of errors. Errors shall mean failure of the deliverable to comply in a substantial or material way with the agreed upon specifications. 3.2 Updates. During the term of this Agreement, whenever Audible creates ------- an Update to the functionality of the Client Software that is related to the Audible Software for Windows CE, Audible shall create a corresponding Update to the Audible Software for Windows CE and deliver such Audible Software for Windows CE Update to Microsoft no later than first commercial release of such Client Software Update. In order to facilitate the simultaneous release of any particular Client Software Update and the corresponding Audible Software for Windows CE Update, Audible will cooperate with Microsoft in the development of such Updates (including, by way of example, providing development assistance and information on such Updates). Upon receipt of any Update, Microsoft shall review and test the Update pursuant to Section 3.1. Upon Microsoft's acceptance of any Update, such Update shall be deemed to be part of the Audible Software for Windows CE for all purposes of this Agreement. If Microsoft secures unrestricted source code rights by exercising its option under Section 4.1(d)(ii), and if Microsoft then creates a derivative work of the Audible Software for Windows CE with substantially similar functionality but which is not enabled to access Audible Content, or in which access to Audible Content is afforded less than a parity position when compared to any other Spoken Word Audio, then Audible shall have the right, upon written notice to Microsoft, to discontinue its obligation to provide Updates to Microsoft under this Section 3.2. 3.3 Ongoing Assistance. Throughout the term, upon Microsoft's request, ------------------ Audible shall provide reasonable error correction and development assistance with respect to the Customized Software and derivative works that permit playback of Audible Content. 4. GRANT OF LICENSES ----------------- 4.1. Audible License Grant. (a) Subject to the terms and conditions of --------------------- this Agreement and the payment of all required fees, Audible hereby grants to Microsoft a [* * *] license as to the Customized Software, to: (i) use, reproduce, distribute, import, transmit, broadcast, publicly perform and display, license, rent, lease and sell in object code form the Customized Software, as a component of Microsoft Products or on a stand- alone basis for use with such Microsoft Products; (ii) use, make modify and create derivative works of the Audible Software for Windows CE and the Audible Media Player Filter in source code form, and to distribute such modifications and derivative works pursuant to subsection (i); and (iii) to grant to third parties any and all of the foregoing rights under (i), including the right to license such rights to further third parties. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -10- (b) Notwithstanding the above, the license granted by Audible to Microsoft under this Section 4.1 shall not include rights to components of the Client Software which are licensed by third parties to Audible as follows: [* * *]. Audible hereby agrees that, under the direction of Microsoft and pursuant to third-party license rights to be obtained by Microsoft for those third-party components, Audible will provide to Microsoft assistance to integrate those licensed components into the Customized Software as required. Audible shall remove from each delivery of Customized Software all software code that Audible excludes from its license pursuant to this Section 4.1(b). (c) Source Code License. The license to use source code and related ------------------- documentation (collectively, the "source code") for the Customized Software as stated in Section 4.1(a)(i) above shall be subject to the following terms and conditions. Such source code shall only be used under strict confidentiality obligations for purposes of: (i) maintaining, fixing and enhancing the Customized Software for integration with Microsoft Products, while maintaining substantially similar functionality of the Customized Software, and (ii) meeting Microsoft's contractual obligations to third-party licensees who have a right to request and receive the source code of Microsoft Products, in which case such disclosure shall be pursuant to the same terms and conditions applicable to disclosure of the source code of Microsoft's own programs, (d) Notwithstanding the foregoing, Microsoft may exercise the license rights granted hereunder in source code for the Audible Software for Windows CE free of the scope of use restrictions stated in Section 4.1(c)(i) and (ii), if and only if: (i) Audible Software for Windows CE is included in a commercial release of Windows CE for Palm-top devices or AutoPC as a standard module of such release's functionality and direct successor versions commercially released for a period of five (5) years, and for so long as Microsoft continues to promote and enable access to Audible Content via such derivative works for Audible Software for Windows CE in such versions of Windows CE, or (ii) Microsoft pays Audible a mutually agreed, one-time license fee [* * *]. (e) Microsoft's obligation to "promote Audible Content" as used in Section 4(d)(i) shall, at a minimum, consist of the following: (i) Should software that allows browsing of the Internet be included in the operating system for Windows CE for Palm-top devices or AutoPC, and should such browsing software have a "Favorites" folder which includes default URLs for sites other than Microsoft sites, the URL for audible.com shall be included as a default URL in such "Favorites" folder; and (ii) The obligation regarding promotion and branding set forth in Section 5.3. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -11- (f) Microsoft hereby agrees that the source code and any copies thereof, as well as all modifications and improvements made to the source code by or for Audible, are and remain the sole and exclusive property of Audible. Notwithstanding the foregoing sentence, all modifications, enhancements, and improvements made to the source code by or for Microsoft shall be the sole and exclusive property of Microsoft. Microsoft agrees that the source code may not be used to support a service bureau operation or for the benefit of any party other than Microsoft or its sublicensees or assignees as allowed herein. Furthermore, Microsoft agrees it shall only make reasonable number of copies of the source code in accordance with Microsoft customary product development practices. Microsoft agrees that it will not (and it will not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the source. 4.2 The license rights under Section 4.1 shall be perpetual pursuant to the terms of this Agreement, provided that this Agreement is not terminated by Microsoft pursuant to Section 3.1(b) prior to acceptance of any Customized Software, or by Audible due to the default of Microsoft under the provisions of this Agreement. (For avoidance of doubt, if Microsoft does not accept only one of either the Audible Media Player Software or the Audible Software for Windows CE, then Microsoft's license shall survive only with respect to the accepted software.) If Microsoft terminates this Agreement pursuant to Section 3.1(b) without accepting any Customized Software, the license shall terminate upon termination of this Agreement. If Microsoft has not secured unrestricted source code rights pursuant to Section 4.1(d)(ii), the license shall terminate with respect to each Microsoft Product upon the release of a major new version of said Microsoft Product (i.e., a product with a higher version number to the left of the decimal point) at least six (6) months after termination of this Agreement. However, if Microsoft has secured unrestricted source code rights pursuant to Section 4.1(d)(ii), the license shall continue in perpetuity pursuant to the terms of this Agreement (without prejudice to Audible's remedies, other than termination, for Microsoft breach). In any event, existing sublicenses granted by Microsoft as of the date of notice of termination shall survive termination for the then-current term of such sublicenses. 4.3 Sublicenses. Sublicenses granted by Microsoft to licensees shall ----------- comport with the terms of this Agreement and include reasonable terms and conditions to protect Audible's Intellectual Property and Confidential Information in the same manner as Microsoft protects its own Intellectual Property and Confidential Information, and to limit liability to Audible in the same manner as Microsoft limits its own liability vis a vis the third parties. 4.4 License to Microsoft Data and Software. When Microsoft provides -------------------------------------- development tools or other software to Audible hereunder, the terms of Microsoft's standard end user license agreement included therewith shall govern Audible's use thereof to the extent not inconsistent with the terms hereof. 5. PROMOTION AND DISTRIBUTION OBLIGATIONS -------------------------------------- 5.1 Promotion by Audible. By not later than [* * *] days after beginning -------------------- the Development Work contemplated in Section 1.4 above, Audible shall provide the Sample _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -12- Windows Media Content to End Users via a link to audible.com. Audible grants Microsoft a nonexclusive, worldwide, perpetual, irrevocable license to use, reproduce, distribute, broadcast, transmit, publicly perform and display, license, rent, lease and sell the Sample Windows Media Content, and to grant third parties any or all of the foregoing rights, including the right to grant further sublicenses. Audible shall make such Sample Windows Media Content available to users free of charge, subject to the terms and conditions applicable to End Users' access to the Content and to Audible's right to cancel or terminate access by an End User to the Content for failure to abide by such terms and conditions. At the request of Microsoft, Audible shall include in audible.com in connection with the Sample Windows Media Content a reasonable amount of Microsoft branding and promotional information, as well as Audible branding and promotional information. 5.2 Distribution By Microsoft. Microsoft intends to promote and ------------------------- distribute the Audible Software for Windows CE or derivative works thereof as a component of a future version of Windows CE for Palm-size PC and a future version of Windows CE for AutoPC as well as other Windows CE based platforms to be determined by Microsoft. Furthermore, as long as the Customized Software meets Microsoft's reasonable quality criteria, Microsoft shall distribute during the Term the Customized Software, as follows: a. a version of the Customized Software will be included in a future release of Plus!, subject to the following conditions: (i) Microsoft has not finalized plan for future releases of Plus!, and Microsoft reserves the right to discontinue the product and change its policies regarding the distribution of third party software within Plus!; and (ii) if Microsoft continues with future versions of Plus!, Microsoft shall distribute the free version of the Customized Software in at least one version release of Plus! (i.e. one version identified by a unique whole number and tenths digit, such as 2.1 or 2.4). Audible shall make a unique, valuable commercial promotional offer to Plus! users that will not be available with any other version of the Customized Software; b. Microsoft will evaluate other mechanisms to enhance and expand the distribution of the Customized Software and will consider Audible's suggestions and recommendations in that regard. 5.3 Promotion by Microsoft. (a) During the Term, Microsoft shall endorse ---------------------- Audible's client/server system, as integrated with Microsoft technologies pursuant to this Agreement, as a preferred means of publishing and distributing Spoken Word Audio for Dedicated Reading Machines. Such endorsements shall be made in press releases and in appropriate consumer messaging on Microsoft web sites, including but not limited to the website located at the URL http://www.microsoft.com. Microsoft intends to [* * *]; provided, however, if Audible should not port its Content as set forth in Section 1.4(a), then Microsoft is relieved of its obligation to so [* * *]. (b) Microsoft shall promote the Customized Software and the Audible Content [* * *] on the website located at the URL http://www.microsoft.com. for a period of [* * *] months after _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -13- release to market of the Customized Software. Microsoft will also provide links from such location to the Audible web site. (c) Microsoft shall promote the Audible Media Player Filter and make it available for download in the SiteBuilder Network, for a period of [* * *] months after Audible's release to market of the Audible Media Player Filter. (d) Microsoft will display the following Audible mark(s) in connection with the distribution of the Customized Software, subject to Audible's reasonable review of such use for trademark quality control purposes.
- -------------------------------------------------------------------------------------------------------------------- PLAYER BRANDING MARK OR SUCCESSOR MARK UNLESS MS ------ -------- -------------------------------- REASONABLY SUSPECTS SUCCESSOR MARK ---------------------------------- INFRINGES A THIRD PARTY MARK ----------------------------------- - -------------------------------------------------------------------------------------------------------------------- Audible Media Player Yes in User Interface Audible - -------------------------------------------------------------------------------------------------------------------- CE Client Yes in CE in User Interface: Yes for Audible a period of one (1) year from its initial release date if stand alone application; in addition, and during the term of this Agreement, Audible shall be allowed to place an audio message in the application that will announce a brief branding message (the text of which shall be mutually agreed upon) upon the application's launch Not in User Interface, but Yes in help section if a standard module of the OS, and indicating, in a mutually AudibleReady agreed fashion, Audible as the default or preferred source for Spoken Word Audio. ------------------------------------ In Dedicated Reading Machine: Not in AudibleReady User - --------------------------------------------------------------------------------------------------------------------
_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -14- - -------------------------------------------------------------------------------------------------------------------- Interface, but yes in help section ------------------------------------ If Microsoft exercises option to [* * None (except for appropriate *] license under Section 4.1(d), no copyright notices where other branding requirement in derivative such copyright notices are works of the Audible Software for located) Windows CE (except for appropriate copyright notices where other such copyright notices are located). - --------------------------------------------------------------------------------------------------------------------
(e) In the event Microsoft establishes during the Term a technical methodology for dynamic upgrades by which existing Windows CE-based hardware product customers and future customers of Windows CE-based hardware products can be distributed software in the form of upgrades, Microsoft shall promptly evaluate the Customized Software for distribution through that mechanism to customers of the versions of Windows CE in which Microsoft then incorporates the Customized Software. Additionally, as determined by Microsoft in its sole discretion, Microsoft may include the Audible Media Player Filter and/or the Audible Software for Windows CE in any OEM marketing programs established by Microsoft with respect to the technical methodology for dynamic upgrades. 5.4 Level of Efforts. Microsoft's marketing and promotional efforts in ---------------- regards to Audible shall be [* * *] in Plus! and running on Windows CE. 5.5 Audio-Out Jack Specifications. As soon as reasonably possible after ----------------------------- the Effective Date and during the Term, Microsoft will issue to OEMs the specification for audio-out jacks for mobile playback of audio content as an optional component in appropriate versions of Windows CE-based products that make use of the Audible Software for Windows CE for playback of Spoken Word Audio for which an audio subsystem and built-in speaker are required. 5.6 Promotional Materials. During the Term, each party hereby grants to --------------------- the other the right to create its own promotional materials to be used in its distribution and promotion of the Customized Software and audible.com. Once approved, promotional materials may continue to be used until the party indicates in writing that further use is disapproved, after a reasonable notice period. All costs associated with the development, production and delivery of such promotional materials are the responsibility of the party creating the materials. In addition, each party grants to the other the right to use the logos and trademarks of the other party which are listed in Exhibit A hereto, pursuant to usage guidelines as may be provided from time to time, in _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -15- promotional materials created by that party, for as long as this Agreement is in force, subject to prior review and approval by the trademark owner for trademark quality control purposes. 5.7 Distribution by Audible. During the term, Audible shall make the ----------------------- Content available on audible.com such that End Users of the Customized Software may access and use the Content, in accordance with the audible.com standard terms and conditions. 6. CONTENT; AUDIBLE MOBILE PLAYERS ------------------------------- 6.1. Expansion Efforts. Audible shall exercise commercially reasonable ----------------- efforts, to expand its Content in order to support Microsoft's efforts to provide for a diverse and rich audio offering for its Electronic Books project. Nothing herein shall be construed as an obligation on the part of Audible to obtain rights to textual content. Microsoft shall advise and consult with Audible concerning the acquisition of content that may be relevant to Microsoft's Electronic Book efforts. 6.2 Purchase of Players. On the Effective Date, Microsoft shall purchase ------------------- 300 Audible Mobile Players at a [* * *], for a total purchase price of $50,000. 6.3 Content Hosting. At Microsoft's option, Audible shall, on financial --------------- terms agreed to by the parties, produce and/or host Microsoft-specific audio content on Audible's web site for secure, targeted distribution to the mobile players described in Section 6.2 above for a fee to be negotiated. Any license fees required to be paid to third-parties for content that Microsoft wishes to include in its content package but for which Audible does not have a license, shall be borne by Microsoft, provided that Audible has advised Microsoft of the cost and terms for including such Content in advance. Audible shall inform Microsoft whether Audible has already licensed each item of requested content. At Microsoft's further option, Audible and Microsoft may negotiate volume discounts on the licensing of Content for use by Microsoft employees. 6.4 Editorial Control. Audible reserves the right and discretion to ----------------- determine the information to be available as part of the Content and the inclusion or deletion of any item as part of Content. 7. ELECTRONIC BOOK LICENSE AND OPTION ---------------------------------- 7.1. [ *** ]. In consideration for the payment by Microsoft of the First ------- Option Payment, Audible grants Microsoft the [* * *] to distribute Client Software or any other software or hardware permitting End Users to access and use Content ("Access Technology"), for use in connection with Integrated E-book Titles or with Dedicated Reading Machines for a period of [* * *] months commencing on the Effective Date, insofar as Audible [* * *]. 7.2 The Option. Audible hereby grants to Microsoft an option to extend ---------- the [* * *] license described in Section 7.1 above, for two further periods, upon payment of the amounts stated below, as follows: (a) Months [* * *] - $[* * *], payable no later than the end of month [* * *]; _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -16- (b) Months [* * *] - $[* * *], payable no later than the end of month [* * *]. 7.3 Use of Payments. Audible agrees to use all of the First Option --------------- Payment and any subsequent option payments made by Microsoft for the purpose of [* * *], which rights may be used by Microsoft as part of the license granted in Section 7.1 above, and may also be used by Audible in connection with its products and services. 7.4 Content for Electronic Books. Audible agrees to grant access through ---------------------------- its proprietary system to Content, in any format offered by Audible, to Microsoft or distributors designated by Microsoft for integration into Integrated E-book Titles at no more than [* * *]% of standard list price for direct sale to End Users. Audible shall use its reasonable efforts to amend existing contracts or execute new contracts to permit Audible to sublicense the distribution of Content to Microsoft and its designated distributors as part of Integrated E-book Titles. 7.5 Limitations. If Microsoft elects not to exercise any specific [* * *] ----------- option referenced in Section 7.2 above, Microsoft's right to exercise any subsequent option referred in Section 7.2 shall be waived. Notwithstanding anything contained herein to the contrary, the rights and options granted pursuant to this Section 7 shall be subject in all cases to such [ *** ] restrictions as may be applicable to Audible's underlying rights to use the Content. 8. FEES AND ROYALTIES ------------------ 8.1 Content Sales Royalty. Audible will pay Microsoft a royalty on --------------------- Content licensed and distributed by Audible to each End User that activates an Audible account using a version of the Customized Software (or a derivative work thereof) distributed directly or indirectly by Microsoft as follows: (a) the greater of [* * *]% of Net Content Revenues or [* * *]% of Gross Content Revenues for each customer account following its activation; (b) the greater of [* * *]% of Net Content Revenues or [* * *]% of Gross Content Revenues for each customer account following its activation where the Customized Software is burned into ROM in devices running Windows CE; (c) except as otherwise stated in subparagraph (d) below, in the case of other Content licensed to be used with a Dedicated Reading Machines and/or Integrated E-book Titles, the royalty will be the greater of [* * *]% of Net Content Revenues or [* * *]% of Gross Content Revenues for each such customer account following its activation; (d) for each period that Microsoft chooses to exercise its option to renew [ *** ] for Dedicated Reading Machines and/or Integrated E-book Titles pursuant to Section 7 above, royalty payment obligations by Audible described in Section 8.1(c) above shall be increased as follows: (i) in months [* * *], to the greater of [* * *]% of Net Content Revenues or [* * *]% of Gross Content Revenues; and _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -17- (ii) in months [* * *], to the greater of [* * *]% of Net Content Revenues or [ *** ] of Gross Content Revenues. 8.2 Duration and Payment. In all cases, these royalties will be paid -------------------- throughout the Term of the Agreement and cease upon the expiration or termination of the Agreement. Payments of royalties owed by Audible to Microsoft shall be made on a yearly basis within 30 days of each anniversary date of the Effective Date, accompanied by documentation for the calculation of the royalties due. 8.3 Development Payments. Microsoft shall pay Audible a one-time fee in -------------------- the amount of $200,000 for the project identified in Section 1.2. Microsoft acknowledges completion of this project and acceptance in February 1999. Microsoft shall reimburse Audible the amount of its NRE Expenditures up to a sum not to exceed $[* * *] for each of the projects identified in Section 1.3. Such NRE funds shall be non-refundable. Audible shall present to Microsoft an estimate of the expected NRE Expenditures at the commencement of each project and shall invoice Microsoft for such sums as are actually incurred on a monthly basis. If parties agree that Audible will do further development work to improve the integration of the Client Software with Windows generally, or with Windows CE-based platforms or successor products, including any platforms and upgrades of such products, or in connection with other development efforts, then the parties will negotiate in good faith to agree on the appropriate amount of Microsoft's compensation to Audible for such work. 8.4 Audit Provisions. Audible shall keep records in accordance with ---------------- generally accepted accounting principles and in sufficient detail to permit a review of the accuracy of royalty payments to Microsoft and cost reimbursements claimed by Audible under this Agreement. Such records shall be kept for three years following the payment date for royalties. Upon Microsoft's written request for an audit, Audible shall permit independent auditors designated by Microsoft, paid by Microsoft, and approved by Audible, to examine, during ordinary business hours, records, and materials of Audible for the purpose of determining royalties due Microsoft or costs requiring reimbursement by Microsoft and in such a manner as not to interfere with normal business activities. The auditor will sign a confidentiality agreement and will only disclose to Microsoft any amounts overpaid or underpaid for the period examined. Microsoft's request for an audit will be provided to Audible in writing and will be made at least sixty (60) days prior to any audit. Such request will not occur more than once each year. In the event an audit identifies an underpayment of royalties by Audible, Audible shall pay an amount equal to the sum of such underpayment, and shall reimburse Microsoft for all costs of the audit (if the underpayment is more than 5% of amounts due for the period). 8.5 Taxes. All taxes, duties, fees and governmental charges of any kind ----- (except United States or state taxes based on the net income of Audible) which are levied, assessed or otherwise imposed by or under the authority of any government or political subdivision on any royalties payable hereunder, or any aspect of this Agreement, shall be borne by Microsoft and _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -18- shall not be considered a part of, a deduction from, or an offset against payments due to Audible hereunder. 8.6 No Set Off. Payments under this Agreement are not subject to set off ---------- except in the event of a good faith payment dispute. 9. NON-INTERFERENCE ---------------- Audible shall not enter into any other agreement that would preclude integration during the Term of any Audible audio technologies or Content with Dedicated Reading Machines, Windows Media Player, and/or versions of Windows CE. Nothing herein, except for [ *** ], shall be deemed a warranty that all Content is available for use via Microsoft Products based on Windows 95 and 98 and Windows NT. Audible reserves the right to exclude Content for which Audible may not possess the required licensed rights, and to acquire individual items of Content, if it is beneficial to Audible's business in its reasonable opinion, which may not permit distribution of such Content via all or some Microsoft Products. 10. INTELLECTUAL PROPERTY RIGHTS ---------------------------- 10.1. Audible Property. Notwithstanding any provision of this Agreement ---------------- to the contrary, Microsoft hereby acknowledges and agrees that, as between Audible and Microsoft, and for all purposes under the laws of all countries, including Section 117 of the United States Copyright Act, as amended, Audible owns, will own, and at all times shall continue to own, any and all Intellectual Property in and to Client Software, audible.com, Content licenses, all material it creates or provides as part of the Development Work, and all related documentation and information provided to Microsoft, including without limitation any updates, upgrades, patches, or other functionality of any description arising from any of them, and all pre-existing Audible algorithms, security data, software, and Audible hardware (the "Audible Intellectual Property"). 10.2 Microsoft Property. Notwithstanding any provision of this Agreement ------------------ to the contrary, Audible hereby acknowledges and agrees that, as between Audible and Microsoft, and for all purposes under the laws of all countries, including Section 117 of the United States Copyright Act, as amended, Microsoft owns, will own, and at all times shall continue to own, any and all Intellectual Property in and to Microsoft Products, Microsoft's Electronic Books development, the results of the joint project under Section 1.3 hereof, and the Audible Media Player Filter components contributed by Microsoft, and all related documentation and information provided to Audible, including without limitation any updates, upgrades, patches, or other functionality of any description arising from any of them, and all pre-existing Microsoft algorithms, security data, software, and Microsoft hardware (the "Microsoft Intellectual Property"). 10.3 Notices on Copies. (a) Microsoft shall place notice substantially ----------------- similar to the following on all tangible media containing copies of any Customized Software: (C) 199x by Microsoft Corporation and its suppliers. All rights reserved.. -19- (b) Microsoft shall place the following notice in all distributed copies of the Customized Software: Copyright (c) 1998 by Audible, Inc. All Rights Reserved 10.4 Trademarks. Microsoft hereby acknowledges that Audible claims ---------- "Audible", "audible.com", "AudibleReady" and all other variations of "Audible" used by Audible in connection with its products and services as trademarks belonging to Audible. Audible hereby acknowledges that Microsoft claims the marks listed as Microsoft trademarks in Exhibit A as trademarks belonging to Microsoft. The parties hereby agree that the use by it of any trademark of the other pursuant to rights granted under this Agreement shall not create any right, title or interest, in or to the other's marks and that any and all goodwill associated with the trademarks of the other party shall belong to that party. 10.5 Proprietary Notices. Each party agrees that it will not (and it will ------------------- not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the intellectual property and any other tangible materials provided by one party to the other. The existence of any copyright notice on software or any written works shall not be construed as an admission, or be deemed to create a presumption, that publication of such materials has occurred. 10.6 No Other Rights. Except as expressly provided in this Agreement, no --------------- license under any patents, copyrights, trademarks, trade secrets or any other intellectual property rights, express or implied, are granted by either party under this Agreement. 11. LIMITED WARRANTY ---------------- 11.1 Warranty. Audible represents and warrants to Microsoft that, (i) it -------- has all rights and authority necessary to perform under this Agreement; (ii) the Client Software and Customized Software, and the Audible marks listed in Exhibit A do not infringe any patent, copyright, trade secret, trademark, right of privacy or publicity, or other intellectual property rights of any third party; and (iii) it will perform all services under this Agreement in a workmanlike manner, by qualified personnel, in accordance with high professional standards. Microsoft represents and warrants to Audible that (i) it has all rights and authority necessary to perform under this Agreement, (ii) the information, software and tools provided to Audible under Section 2 do not infringe any patent, copyright, trade secret, trademark or other intellectual property rights of any third party. 11.2 Disclaimer. THE WARRANTIES CONTAINED IN SECTION 11.1 ABOVE IS A ---------- LIMITED WARRANTY AND ARE THE ONLY WARRANTIES MADE BY THE PARTIES. EACH PARTY MAKES NO OTHER WARRANTY EXPRESS OR IMPLIED, AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NON- _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -20- INFRINGEMENT. NEITHER PARTY PROVIDES A WARRANTY THAT OPERATION OF SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -21- 12. INDEMNIFICATION --------------- 12.1 Defense. Each party (the "indemnifying party") shall, at its expense ------- and the other party's ("other party") request, defend any claim or action brought against the other party, and the other party's subsidiaries, affiliates, directors, officers, and employees, to the extent it is based upon a claim that, (i) if true, would constitute a breach of the indemnifying party's warranties under Section 11.1; (ii) is based on any product or service offered by the indemnifying party, except to the extent arising from the contributions of the other party; or (iii) is based on damage to property or injury to person caused by the employees, permittees, or agents of the other party. To the extent the other party requests that the indemnifying party defend such claim, the party requesting indemnification shall (i) provide the indemnifying party reasonably prompt notice in writing of any such claim or action and permit the indemnifying party, through counsel mutually acceptable to both parties, to answer and defend such claim or action; and (ii) provide the indemnifying party information, assistance and authority, at the indemnifying party's expense, to help the indemnifying party to defend such claim or action. In such event, the other party will have the right to employ separate counsel at its own cost and participate in the defense of any claim or action which the indemnifying party is defending. The indemnifying party may not settle any claim or action under this Section 12 on the other party's behalf without first obtaining the written consent of the other party, which permission will not be unreasonably withheld or delayed. 12.2 Indemnity. Regardless of whether the other party requests the --------- indemnifying party to defend, the indemnifying party will indemnify and hold the other party harmless from and against any damages finally awarded against the other party or agreed pursuant to a settlement, and any costs and fees (including without limitation, attorneys' fees other than fees for separate counsel under Section 12.1) reasonably incurred by the other party that are attributable to such a claim or action; provided, however, that: (i) the indemnifying party will not be responsible for any settlement made by the other party without the indemnifying party's written permission, which permission will not be unreasonably withheld or delayed, (ii) if the indemnifying party has replaced or corrected infringing materials, pursuant to Section 12.4, its indemnity obligation will in no event include the damages accruing as a result of the other party's failure to adopt, use and distribute (on a prospective basis only) such replacement or corrected version as soon as reasonably possible (iii) if the indemnifying party is defending a claim pursuant to the other party's request, and if the other party unreasonably withholds consent to a settlement proposed by the indemnifying party, the maximum amount that the indemnifying party will be responsible for shall be the amount payable under such settlement plus any costs and fees that the other party would have incurred in connection with such claim if it had been so settled. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -22- 12.3 Publicity Regarding Settlement. In the event the other party and the ------------------- ---------- indemnifying party agree to settle a claim or action, each party agrees not to publicize the settlement without first obtaining the written permission of the other party to this Agreement, which permission will not be unreasonably withheld. 12.4 Duty to Correct. Should Audible's Client Software or Customized --------------- Software ("Audible Infringing Materials"), or Microsoft's information, software and tools provided to Audible under Section 2 or software tools licensed under Section 4.3 ("Microsoft Infringing Materials"), or any portion thereof, be held to constitute an infringement in breach of the warranties under Section 11.1 and use as contemplated by this Agreement be enjoined, the providing party shall notify the other party and immediately, at the expense of the providing party: (i) procure for the other party the right to continue use of such Infringing Materials or portion thereof, as applicable, as licensed in this Agreement; or (ii) replace or modify the Infringing Materials or portion thereof with a version that is non-infringing, with equivalent functionality in all material respects. 12.5 THIS SECTION STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER WITH RESPECT TO THIRD PARTY CLAIMS FOR INFRINGEMENT OR MISAPPROPRIATION. 13. LIABILITY, DAMAGES AND DISCLAIMERS ---------------------------------- 13.1 Limitation of Liability. Except in connection with payments due to ----------------------- third party indemnification under this Agreement and except for claims relating to the infringement or misappropriation of the intellectual property or confidential information of a party, IN THE EVENT EITHER PARTY IS FOUND LIABLE TO THE OTHER FOR ANY MATTER RELATING TO OR ARISING FROM THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT, THE TERMINATION OF THIS AGREEMENT, THE OPERATION OR USE OF SOFTWARE, OR A PARTY'S SERVICES, THAT PARTY'S LIABILITY THEREFOR SHALL NOT EXCEED THE GREATER OF [* * *] DOLLARS OR [* * *] THE AMOUNT PAID BY MICROSOFT HEREUNDER; PROVIDED THAT THIS LIMITATION DOES NOT APPLY TO OBLIGATIONS ARISING UNDER SECTION 12 OR SECTION 15. THE LIMITATION IN THIS SECTION IS A MATERIAL TERM IN THE PARTIES' AGREEMENT. 13.2 Limitation of Damages. Except in connection with payments due to --------------------- third party indemnification under this Agreement and except for claims relating to the infringement or misappropriation of the intellectual property or disclosure of confidential information of a party, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY: (A) SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES ARISING FROM OR RELATED TO THE OPERATION OR USE OF DEVELOPMENT WORK OR SERVICES, INCLUDING SUCH DAMAGES, WITHOUT LIMITATION, ARISING FROM LOSS OF OR DAMAGE TO DATA OR PROGRAMMING, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE SAVINGS OR OTHER BENEFITS, DAMAGE TO _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -23- EQUIPMENT, AND CLAIMS BY ANY THIRD PERSON, EVEN IF THE PARTIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; AND (B) CLAIMS MADE A SUBJECT OF A LEGAL PROCEEDING MORE THAN 24 MONTHS AFTER ANY SUCH CAUSE OF ACTION FIRST AROSE; PROVIDED THAT THESE LIMITATIONS DO NOT APPLY TO OBLIGATIONS ARISING UNDER SECTION 12 OR SECTION 15.. 13.3 Disclaimer. THE PARTIES HEREBY EXPRESSLY DISCLAIM ANY LIABILITY OR ---------- DAMAGES IN EXCESS OF THE LIMITS PROVIDED FOR ABOVE. 14. TERM ---- 14.1. Term. The term of this Agreement shall commence on the Effective ---- Date and continue for an initial period of five years unless terminated earlier pursuant to Section 14.2. hereof (the "Term"). This Agreement will be automatically renewed for additional two year periods without notice unless either party notifies the other party in writing at least 90 days prior to expiration of the current term that it wishes not to renew this Agreement. 14.2. Termination. This Agreement shall terminate as provided below: ----------- a. Audible may, at its option, terminate this Agreement upon thirty (30) days' advance written notice to Microsoft in the event that Microsoft shall: file for bankruptcy or suffer an involuntary bankruptcy that is not dismissed within ninety (90) days; or cease to conduct operations in the ordinary course of business; or fail to comply with any of its material obligations under this Agreement, which failure to comply shall be continuing for thirty (30) days following Microsoft's receipt of written notice from Audible stating the nature of Microsoft's non-compliance; b. Microsoft may, at its option, terminate this Agreement upon thirty (30) days' advance written notice to Audible in the event that Audible shall: file for bankruptcy or suffer an involuntary bankruptcy that is not dismissed within ninety (90) days; or cease to conduct operations in the ordinary course of business; or fail to comply with any of its obligations under this Agreement, which failure to comply shall be continuing for thirty (30) days following Audible's receipt of written notice from Microsoft stating the nature of Audible's non-compliance. 14.3. Continuing Liability. The notification by either party of its -------------------- intent to terminate this Agreement does not relieve either party of any obligations which have accrued under the terms and conditions of this Agreement, inclusive of those terms and conditions which extend beyond the date of termination. 14.4 Effect of Termination. Upon termination of this Agreement for any --------------------- reason, the rights and obligations hereunder (except obligations for payments) shall terminate, except that the provisions relating to license rights (to the extent indicated in Section 4.2 above and provided Microsoft has paid to Audible all fees payable under this Agreement), proprietary rights, confidentiality, and indemnification shall remain in effect. Upon a request by any party hereto, confidential information of one party in the possession of the other shall be returned except to the _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -24- extent necessary for the receiving party to continue exercising its rights after the termination or expiration of this Agreement or to protect its legal rights hereunder. Termination or expiration shall not effect the confidential nature of such information. 15. CONFIDENTIALITY --------------- 15.1 Obligations. The information and software (including CODECs, source ----------- code and documentation therefor) exchanged by the parties hereunder, including the terms and conditions hereof, shall be subject to the Non-Disclosure Agreement ("NDA") between the parties dated June 5, 1998, which is attached hereto as Exhibit B. For purposes of this Agreement such NDA shall be read as (i) applying to information and software disclosed by the parties during the Term in connection with the transactions contemplated herein, and (ii) with respect to any particular information, having a term that survives as long as the applicable information (including without limitation the source code of either party) remains within the definition of Confidential Information. 15.2 Intellectual Property. Notwithstanding the above, the parties agree --------------------- that whether or not intellectual property of the parties (including copyrighted works) is disclosed in confidence, the intellectual property rights of the parties shall remain in effect in accordance with the laws applicable to the intellectual property in question. Nothing in this Section is intended to affect the understandings of the parties elsewhere in this Agreement with respect to ownership and use of intellectual property. 16. [* * *] 16.1 Microsoft. Microsoft hereby agrees that, during the Term, [* * *] --------- 16.2 Audible. For as long as Microsoft has made the payments under ------- Sections 7.1 and 7.2 above, Audible hereby agrees that, during the Term, [* * *]. 16.3 General. Each party agrees that, in addition to other remedies ------- provided at law or in equity, upon a breach by such party of the covenant contained in this Section 16, the other party shall be entitled to an injunction against the breaching party, and any third parties in concert with the breaching party, prohibiting further breach of the covenant contained herein. The parties agree that it is impossible to measure in money the damages that may accrue to the nonbreaching party by reason of the breaching party's failure to obey the covenant stated above. Therefore, in the event of a breach or a threatened breach by a party of the covenant in this Section 16, the parties agree that such covenant may be enforced by a court of competent jurisdiction by a decree for specific performance, in addition to other remedies nonbreaching party may have. EACH PARTY HAS CONSULTED WITH COUNSEL, HAS READ THIS SECTION 16, AND AGREES THAT THE CONSIDERATION PROVIDED HEREUNDER IS FAIR AND REASONABLE AND FURTHER AGREES THAT [* * *] CONTEMPLATED IN THIS SECTION 16 ARE LIKEWISE FAIR AND REASONABLE. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -25- 17. GENERAL PROVISIONS ------------------ 17.1 Entire Agreement. This Agreement and its schedules constitute the ---------------- entire agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements and understandings which may exist between the parties, with respect to the subject matter hereof. All amendments to this Agreement must be in writing and signed by both parties. 17.2 Assignment. Neither party may assign or transfer this Agreement or ---------- any rights granted to it hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. For the purposes of this Agreement, a merger, consolidation, or other corporate reorganization, or a transfer or sale of a controlling interest in a party's stock (excluding such transactions with existing shareholders, transfers to relatives by operation of law, or sale of securities in the public market, none of which result in a new single entity or affiliated group of entities gaining control of such party), or of all or substantially all of its assets (collectively, a "Corporate Transfer") shall be deemed to be an assignment. (a) In the event Microsoft does not consent to a Corporate Transfer or consents to a Corporate Transfer with conditions that are not acceptable to Audible, and if Audible wishes to pursue the Corporate Transfer, then Microsoft may terminate this Agreement (except for the provisions that survive as stated elsewhere in this Agreement) as its sole remedy and Audible may continue with the proposed Corporate Transfer. Such termination shall not result in any liability from one party to the other except for amounts that were due and payable on the date of termination. Subject to the preceding two sentences, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. (b) (i) If, at any time during which Microsoft holds [ *** ] rights under Section 7, Microsoft shall have the right of first negotiation on any Corporate Transfer as follows: If Audible receives an unsolicited proposal from a third party (a "Solicitor") that Audible wishes to pursue (except during the six (6) month period set forth in the sixth sentence below), or Audible determines to solicit proposals or otherwise enter into discussions that would result in a Corporate Transfer, Audible shall give written notice to Microsoft of such occurrence (a "Corporate Transfer Notice"). Microsoft shall have seven (7) days after receipt of the Corporate Transfer Notice to provide notice to Audible in writing (a "Negotiation Notice") of its desire to negotiate in good faith with Audible regarding a Corporate Transfer involving Microsoft. If Microsoft does not deliver such Negotiation Notice within 7 days of receipt receiving the Corporate Transfer Notice, Audible will be free to negotiate with any third party or parties regarding a Corporate Transfer. If Microsoft delivers a Negotiation Notice to Audible within 7 days of Microsoft receiving the Corporate Transfer Notice, then (A) Audible will furnish to Microsoft such relevant and pertinent information about Audible as may be appropriate to enable Microsoft to engage in good faith negotiations, and (B) the parties will negotiate exclusively in good faith regarding a Corporate Transfer until no later than 21 days from the date Microsoft received the Corporate Transfer Notice. If, after 21 days, the parties cannot come to terms regarding a Corporate Transfer of Audible, Audible will be free to negotiate with any third party or parties regarding a Corporate Transfer. If a definitive agreement for a Corporate Transfer has not been entered into by Audible and any such third party _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -26- or parties within six (6) months from the date of a Negotiation Notice delivered by Audible to Microsoft, then the right of first negotiation process described above in this Section 17.2(b) will again apply as if no such original Negotiation Notice had been delivered to Microsoft. No Corporate Transfer that occurs in violation of the process outlined above shall be valid. If Audible makes a Corporate Transfer to a third party purchaser in accordance with the terms of this Section 17.2, this Section 17.2 shall not apply to that third party purchaser, unless the purpose of the Corporate Transfer was to circumvent or defeat this Section 17.2. Clause (A) of this subsection (i) will not require Audible to disclose to Microsoft the name of the Solicitor, or the amount of any proposal or offer from such Solicitor and the material terms thereof or such other information as would be reasonably expected to allow Microsoft to derive the identity of the Solicitor if such information is subject to a non-disclosure agreement and such information has not been provided by Audible to any other third party other than professional advisors of Audible. (ii) During any period in which the provisions of Section 17.2(b)(i) are effective and any representative or affiliate of Microsoft serves as a member of the Board of Directors of Audible (the "Director"), the Director shall not participate in any discussions, deliberations or proceedings of the Board of Directors with respect to its consideration of any Corporate Transfer. 17.3 Internal Dispute Resolution. In the event of any problem, claim, or --------------------------- dispute arising from, out of, or based upon this Agreement, or the business relationship between the parties, the aggrieved party shall promptly notify the other party of the existence of the problem, claim, or dispute, and such other party shall promptly undertake all reasonable efforts to resolve the matter, including but not limited to, submitting such problem, claim or dispute for resolution to a Manager of each party. The Managers shall make a good faith effort to resolve the dispute as quickly as possible. In the event that the Managers cannot resolve such dispute within twenty (20) days the matter may at the option of either party, be submitted for resolution to each party's chief executive with overall responsibility for the subject matter in dispute for a period of twenty (20) days. 17.4 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the law of the State of Washington applicable to contracts between residents of the State of Washington, and entered into and performed entirely in the State of Washington. Any action instituted by either party arising out of this Agreement shall only be brought, tried and resolved in the State of Washington. 17.5 Severability. If any provision of this Agreement or the application ------------ thereof to any person or circumstances shall, for any reason and to any extent, be void or unenforceable, the application of the remainder of this Agreement to such person or circumstances and the application of such provision to other persons or circumstances shall be interpreted so as best to reasonably reflect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provisions of this Agreement with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -27- 17.6. Relationship. Nothing in this Agreement or in the activities ------------ contemplated by the parties pursuant to this Agreement shall be deemed to create an agency, partnership, employment or joint venture relationship between the parties. Each party shall be deemed to be acting solely on its own behalf and, except as expressly stated, has no authority to pledge the credit of, or incur obligations or perform any acts or make any statements on behalf of, the other party. Neither arty shall represent to any person or permit any person to act upon the belief that it has any such authority from the other party. Neither party's officers or employees, agents or contractors shall be deemed officers, employees, agents or contractors of the other party for any purpose. 17.7 Agreement Announcement. The parties agree that upon execution of ---------------------- this Agreement, both parties may announce and/or confirm the existence of this Agreement to the business, trade and general press, or to any other person or entity provided that the parties agree on the content, and date of the announcement, and venue and vehicle for the announcement. 17.8. No Waiver. No waiver of any breach of the Agreement shall be deemed --------- to be a waiver of any subsequent breach. 17.9 Force Majeure. Neither party will be liable for any failure or delay -------------- in its performance under this Agreement due to causes, including, but not limited to, and act of God, an act of civil or military authority, fire, epidemic, flood, earthquake, riot, war, sabotage, labor shortage or dispute, and governmental action, which are beyond its reasonable control; provided that the delayed party: (a) gives the other party written notice of such cause promptly, and in any event within 15 days of discovery thereof; and (b) uses its reasonable efforts to correct such failure or delay in its performance. 17.10 Attorneys' Fees. A prevailing party in an action to enforce this --------------- Agreement shall have the right to collect from the other its reasonable expenses incurred in enforcing this Agreement including attorneys' fees. 17.11 Construction of Agreement. This Agreement has been negotiated by ------------------------- the parties hereto, shall be deemed to have been drafted by both parties, and the language hereof shall be construed neutrally and not for or against any party. Where appropriate the singular shall include the plural. The headings of this Agreement are only for convenience and not intended to convey any substantive meaning. In the event of a conflict between the provisions of the Agreement and the provisions of any exhibit, the provisions of the exhibits shall control to the extent of the conflict but otherwise the two shall be read together as much as possible. 17.12 Notices. All notices, requests or other communication required or ------- permitted hereunder shall be given or made in writing and shall be (i) delivered personally (including commercial carrier), (ii) sent by overnight mail service, postage prepaid or (iii) sent by telecopier with confirmation of receipt and a copy by regular mail, addressed to the person stated below, at the address noted at the beginning of this Agreement, or at such other address as may from time to time be designated by such party to the other in writing. If to Audible: _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -28- Audible, Inc. 65 Willowbrook Blvd. Wayne, NJ 07470 Attn: Managing Director, Business/Legal Affairs Phone: 973-890-4070 Fax: 973-890-2442 With a copy to: PIPER & MARBURY L.L.P. 1200 19th Street, N.W. Washington, D.C. 20036 Attention: Edwin M. Martin, Jr., Esq. If to Microsoft: Microsoft Corporation One Microsoft Way Redmond, WA 98052-6399 Attn.: Vice President, Technology Development -------------------------------------- Phone: (425) 936-8180 -------------- Fax: (425) 936-7329 -------------- With a copy to: Law & Corporate Affairs Fax: (425) 936-7409 Any notice, request or other communication shall be deemed to have been given and to be effective upon receipt or refusal by the addressee. Any party may change its address for notices hereunder, effective upon giving of notice of such change hereunder to the other party. 17.13 Other Remedies. Unless expressly stated to the contrary, subject to -------------- the appropriate limitations of liability herein contained, any and all remedies herein expressly conferred upon a party shall be deemed cumulative and not exclusive of any other remedy conferred hereby or by law, and the exercise of any one remedy shall not preclude the exercise of any other. 17.14 Counterparts. This Agreement may be executed in two or more ------------- counterparts, each of which will be deemed an original and all of which together will constitute one instrument. 17.15 Exports. Each party shall be responsible for its own compliance with --------- all applicable export laws and regulations in its distribution of the Customized Software and other Development Work. Upon request, each party shall reasonably cooperate with the other party to assist with such compliance. _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -29- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the undersigned, with authority to do so and intending to be legally bound, as of the date first above written. WITNESS: AUDIBLE, INC. /s/ Andrew J. Huffman _________________________________ Name Name: Andrew J. Huffman Title: President and CEO WITNESS: MICROSOFT CORPORATION /s/ Dick Brass _________________________________ Name Name: Dick Brass Title: Vice President _____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. -30- EX-10.2 6 EXHIBIT 10.2 EXHIBIT 10.2 DIGITAL RIGHTS MANAGEMENT AGREEMENT This Digital Rights Management Agreement (the "Agreement") is entered into and effective as of November 4, 1998 (the "Effective Date") by and between MICROSOFT CORPORATION, a Washington corporation with principal offices at One Microsoft Way, Redmond, WA 98052 ("Microsoft"), and AUDIBLE, INC., a Delaware corporation with principal offices at 65 Willowbrook Boulevard, Wayne, New Jersey 07040 ("Audible"). Recitals i. Whereas, Microsoft develops, markets, and licenses computer software, including operating system software and applications; ii. Whereas, Audible is the creator and provider of an Internet-based service that permits customers to use a computer with an Internet browser to select and download spoken word audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information in a secure Audible-proprietary file format, via the World Wide Web (currently using the URL "http://www.audible.com"), and to play back such Content using Audible's proprietary software or transfer to other devices (such as the Audible Mobile Player) for portable playback; iii. Whereas, Microsoft intends to develop a Digital Rights Management technology, which controls the use of digitized electronic text, audio, software, or other content so that licensors may limit end users to specifically licensed uses ("DRM"); and iv. Whereas, in addition to other business relationships between the parties, Audible and Microsoft wish to cooperate in Microsoft's DRM project, on the terms and conditions set forth herein. Agreement NOW THEREFORE, the parties agree as follows: 1. Definitions. ----------- For purposes of this Agreement, in addition to the capitalized terms defined elsewhere herein, the following terms shall have the meanings described below: 1.1 "Audible.com" means the Internet-based service controlled or sponsored by Audible which permits customers to use a computer with an Internet browser to select, download and license copies of Content, for pay, in an Audible- proprietary file format, via a World Wide Web site currently using the URL "http://www.audible.com." 1.2 "Audible Mobile Player" means the portable playback device available to End-Users from Audible for the purpose of downloading Content and playing it under certain terms and conditions promulgated by Audible. 1.3 "Audible Security Code" means version 1.0 of the computer software created by or for Audible, in object and source code form, which permits End Users to use Content they download from the Audible.com only in the manner for which the Content is licensed to them. Audible Security Code is further described in Exhibit A. 1.4 "Client Software" means Audible's proprietary software that is used as of the Effective Date to download and play back the Content from Audible.com. 1.5 "Content" means Spoken Word Audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information which Audible has the right to distribute via the World Wide Web to be accessed by computing devices. 1.6 "Development Agreement" means that certain Agreement by and between the parties dated of even date herewith, by which, among other provisions, Audible will modify the Client Software and license it to Microsoft for distribution. 1.7 "Documentation" means any and all documentation, user manuals, service manuals, database definitions and structures (including identification of each table and field), reference manuals, specifications, make files which specify source code modules and forms, sample databases, installation software which builds installation disk images, installation guides, graphics files and other files, development plans and notes, materials associated with production of the "on-line help" feature of the Audible Security Code, flow charts, diagrams, drawings, maintenance notes, release notes, notes regarding errors, source code notation, and other notes, memos, spreadsheets and other documentation made by or for Audible and pertaining to all or any part of the object code or source code of the Audible Security Code, whether printed on paper or stored in electronic, optical or other machine readable form, in each case, as in existence on the date of this Agreement. 1.8 "DRM API" means an application program interface for the DRM, permitting application software programs to access DRM functionality. 1.9 "Electronic Book" means a single file that contains both text and audio renditions of the same work (e.g., books, magazines and other such analog printed content) and is readable by a Dedicated Reading Machine. As used herein, "Dedicated Reading Machines" means a new class of hardware devices under development by Microsoft and its development partners and by other third parties that both (a) are designed and marketed to be used mainly for the purpose of both reading text from and listening to spoken word audio and (b) are capable of simultaneously displaying the text that corresponds with the audio that is playing, provided that neither (i) personal computers (PCs), laptop computers and general-purpose Windows CE based devices ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 2 which are primarily designed for other purposes, nor (ii) audio-only devices, such as the Audible Mobile Player, shall qualify as Dedicated Reading Machines even if such devices satisfy the requirements of (a) and (b) above. 1.10 "Gross Transaction Revenue" means the actual gross amounts received by Audible in its capacity as a Clearinghouse, as defined in Section 5.1 of this Agreement, for confirming the licensing of DRM encoded content pursuant to Section 5.2. 1.11 "Microsoft Products" means computer hardware and/or software products developed, licensed, and/or marketed by or for Microsoft. 1.12 "Net Transaction Revenue" means the Gross Transaction Revenues, less sales or use taxes, excise taxes, value-added taxes, and duties, in each case attributable to the amounts received by Audible, in its capacity as a Clearinghouse, as defined in Section 5.1 of this Agreement, for confirming the licensing of DRM encoded content pursuant to Section 5.2, and less any payments made by Audible to Microsoft as royalties for use of DRM in its capacity as a Clearinghouse (other than those set forth in Section 5.2). 1.13 "NRE Expenditures" means the costs incurred by Audible in connection with Audible's development work under Section 4 of this Agreement, which shall consist of (a) the time spent by individuals on behalf of Audible in performing the work at a reasonable labor charge, including any overtime compensation and expenses and including direct program management, (b) an allocation for Audible's administrative expenses attributable to the implementation and management of the work, fixed at [ *** ] of labor charges under subsection (a), (c) the cost of calls, faxes, copying, media, meals and local transportation outside of regular business hours, and other third party charges incurred by Audible in relation to the work, (d) the cost of materials, equipment, supplies, and licenses used in connection with the work, (e) reasonable travel and living expenses of Audible's staff and agents when away from their normal place of business in connection with the work, and (f) other reasonable expenses incurred by Audible in connection with the work. 1.14 "OEMs" means Microsoft-approved original equipment manufacturers of computing equipment utilizing Microsoft operating systems, applications, or other technology. 1.15 "Spoken Word Audio" means spoken word audio content for sale in the ------------------ form of audio book distribution, text based audio programming, time shifted conference proceedings, soundtracks from television broadcasts, audio business programming, and/or time shifted radio distribution. 2. Audible Security Code. --------------------- 2.1 Delivery. Within five (5) days after the Effective Date, Audible -------- shall deliver the Audible Security Code and all Documentation to Microsoft at the following address: Steve Stone, Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052. As part of the ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 3 services to be provided under Section 3 of this Agreement, Audible will provide one-day, on site consulting services in accordance with industry standards, at Microsoft's Redmond, Washington campus to explain the deliverables hereunder to Microsoft's designated technical personnel. 2.2 Acceptance. Microsoft shall evaluate the Audible Security Code within ---------- ten (10) days of receipt to confirm that the delivery is complete. If the delivery of Audible Security Code and Documentation is not complete in its contents, Audible agrees to promptly deliver to Microsoft any missing items. 2.3 License. (a) Upon receipt by Microsoft, Audible shall be deemed to ------- grant to Microsoft a [ *** ] license to: (i) Use, copy, edit, format, modify, translate and create derivative works of the source and object code versions of the Audible Security Code, and the Documentation internally by Microsoft solely for the purpose of incorporating all or part of the Audible Security Code or derivative works thereof in Microsoft Products which implement DRM; (ii) Reproduce, license, rent, lease, transmit, sell or otherwise distribute, and have reproduced, licensed, rented, leased, transmitted, sold or otherwise distributed, to and by third parties, (i) source code and/or object code versions of the Audible Security Code or derivative works thereof, solely as incorporated in Microsoft Products which implement DRM, and (ii) the Documentation and derivative works thereof for use in connection with Microsoft Products which implement DRM; and (iii) Subject to subsection 2.3(b) below, grant the rights set forth in this Section 2.3(a)(ii) in the Audible Security Code and the Documentation to third parties, including the right to license such rights to further third parties. (b) Source Code License. The license to use and permit others to use source code and related documentation (collectively, the "source code") for the Audible Security Code as stated in subsection 2.3(a) above shall be subject to the following terms and conditions. Such source code shall only be used and sublicensed under confidentiality and non-disclosure obligations. Microsoft hereby agrees that the source code remains the sole and exclusive property of Audible. Microsoft agrees that the source code may not be used for the benefit of any party other than Microsoft or its sublicensees or assignees as allowed herein, and must not be made available publicly or without the restrictions stated in this Agreement as it may compromise the security of Audible's own products and services. Microsoft agrees that it will not (and it will not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the source code. Except as noted below, the foregoing license grants include a license under any current and future patents owned or licensable by Audible to the extent necessary: (i) to exercise any license right granted herein; and (ii) to combine the Audible Security Code or derivative works thereof with any Microsoft Product which implements DRM. Except as expressly licensed to Microsoft ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 4 in this Agreement, Audible retains all right, title and interest in and to the Audible Security Code and the Documentation. Subject to the license grant in Section 2.3 and Audible's ownership of the underlying Audible Security Code and Documentation, Microsoft shall own all right, title and interest in and to any derivative works of the Audible Security Code and Documentation created by or for Microsoft. Notwithstanding the above, the license granted by Audible to Microsoft under this subsection 2.3(b) shall not include [ *** ]. Audible hereby agrees that, under the direction of Microsoft and pursuant to third-party license rights to be obtained by Microsoft for those third-party components, Audible will provide to Microsoft assistance to integrate those licensed components into the Audible Security Code as required. Audible shall remove from each delivery of Audible Security Code all software code that Audible excludes from its license pursuant to this subsection 2.3(b). (c) Notwithstanding any provision of this Agreement, it shall be Microsoft's responsibility to determine whether Microsoft may export the Audible Security Code and Documentation from the United States under applicable laws and regulations and to obtain any necessary permits and licenses which may be required for such purposes. Audible shall cooperate with Microsoft in any Microsoft request for such licenses and clearances. Microsoft shall indemnify and hold harmless Audible and its officers, directors, employees and agents for any damages, penalties, losses and fines payable by Audible or any officer, director, employee or agent as a result of Microsoft's exportation of the Audible Security Code, Documentation or any part thereof in contravention of law. 2.4 License Fee. In consideration of the license granted to Microsoft ----------- under Section 2.3, Microsoft shall pay Audible a one-time license fee of Two Hundred Fifty Thousand Dollars (US$250,000) within thirty (30) days of receipt of the complete Audible Security Code and Documentation by Microsoft. 2.5 Proprietary Rights in Audible Security Code and Use Restrictions. (a) ---------------------------------------------------------------- The parties acknowledge that the source code for the Audible Security Code is one of Audible's trade secrets. As between the parties, Audible is and shall remain the exclusive owner of all proprietary rights embodied in the Audible Security Code and Documentation, including all copyrights, patent rights, trade secrets, know how, and the "Audible" trademark . Microsoft agrees that it shall not distribute the source code for the Audible Security Code, in whole or in part, to any third party, except as permitted under this Section 2, and only under license and nondisclosure terms that comport with the terms of this Agreement and are at least as protective as Microsoft employs for source code of the Microsoft Products that include the Audible Source Code. Microsoft shall exercise reasonable efforts to enforce the terms of those third party agreements as they relate to the Audible Security Code. (b) Microsoft agrees that it will not (and it will not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the Audible Security Code and Documentation. The existence of any copyright notice on ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 5 software or any written works shall not be construed as an admission, or be deemed to create a presumption, that publication of such materials has occurred. The source code of the Audible Security Code shall be treated indefinitely as confidential under this Agreement, whether or not it is marked as confidential. (c) Audible reserves all rights in the Audible Security Code and Documentation not expressly granted herein. Audible shall have no obligation under this Agreement to provide any hardware, software or services that are not expressly provided for herein. 3. DRM Development Assistance. Upon Microsoft's request, Audible shall answer -------------------------- any Microsoft questions about the Audible Security Code, provide Microsoft with input, design advice, and technical assistance in the development of DRM, and advise Microsoft of its reasonable business needs with respect to support of Content under DRM. Audible shall provide such assistance [ *** ]. 4. DRM Implementation. ------------------ 4.1 Utilization of DRM. Audible shall implement DRM on a non-exclusive ------------------ basis in the operation of Audible.com as soon as commercially reasonable after DRM is made available to Audible for the purpose of licensing Audible Content ported to DRM pursuant to a development agreement between Audible and Microsoft to Electronic Book customers. Microsoft shall provide the client software to be used to enable the Audible Content to be accessed by Electronic Book customers. 4.2 Client Software. Microsoft and Audible will evaluate and implement if --------------- the anticipated development may be completed within the NRE Expenditure limit of [ *** ] in the future the inclusion of standard DRM APIs into future versions of the Client Software on non-exclusive basis, i.e. there may be other Content security and rights-management software included in such future versions of the Client Software. 4.3 Beta Releases and SDKs. No later than Microsoft provides such ---------------------- materials to any third party with similar input into the development of DRM, Microsoft shall provide to Audible Microsoft's standard beta program releases for DRM APIs and Microsoft's externally distributed software development kits (SDKs) for DRM APIs, if available, for purposes of the work described in section 4.1 above. 4.4 Payments. In connection with Audible's efforts to enable audible.com -------- to permit access to Content by Electronic Book customers as stated in Section 4.1 above Microsoft hereby agrees to reimburse Audible the amount of its NRE Expenditures in a total amount not to exceed [ *** ]. Such NRE funds shall be non-refundable. Audible shall invoice Microsoft for such sums as are actually incurred on a monthly basis along with supporting materials documenting the NRE Expenditures. 5. DRM Clearinghouse. ----------------- ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 6 5.1 Nonexclusive Clearinghouse. (a) Microsoft anticipates that, in -------------------------- conjunction with the distribution of DRM, it will license other entities ("Clearinghouses") to confirm that text, audio, software, or other content encoded under DRM is properly licensed for End User use. In that event, Microsoft shall designate Audible as a nonexclusive Clearinghouse as soon as such designations are available, on terms at least as favorable as any similarly situated Clearinghouse, including a license to DRM software necessary for operating as a Clearinghouse. For that purpose, Microsoft hereby agrees to deliver to Audible [ *** ], for a period of two years from the commercial release of DRM, any Microsoft Product for securing electronic audio content with DRM. Microsoft shall provide a number of copies of such Microsoft Products sufficient for the operation of Audible.com. Audible's use of each such Microsoft Product shall be subject to the standard Microsoft end user license agreement included therewith, provided that such licenses must be perpetual and must be [ *** ] during the two-year period after commercial release of DRM. Microsoft shall refer any content providers wishing to secure their Spoken Word Audio content under DRM to Audible (on a nonexclusive basis). Microsoft anticipates that it will provide Clearinghouses with a secure publishing toolkit to redistribute to content providers, to assist in the encoding of content compatible with DRM or will encourage content providers to license such secure publishing toolkit from Audible. For a period of two (2) years from the commercial release of DRM, Microsoft agrees that Audible will be a [ *** ] Clearinghouse and with regard to major [ *** ] by Microsoft in the field of secure audio distribution over the Internet. (b) After the expiration of said two-year period, Audible shall have the option to continue as a Clearinghouse, and to acquire DRM-related Microsoft Products as described above, on terms and pricing [ *** ]. 5.2 Transaction Fees. Audible reserves the right to charge a fee to ---------------- content providers or End Users each time Audible, acting as a Clearinghouse, confirms the licensing of DRM encoded content. In such event, Audible shall share any such transaction fee with Microsoft as follows. Microsoft shall not receive transaction fees under this Agreement on any given Audible revenues to the extent Audible pays Microsoft transaction fees thereon under the Development Agreement. 5.2.1 in all cases not covered by Section 5.2.2, the greater of [ *** ] of Net Transaction Revenues or [ *** ] of Gross Transaction Revenues, unless otherwise provided below; 5.2.2 for each year that Microsoft chooses to exercise its option for exclusive access rights pursuant to Section 7 of the Development Agreement, the greater of [ *** ] of Net Transaction Revenues or [ *** ] of Gross Transaction Revenues. 5.3 Payments. Payments of royalties owed by Audible to Microsoft for a -------- given calendar month shall be made within thirty (30) days from the end of the month, accompanied by documentation indicating the calculation of the royalties due. ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 7 5.4 Audit Provisions. During the term of this Agreement, Audible agrees to ---------------- keep all usual and proper records and books of account and all usual and proper entries relating to Gross Transaction Revenues and Net Transaction Revenues. Microsoft may cause an audit to be made of the applicable records in order to verify invoices or other statements by Audible, and prompt adjustment shall be made to compensate for any errors or omissions disclosed by such audit. Any such audit shall be conducted by an independent certified public accountant selected by Microsoft (other than on a contingent-fee basis) and shall be conducted during regular business hours at Audible's offices and in such a manner as not to interfere with Audible's normal business activities. Any such audit shall be paid for by Microsoft unless material discrepancies are disclosed. "Material" shall mean a discrepancy amounting to at least five percent (5%) of the amount that should have been reported. If material discrepancies are disclosed, Audible agrees to pay Microsoft for the reasonable costs associated with the audit. Audible shall pay interest of one percent (1%) per month on all moneys due Microsoft to remedy material discrepancies more than six (6) months old at time of audit. 5.5 No Set Off. The payments due under this Agreement are not subject to ---------- any right of set-off except in the event of a good faith payment dispute. 6. Nondisclosure; Public Statements. -------------------------------- 6.1 Nondisclosure. ------------- (a) The information and software (including source code and documentation therefor) exchanged by the parties hereunder, including the terms and conditions hereof, shall be subject to the Non-Disclosure Agreement (NDA) between the parties dated June 5, 1998, which is attached hereto as Exhibit B. For purposes of this Agreement such NDA shall be read as (i) applying to information and software disclosed by the parties during the Term in connection with the transactions contemplated herein, and (ii) with respect to any particular information, having a term that survives as long as the applicable information (including without limitation the source code of either party) remains within the definition of Confidential Information. (b) Notwithstanding the above, the parties agree that whether or not intellectual property of the parties (including copyrighted works) is disclosed in confidence, the intellectual property rights of the parties shall remain in effect in accordance with the laws applicable to the intellectual property in question. Nothing in this Section is intended to affect the understandings of the parties elsewhere in this Agreement with respect to ownership and use of intellectual property. 6.2 Press. Microsoft and Audible agree that they will publicly announce ----- the cooperation of the parties with respect to rights management technology and technology sharing and that the initial press release or communication to the press and/or public regarding this Agreement and the parties' relationship shall be made only after prior consultation with the other party. Subsequent accurate press releases and other communications to the press and/or public ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 8 regarding the parties' relationship may be made by either party subject to the confidentiality obligations set forth in Section 6.1. 7. Term and Termination. -------------------- 7.1 Term. The term of this Agreement shall commence on the Effective Date ---- and unless terminated earlier as provided herein, shall continue for five (5) years after the Effective Date. 7.2 Termination. In the event either party shall materially fail to ----------- perform or comply with this Agreement or any provision thereof, and fail to remedy the default within thirty (30) days after the receipt of notice to that effect, then the other party shall have the right, at its sole option and upon written notice to the defaulting party, to terminate this Agreement upon written notice. Any notice of default hereunder shall be prominently labeled "NOTICE OF DEFAULT." The rights and remedies provided in this section shall not be exclusive and are in addition to any other rights and remedies provided by law or this Agreement. 7.3 Survival. The following provisions shall survive termination of this -------- Agreement: 2.3, 2.5, 6.1, 7.3, 8, 9 and10. Section 2.3 shall not survive termination if the termination is due to Microsoft's violation of the terms of Sections 2.3, 2.5 or 6.1, for failure to accept the Audible Security Code, or for failure to pay amounts due under this Agreement. Section 9 only survives termination for a period of two years. 8. Warranties. ---------- 8.1 Audible. Audible warrants and represents that: ------- 8.1.1 It has the full power to enter into this Agreement; 8.1.2 It has not previously and will not grant any rights to any third party that are inconsistent with the rights granted to Microsoft herein; and 8.1.3 Except as noted in subsection 2.3(b), the Audible Security Code and the Documentation is original to Audible, the Audible Security Code does not include any third party software or code, and Microsoft' exercise of rights granted to Microsoft hereunder in the Audible Security Code and the Documentation shall not infringe any copyright, trade secret, or, to the best of Audible's knowledge, any United States patent, trademark, or any other proprietary or personal right held by any third party (provided that Audible does not make any representation or warranty with respect to the combination of the Audible Security Code or Documentation with any other hardware, software or services not provided by Audible). 8.2 Microsoft. Microsoft warrants and represents that: --------- 8.2.1 It has the full power to enter into this Agreement; and ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 9 8.2.2 It has not previously and will not grant any rights to any third party that are inconsistent with the rights granted to Audible herein. 8.3 DISCLAIMER. EXCEPT AS EXPRESSLY STATED IN THIS SECTION 8, AUDIBLE ---------- PROVIDES THE AUDIBLE SECURITY CODE TO MICROSOFT ON AN "AS IS" BASIS AND AUDIBLE AND MICROSOFT DISCLAIM ALL WARRANTIES UNDER THE APPLICABLE LAWS OF ANY COUNTRY, EXPRESS OR IMPLIED, REGARDING THE AUDIBLE SECURITY CODE, THE DOCUMENTATION, THE DRM, AND THE ABILITY OF THE PARTIES TO DEVELOP ANY PRODUCTS OR SERVICES RELATING TO DRM, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR TITLE OR WARRANTY OF NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY OR WARRANTY AGAINST COMPUTER VIRUSES. IT IS THE ULTIMATE RESPONSIBILITY OF MICROSOFT TO DETERMINE THE SUITABILITY OF THE AUDIBLE SECURITY CODE FOR ITS NEEDS. AUDIBLE DOES NOT WARRANT THAT OPERATION OF ANY PRODUCTS DERIVED FROM THE AUDIBLE SECURITY CODE WILL BE UNINTERRUPTED OR ERROR-FREE. 9. Indemnity. ---------- 9.1 Indemnification. Each party shall, at its expense and the other --------------- party's request, defend any claim or action brought against the other party and its subsidiaries, affiliates, directors, officers, employees, agents and independent contractors, to the extent it is based upon any product or service offered by the indemnifying party, including a claim for infringement of any patent, copyright, trademark, trade secret or other proprietary or personal right of a third party, except to the extent arising from the contributions of the other party. The indemnifying party will indemnify and hold the indemnified party harmless from and against any damages finally awarded against the indemnified party or agreed pursuant to a settlement in accordance with the requirements of this Section, and any costs and fees (including without limitation, attorneys' fees) reasonably incurred by the indemnified party that are attributable to such a claim. The indemnifying party will not be responsible for any settlement made by the indemnified party without the indemnifying party's written permission, which permission will not be unreasonably withheld. To the extent the indemnified party requests that the other party defend such claim, the indemnified party shall (i) provide the indemnifying party reasonably prompt notice in writing of any such claim or action and permit the indemnifying party, through counsel mutually acceptable to both parties, to answer and defend such claim or action; and (ii) provide the indemnifying party information, assistance and authority, at the indemnifying party's expense, to help to defend such claim or action. The indemnified party will have the right to employ separate counsel and participate in the defense of any claim or action which the indemnifying party is defending. The indemnified party may not settle any claim or action under this Section 9 on the other party's behalf without first obtaining the written consent of the indemnifying party, which permission will not be unreasonably withheld. ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 10 9.2 Settlement. In the event Microsoft and Audible agree to settle a ---------- claim or action under Section 9.1, each party agrees not to publicize the settlement without first obtaining the written permission of the other party to this Agreement, which permission will not be unreasonably withheld. 9.3 Duty to Correct. Notwithstanding anything in this Section 9, should --------------- the Audible Security Code or the Documentation ("Infringing Materials"), or any portion thereof, be held to constitute an infringement and use as contemplated by this Agreement be enjoined or be threatened to be enjoined, Audible shall notify the other party and immediately, at Audible's expense (not to exceed in any event [ *** ]): (i) procure for Microsoft the right to continue use of such Infringing Materials or portion thereof, as applicable, as licensed in this Agreement; or (ii) replace or modify the Infringing Materials or portion thereof with a version that is non-infringing, provided that the replacement or modified version is functionally substantially equivalent. 9.4 Exclusion. The provisions of this Section 9 shall not apply to any --------- claim of patent infringement against Microsoft or related parties to the extent based upon the combination of the Audible Security Code or Documentation, or any portion thereof, with hardware, software or services not provided by Audible. 10. General. -------- 10.1 Governing Law; Venue; Attorneys Fees. This Agreement shall be ------------------------------------ construed and controlled by the laws of the State of Washington, and each party further consents to jurisdiction by the state or federal courts sitting in the State of Washington. Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, or by such other method as is authorized by law. If either Microsoft or Audible employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs, including expert witness fees. 10.2 Notices; Requests. All notices and requests in connection with this ----------------- Agreement shall be deemed given as of the day they are (i) deposited in the U.S. mails, postage prepaid, certified or registered, return receipt requested; or (ii) sent by overnight courier, charges prepaid, with a confirming fax; and addressed as follows: Audible: Audible, Inc. 65 Willowbrook Blvd. Third Floor Wayne, New Jersey 07470 Attention: Managing Director, Business & Legal Affairs Fax: 973 890-2442 ------------ Phone: 973 890-4070 x225 ----------------- ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 11 with a cc to: Piper & Marbury, L.L.P. 1200 Nineteenth Street, N.W. Washington, D.C. 20036-2430 Attention: Edwin M. Martin, Jr. Phone: 202-861-3900 FAX: 202-223-2085 Microsoft: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: ______________________ with a cc to: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: Vice President, Technology Development ---------------------- Phone: (425) 936-8180 -------------- Fax: (425) 936-7329 -------------- Attention: Law & Corporate Affairs Department Fax: U.S. Legal Group (425) 936-7329 or to such other address as the party to receive the notice or request so designates by written notice to the other. 10.3 Assignment. Audible may not assign this Agreement or any portion ---------- thereof, to any third party unless Microsoft expressly consents to such assignment in writing. In the event Microsoft does not consent to such assignment or consents to such assignment with conditions that are not acceptable to Audible, if Audible wishes to pursue the assignment, then Microsoft may terminate this Agreement (except for the provisions that survive as stated in Section 7.3) as its sole remedy and Audible may continue with the proposed assignment. Such termination shall not result in any liability from one party to the other except for amounts that were due and payable on the date of termination. This Agreement will inure to the benefit of and be binding upon the parties, their successors, administrators, heirs, and permitted assigns. 10.4 Severability. In the event that any provision of this Agreement is ------------ found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms. The parties intend that the provisions of this Agreement be enforced to the fullest extent permitted by applicable law. Accordingly, the ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 12 parties agree that if any provisions are deemed not enforceable, they shall be deemed modified to the extent necessary to make them enforceable. 10.5 Entire Agreement; Modification; No Offer. The parties hereto agree ---------------------------------------- that this Agreement (and the Microsoft Non-Disclosure Agreement to the extent incorporated herein) constitutes the entire agreement between the parties with respect to the subject matter hereof and merges all prior and contemporaneous communications. It shall not be modified except by a written agreement dated subsequent hereto signed on behalf of Audible and Microsoft by their duly authorized representatives. Neither this Agreement nor any written or oral statements related hereto constitute an offer, and this Agreement shall not be legally binding until executed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates indicated below. MICROSOFT CORPORATION AUDIBLE, INC. /s/ Dick Brass /s/ Andrew J. Huffman - -------------------------- ------------------------------------- By (sign) By (sign) Dick Brass Andrew J. Huffman - -------------------------- ------------------------------------- Name (Print) Name (Print) Vice President President and CEO - -------------------------- ------------------------------------- Title Title 11/04/98 11/04/98 - -------------------------- ------------------------------------- Date Date ______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission. 13 EX-10.3 7 EXHIBIT 10.3 EXHIBIT 10.3 AGREEMENT This Agreement is effective as of November 12, 1998 (the "Effective Date"), between REALNETWORKS, INC., with an address at 1111 Third Avenue, Suite 2900, Seattle, Washington 98101 ("RN"); and AUDIBLE INC., with an address at 65 Willowbrook Blvd., Wayne, NJ 07470 ("Audible"). In consideration for the rights and licenses granted below, the parties hereby agree as follows: WHEREAS, Audible is in the business of licensing, creating, delivering and offering for playback through the desktop and mobile audio devices digital sound files over the Internet and corporate intranets; WHEREAS, RN is in the business of developing and distributing technology and products to enable the real-time transmission and playback of digital data files through a server-client system over the Internet and corporate intranets; WHEREAS, Audible desires to develop certain of its products to be compatible and interoperable with certain RN products in order to enable the delivery and desktop playback of Audible-enabled digital sound files through RN's RealPlayer, as further defined below; and WHEREAS, RN desires to promote and distribute certain Audible Products, as further defined below, and desires the RealPlayer G2 (and all future versions of the RealPlayer which may be developed during the Term) to be a preferred desktop player for Audible-enabled digital sound files. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- 1.1 "Active Merchandising" shall mean RN's marketing of Audible Content Bundles to be sold with RealPlayer Plus, described more fully in Sections 4.2 and 8. 1.2 "Advance" means a non-refundable payment. 1.3 "Audible Content" means spoken word or musical content licensed by Audible from third party licensors or produced by Audible, which content is encoded into Audible's file format and is accessible for playback using the then-current Audible decoder(s) during the Term. 1.4 "Audible Desktop Player" means the Audible software currently used to play back Audible Content on personal computers (which do not include handheld computers or other mobile devices not specifically deemed personal computers). 1.5 "Audible Documentation" means End User License Agreements, instructions, users' guides, manuals, diagrams and other written material, whether in printed or electronic form and intended for end users and which describes the installation, functions, use and operation of the Audible Products. _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 1 1.6 "Audible Plug-in" means the software developed by or on behalf of Audible that when added to RealPlayer G2 (and to future versions of the RealPlayer that may be developed during the Term) enables the desktop playback of Audible Content. 1.7 "Audible Product(s)" means the Audible hardware player ("Audible MobilePlayer") and Audible's client software ("Audible Client Software"), all as of the date of execution of this Agreement and solely as they may be modified during the Term and as further described on Exhibit A hereto, and related Documentation. 1.8 "Audible Third Party Product" means mobile playback devices utilizing proprietary functionality licensed by Audible to third parties. 1.9 [* * *]. 1.10 "RealPlayer" means the client portion of RN's client-server RealSystem designed primarily to be used for Internet or intranet-based delivery of streaming audio, video and other media, and which enables the playback of RN- formatted media files over the Internet or a corporate intranet on an end user's personal computer. 1.11 "RN Codecs" means audio compression and decompression software wholly-owned by RN. Specific RN Codecs are described more fully in attached Exhibit G. 1.12 [* * *]. 1.13 [* * *]. 2. RN's Rights and Obligations. --------------------------- 2.1 License. Audible hereby grants RN a non-exclusive, non-transferable, ------- worldwide license to market, sublicense for distribution and distribute Audible Products on a stand-alone basis and bundled with other RN products, both in physical formats and electronically from RN's website, and through RN's distributors. RN's right to "sublicense for distribution" shall be governed by the Price List set forth in Exhibit F and as it may be amended during the Term. 2.2 Sales Efforts. [* * *]. RN will include pertinent information about ------------- the Audible Products in all RN's promotional and marketing materials targeted for Intranet customers. 2.3 Fair Dealing. In conducting all activities relating to the Audible ------------ Products hereunder, RN agrees to: (i) conduct business in a manner that reflects favorably at all times on the Audible Products and Audible's good name, goodwill and reputation; (ii) not employ deceptive, misleading or unethical practices that are or might be detrimental to the Audible Products, including disparagement of Audible or the Audible Products; (iii) not make any false or misleading representations with regard to Audible or the Audible Products; (iv) not publish or employ any misleading or deceptive advertising material; (v) not make any representations, warranties or guaranties to anyone with respect to the specifications, features or capabilities of the Audible Products that are inconsistent with the literature distributed by Audible, including all warranties and disclaimers contained in such literature; and (vi) not engage in illegal or deceptive trade practices with respect to the Audible Products. _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 2 2.4 Mobile Content Site. RN shall maintain a "Mobile Content Site" as ------------------- part of its Daily Briefing/Timecast sites, and/or successors thereto. [* * *] The parties will cooperate to secure the participation of additional content providers in the Mobile Content Site. In addition, Audible may supply excerpts of Audible Content for distribution via the Mobile Content Site. Such excerpts shall be chosen at Audible's discretion and approved by RN, approval of which will not be unreasonably withheld. Such excerpts may be updated from time to time upon mutual agreement. 2.5 [* * *] 2.6 Audible.com Link in "Sites". Upon the availability of the public Gold ---------------------------- version of the Audible Plug-in RN will feature Audible.com in the "Sites " pull- down menu in the next immediate release of the RealPlayer G2 (and in the comparable menu of future versions of the RealPlayer which may be developed during the Term) releases and/or on its website(s). Such feature in "Sites" or its successor shall include "pull-downs" to sub-categories within Audible.com. 2.7 RN Technical Support. RN will make commercially reasonable best --------------------- efforts to provide technical support to Audible in support of Audible's Product Development efforts as defined below in Section 3.1. 2.8 RN Codecs --------- 2.8.1 [* * *] _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 3 2.8.2 In consideration for RN's grant to Audible [* * *] Audible shall pay RN a one-time royalty per Audible MobilePlayer and Audible Third Party Product which contains any one or more such RN [* * *] actually used by end- users (net of returns), at the rates set forth in Exhibit H. The royalty shall be payable as of the "Royalty Commencement Date" as defined in Exhibit H, and shall be paid in accordance with the terms of Exhibit H. This royalty payment obligation, and the payment terms of Exhibit H, shall survive the termination of this Agreement, and shall remain in full force and effect during the five year period set forth in Section 2.8.1. End users who license, acquire or purchase Audible Products, Audible Content or Audible Third Party Products containing any RN Codec or [* * *] during the Term shall have the right to use the same in perpetuity. 2.8.3 [* * *] Such bundle may, in Audible's discretion, contain other Audible software. 2.9 Mobile RealAudio Download Functionality. ---------------------------------------- 2.9.1 RN will make commercially reasonable efforts to ensure that its encoding tools present the mobile download option, which may be enabled by end users of said encoding tools, upon the earlier of the release of the Gold version of its G2 encoding tools or [* * *] of execution of this Agreement. 2.9.2 [* * *] 2.9.3 Audible shall develop a client plug-in (at Audible's discretion part of the Audible Plug-in) to provide "mobile download client functionality" for Mobile RealAudio files ("Client Plug-in"). The Client Plug-in will present customers with an "easy-to-use" and seamless content download option. Audible will use its best efforts to develop and make available for distribution the Client Plug-in upon the release of the Gold version of its G2 encoding tools, [* * *] of execution of this Agreement. 3. Audible's Rights and Obligations. -------------------------------- 3.1 Product Development. Audible will use its best efforts to create an ------------------- Audible Plug-in for RealPlayer G2 [* * *] of execution of this Agreement, assuming RN has provided commercially reasonable timely and effective support to Audible in its efforts to develop and deploy the Audible Plug-in. The Audible Plug-in shall allow the RealPlayer G2 to play back Audible Content. [* * *]. RN will introduce Audible to outside contractors with whom RN has worked should Audible desire to obtain their services in connection with the development of the Audible Plug-in. 3.2 Beta Releases. So that RN will remain fully knowledgeable about the ------------- Audible Products, Audible will provide RN with private beta releases of the Audible Products as soon as such releases are available, and with reasonable notice and access to planned product changes. 3.3 Order Fulfillment. All orders of Audible Products from RN customers ----------------- will be fulfilled by Audible provided that Audible's standard costs of shipping & handling will be collected by RN and promptly remitted to Audible. The parties shall agree on ordering, fulfillment, and billing methods. _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 4 3.4 [* * *]. 4. Audible Advances. ---------------- 4.1 Total Advance. Audible will pay RN Advances in accordance with ------------- Sections 4.2 through 4.6, below, totaling $250,000. 4.2 Content Sales Advance. Audible will pay a Content Sales Advance of --------------------- $[* * *] against RN's revenue share for the joint sale of Audible Content Bundles. Content Bundles shall consist of approximately [* * *] Audible Content titles and shall be offered for sale by RN as an optional attachment to all versions of RealPlayer Plus sales for a minimum of [* * *] days of Active Merchandising. RN shall commence Active Merchandising promptly after release of the Audible Plug-in for RealPlayer G2 upon written notice to Audible. All Content Bundles shall be hosted and delivered from Audible servers in a fashion that shall be completely transparent to the customer who will only see that the Content Bundles are originating from the RN web site. RN shall be responsible for all customer billing associated with the sale of Content Bundles. By way of example, Content Bundles may be priced at $[* * *] or $[* * *] and may consist of thematically linked Audible Content titles (e.g. "Comic Genius", "Great Reads") or the customer may have the option to select a certain number of Audible Content titles from a broad selection of Audible Content. As part of RN's obligation to engage in such Active Merchandising, RN shall use commercially reasonable best efforts to engage in a variety of marketing tests to determine the most effective marketing program that will result in the greatest number of sales of Content Bundles. By way of example, such tests shall include placement of access to the Content Bundles in different areas of the RealStore, [* * *], tests of advertising methods, co-development of promotions, and other commercially reasonable efforts to develop the most effective marketing and sales program. [* * *]. The payment of the Content Sales Advance shall be as follows: 4.2.1 Audible shall pay an Advance of $[* * *], due and payable [* * *] days after the Effective Date; 4.2.2 Audible shall pay an Advance of $[* * *], due and payable [* * *] days after commencement of Active Merchandising by RN; 4.2.3 Audible shall pay an Advance of $[* * *], due and payable [* * *] days after commencement of Active Merchandising by RN. 4.3 Content Sales Revenue Share. The parties' respective revenue shares --------------------------- from joint sales of Audible Content Bundles shall be as follows: 4.3.1 "Gross Revenue From Content Bundles" from such joint sales shall mean any and all revenue generated by such sales; 4.3.2 The parties shall be reimbursed from Gross Revenue from Content Bundles for any reasonable actual out-of-pocket third party obligations directly attributable to such joint sales. The parties shall provide each other with a written accounting of all such third party obligations on a monthly _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 5 basis, commencing on the date the Content Bundles are initially offered for sale and continuing for as long as the Content Bundles are offered for sale; 4.3.3 Any third party obligations directly attributable to such joint sales which cannot be reimbursed in a sales period because of insufficient Gross Revenue From Content Bundles shall carry over to subsequent sales periods, and shall be reimbursed from Gross Revenue From Content Bundles in subsequent sales periods; 4.3.4 After payment of any such third-party obligations, Audible shall be entitled to all revenues generated from the sale of Content Bundles until Audible has fully recouped the Content Sales Advance as set forth in Section 4.2 above. Immediately upon Audible's full recoupement, the amounts remaining after such third-party reimbursements shall be [* * *] RN and Audible. 4.3.5 Audible shall provide RN with a detailed statement of account, together with a check in the amount of any payment due hereunder, on a monthly net 30 day basis commencing on the date the Content Bundles are initially offered for sale. 4.4 Royalty Advance for Playback Devices. Audible will pay a Royalty ------------------------------------ Advance of $[* * *] applied to royalties owed by Audible for the first [* * *] units of Audible-enabled mobile playback devices (referenced in paragraph 2.8.2 above), based upon the royalty rate of $[* * *] per unit. This Royalty Advance shall be due and payable [* * *] days after the Effective Date [* * *]. The royalty rates set forth in this section 4.4 are payable per-unit. Audible shall pay one royalty per Audible-enabled playback device that accesses and plays RealAudio files or Audible files encoded using the RN [* * *]. The royalty rates and terms for additional units are set forth in Exhibit H. 4.5 [* * *]. 4.5.1 [* * *]. 4.5.2 [* * *]. 4.5.3 [* * *]. 4.5.4 [* * *]. 4.6 Banner Advertising Advance. Audible will pay RN a Banner Advertising -------------------------- Advance of $ [* * *], which RN shall apply, to advertising fees incurred by Audible for banner advertising on RN web sites. This Banner Advertising Advance shall be paid in the following manner: RN and Audible shall mutually agree upon an advertising schedule (including number of impressions and locations of advertisements) pursuant to which, for example, at the applicable rates, Audible's fees shall be approximately $[* * *] per month for a [* * *] month schedule. The applicable rates for such Audible advertising shall be at the most favorable ratecard offered by RN to third parties for comparable advertising at the time the schedule is agreed upon by Audible and RN. Advertising fees incurred by Audible shall be invoiced and shall be payable according to RN's standard policies. Subject to RN's commercially reasonable best efforts to deliver on the mutually agreed-up advertising schedule, the full amount of this $[* * *] Banner Advertising Advance shall be paid by Audible no later than [* * *]. _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 6 5 G2 Plug-In Release. ------------------ 5.1 Plug-In Release. Audible shall make best efforts to release a plug-in --------------- for the RealPlayer G2 enabling the playback of Audible Content, developed pursuant to the Real Media Architecture Agreement entered into contemporaneously with this Agreement. RN will make commercially reasonable efforts to provide timely and effective support to Audible relating to the development and deployment of this plug-in. Audible shall release this plug-in no later than [* * *], and shall release a client plug-in enabling mobile RealAudio downloading as soon as possible thereafter. 5.2 [* * *]. 5.3 [* * *]. 5.4 [* * *]. 6. Support and Maintenance. ----------------------- 6.1 Customer Support. RN will provide first tier Support to its customers ---------------- who purchase less than 1,000 units of the Audible MobilePlayer. Audible shall provide Support to customers who purchase 1,000 or more units and whom have requested support directly from the manufacturer. Audible will, in turn, support RN's customer support staff in a commercially reasonable manner. The parties will agree on appropriate levels of Support for the Audible Products, but at a minimum each party will provide Support at the same professional and customer access levels as such party generally provides its customers for other of its products. In addition, Audible will designate a salesperson to do one demonstration of the Audible Products to RN's customers if the parties agree that it is appropriate. 6.2 Training. As soon as possible after the Effective Date, at its own -------- expense, Audible will exercise commercially reasonable best efforts to train RN's customer support personnel to be able to provide Support for the Audible Products. Such training shall occur at a mutually agreed upon location and time. Audible will provide RN's customer support personnel with on-going access to continuing training as reasonably mutually determined to be necessary to allow RN to meet its Support requirements as set forth in this Agreement. 6.3 Product Marketing Materials. As of the Effective Date, Audible has --------------------------- supplied RN with background material concerning the nature, operation and customer benefits of the Audible Products, including but not limited to product descriptions, target customer segments, ROI analysis for corporate users, and descriptions of appropriate Audible Content. [* * *]. Audible shall provide RN with updates and additions to such background material if, as and when available and will promptly reply to any questions from RN about such background material. [* * *]. 7. [* * *] Development and Licensing Efforts. --------------------------------- 7.1 Audible Security Technology. Audible and RN may work together, if --------------------------- the parties agree it is commercially reasonable to do so, to adapt the Audible security technology into marketable server, tool and/or player products. At a minimum, under the RMA Agreement (see Section 3.1), Audible shall have the right to sell its RMA-based products incorporating Audible's security technology to RMA customers, subject to the terms of the RMA Agreement. In addition, and if RN and Audible agree that the Audible security technology is able to be extended and enhanced, the parties shall negotiate in good faith a _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 7 mutually acceptable licensing agreement which allows RN to resell such technology and include it in RN's product line. 7.2 [* * *] Licensing Efforts. [* * *] ----------------- 7.3 IMAS Pilot Program. The parties agree to make commercially reasonable ------------------- best efforts to have in place at least [* * *] successful corporate reference deployments (as reasonably determined by the parties in good faith) within [* * *] days of execution of this Agreement as part of the Pilot Program designed to illustrate the appeal of the Audible Products. Audible shall make up to a total of [* * *] Audible MobilePlayers (inclusive of all [* * *] program participants) available [* * *] or the program participants provided that such qualified corporate customers are of a mutually agreed upon quality and prominence. RN shall provide all such program participants with sufficient intranet server software and [* * *] to participate in the program. 7.4 IMAS Commercial Rollout. [* * *]. Audible agrees to fully cooperate ----------------------- with RN in support of such a roll-out. 7.5 Music Codec Collaboration. Audible and RN will make commercially ---------------------------- reasonable efforts to select appropriate codecs for music content, taking into consideration issues including but not limited to performance and cost. If RN can provide a music codec acceptable to Audible, and Audible desires to use such codec, RN shall license Audible such codec under the terms and conditions of Section 2.11 of this Agreement. If Audible uses a music codec other than one provided by RN, Audible shall make commercially reasonable best efforts to enable the Audible Plug-in to play streaming and downloaded music content via the RealPlayer. 8. Marketing Activities. The parties agree to cooperate in good faith on -------------------- mutually beneficial promotional and marketing activities, including but not limited to those activities set forth below: 8.1 RN Marketing Programs. RN shall generate marketing programs from time --------------------- to time which may include but will not necessarily be limited to direct mailing, advertising, and limited-time promotional bundles. Audible will assist RN in these marketing programs through mutually agreed to special hardware pricing, content pricing, or other mutually agreed to considerations. In addition, Audible will, at RN's reasonable request, will provide RN with marketing collateral regarding the Audible Products, and assistance with sponsoring agreed upon marketing events. 8.2 Promotion of Audible. RN shall make marketing and promotional -------------------- information about the Audible Products and the Audible web site available from various RN web sites within [* * *] of the Effective Date. [* * *]. 8.3 [* * *]. 8.4 Not for Resale Copies. Audible will provide RN, at no charge, a --------------------- reasonable number of copies of the Audible Products for internal testing purposes and for use in providing demonstrations to prospective customers. 8.5 Public Announcements. The parties agree to jointly implement -------------------- appropriate public relations activities in support of the launch of the Audible Products. The parties will cooperate on a press release and other activities intended to generate press coverage for the activities contemplated by this _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 8 Agreement. Each party must obtain the prior written consent of the other party before publishing or releasing any press release, advertising or other publicity concerning this Agreement or the relationship. The parties shall not issue any press release or other publicity concerning the nature of this Agreement until the Audible plug-in for RealPlayer G2 is released. 8.6 Promotion of RN. Audible shall make sufficient marketing and --------------- promotional information, subject to RN's approval, about RN and the RealPlayer, including web links to Real.com, available from the Audible web site within 30 days of the release of the Audible Plug-in. 9. Use of Trademarks. ----------------- 9.1 RN Marks. Audible acknowledges that the marks of RN identified on -------- Exhibit C and other marks used by RN in connection with the RN Products (the "RN Marks") are trademarks of RN. RN hereby grants to Audible a non-exclusive, non- transferable, limited license to use, and Audible agrees that it shall always use, the RN Marks solely in connection with Audible's advertising, marketing and distribution of the Audible MobilePlayer and Audible Products which incorporates RN technology. Audible shall only use such trademarks in the form and manner set forth in RN's Trademark Usage Guidelines, as set forth on Exhibit C, or as otherwise prescribed by RN from time to time. Audible agrees to cooperate with RN in facilitating RN's monitoring and control of the nature and quality of products and services bearing the RN Marks, and to supply RN with specimens of Audible's use of the RN Marks upon request. Audible understands and agrees that the use of any RN Mark in connection with this Agreement shall not create any right, title or interest, in or to the RN Marks and that all such use and goodwill associated with the RN Marks will inure to the benefit of RN. 9.2 Audible Marks. RN acknowledges that the marks of Audible identified ------------- on Exhibit E and other marks used by Audible in connection with the Audible Products (the "Audible Marks") are trademarks of Audible. Audible hereby grants to RN a non-exclusive, non-transferable, limited license to use, and RN agrees that it shall always use, the Audible Marks solely in connection with RN's advertising, marketing and distribution of the Audible Products. RN shall only use such trademarks in the form and manner set forth in Audible's Trademark Usage Guidelines, as set forth on Exhibit E, or as otherwise prescribed by Audible from time to time. RN agrees to cooperate with Audible in facilitating Audible's monitoring and control of the nature and quality of products and services bearing the Audible Marks, and to supply Audible with specimens of RN's use of the Audible Marks upon request. RN understands and agrees that the use of any Audible Mark in connection with this Agreement shall not create any right, title or interest, in or to the Audible Marks and that all such use and goodwill associated with the Audible Marks will inure to the benefit of Audible. 9.3 Notices. Neither party shall remove or alter any trademark, service ------- mark, trade name, copyright or other proprietary notices appearing on or in copies of either party's products referred to herein or any documentation associated therewith, and shall include the same notices in and on all copies of any literature or materials made pursuant to this Agreement. 9.4 Except as necessary to comply with Section 9.3, above, no rights in the trademarks, service marks, trade names, or other identifying names or symbols of third parties are conferred by this Agreement, [* * *]. 10. Limitations on Rights. Except as expressly provided herein, the parties ---------------------- shall not copy, modify, reproduce, display, decompile, reverse engineer, localize, store, translate, sell, lease or otherwise transfer, _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 9 distribute or use any of the other party's Products or Documentation, in whole or in part, without the other party's prior written consent. All rights not specifically granted herein with respect to the RN Products are reserved to RN, and with respect to the Audible Products are reserved to Audible. Each party acknowledges that the other party's Products are being licensed, not sold to it, and that any distribution or delivery of any Products to an End User will be by license, which the End User will be required to accept prior to being able to use the Product. 11. Compensation, Pricing and Payment. --------------------------------- 11.1 Audible MobilePlayer. Audible will provide the Audible MobilePlayer -------------------- and associated Audible Client Software to RN according to the Price List attached hereto as Exhibit F. The parties agree to review and may agree to revise the Price List based upon commercially reasonable data every six months during the Term or as otherwise agreed to in writing by the parties. 11.2 [* * *]. 11.3 Payment. RN shall pay Audible for the Audible Products within thirty ------- (30) days of receipt of an invoice from Audible which reflects the purchase orders submitted by RN during the invoiced period. Audible shall pay RN royalties based on sales of hardware players bundled with RN technology in accordance with Section 2.10 and Exhibit H. 11.4 Taxes. ----- 11.4.1 Audible shall pay all taxes, duties, import and export fees, and any other charges or assessments which are applicable to Audible's performance of this Agreement, and shall indemnify and hold RN harmless from any encumbrance, fine, penalty, or other expense which RN may incur as a result of Audible's failure to pay any such taxes, duties, fees, charges, or assessments. All amounts under this Agreement not paid by Audible when due shall accrue interest at the rate of one and one half-percent (1.5%) per month or the maximum amount allowed by law, whichever is lower. 11.4.2 RN shall be responsible for paying all sales and RN corporate income taxes imposed on the sale of the Audible Products by RN. RN shall pay all taxes, duties, import and export fees, and any other charges or assessments which are applicable to RN's performance of this Agreement, and shall indemnify and hold Audible harmless from any encumbrance, fine, penalty, or other expense which Audible may incur as a result of RN's failure to pay any such taxes, duties, fees, charges, or assessments. All amounts under this Agreement not paid by Audible when due shall accrue interest at the rate of one and one half- percent (1.5%) per month or the maximum amount allowed by law, whichever is lower. _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 10 12. Proprietary and Confidential Information. ---------------------------------------- 12.1 Title. Title to and ownership of all copies of the RealPlayer and ----- Documentation, whether in machine-readable or printed form, and including, without limitation, derivative works prepared by Audible (but excluding the Audible Plug-in) or RN, and all related technical know-how and all rights therein (including, without limitation, rights in patents, copyrights, and trade secrets applicable thereto), are and shall remain the exclusive property of RN and its suppliers. Audible shall not take any action to jeopardise, limit or interfere in any manner with RN's ownership of and rights with respect thereto. Title to and ownership of all copies of the Audible Products, the Audible Plug- in and Documentation, whether in machine-readable or printed form, and including, without limitation, derivative works prepared by Audible, and all related technical know-how and all rights therein (including, without limitation, rights in patents, copyrights, and trade secrets applicable thereto), are and shall remain the exclusive property of Audible and its suppliers. RN shall not take any action to jeopardise, limit or interfere in any manner with Audible's ownership of and rights with respect thereto. 12.2 Reverse Engineering. Except as expressly provided herein, neither ------------------- party shall reverse engineer, decompile, reverse translate, or in any way attempt to derive any source code from the other's Products, or authorize or allow any of the foregoing, without the other party's prior written consent. 12.3 Enforcement Responsibilities. Each party shall take all reasonable ---------------------------- measures to ensure that the other's rights in the Products are not infringed and that all provisions in the End User License Agreements are honored. In the event of any violations or suspected violations of such, each party shall immediately notify the other and shall assist the other party to take whatever action is appropriate, including litigation to enforce such provisions. 12.4 Confidentiality Each party will keep confidential and will take all --------------- necessary steps and precautions to cause its agents and employees to keep confidential the: (i) terms and conditions of this Agreement; and (ii) and any and all other information, whether disclosed orally or in writing, which is furnished by one party or which comes to the attention of or is acquired by the other party, and which is declared confidential, or should reasonably be construed to be confidential, including, but not limited to, information pertaining to business activities and operations, reports, ideas, concepts, techniques, designs, specifications, drawings, diagrams, data, code, customer lists, financial information, pricing information, business plans, company goals, expansion plans, or other technical or business information (collectively "Confidential Information"). Any Confidential Information disclosed in writing or in some other tangible form shall prominently display the phrase "Confidential Information." Each party agrees to safeguard the same from unauthorized disclosure or use. In addition, except as expressly provided herein, each party agrees not to disassemble, decompile, or otherwise reverse engineer the Products or technology of the other party or otherwise attempt to learn the source code, structure or algorithms or ideas underlying such products or technology or any Confidential Information, without the other party's prior written consent. The parties' obligations set forth in this section shall survive any expiration or termination of this Agreement. Upon a party's request, the other party shall promptly return all Confidential Information and all copies thereof, if any. 12.5 Limitations on Obligations. The obligations of confidentiality and -------------------------- non-disclosure imposed under this Section 10 shall not apply to data and information which: (a) is published or otherwise becomes available to the general public as part of the public domain without breach of this Agreement; (b) is furnished to a party by a third person which does not involve a breach of the third person's obligations to party owning the Confidential Information; (c) was in a party's possession prior to the _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 11 disclosure by the non-disclosing party in accordance herewith or pursuant to other Agreements between the parties; (d) a party is required by law, regulation or judicial process, to disclose; or (e) a party establishes was developed independently of Confidential Information furnished to it. 13. Warranties. ---------- 13.1 Audible hereby represents to RN that: (a) Audible is the exclusive owner of all rights and interests in the Audible Products (exclusive of those elements licensed from third parties) and has the right to grant the rights granted to RN herein; (b) neither the Audible Products nor the marketing or sale of the Audible Products by RN as authorized by this Agreement infringes any copyright, patent, trademark, license or other proprietary right of any person or entity; (c) the Audible Products do not contain any material that is libelous or defamatory or that discloses private or personal matters concerning any person, obscene, indecent or pornographic material or any computer "virus" or other contaminating or destructive feature; and (d) for a period of ninety (90) days from the date of delivery to the end user, that the Audible Products will perform in accordance with Audible's specifications and marketing materials concerning such Audible Products. 13.2 [* * *]. 13.3 NO WARRANTY, CONDITION, UNDERTAKING OR TERM, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, AS TO THE CONDITION, QUALITY, DURABILITY, PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF EITHER PARTY'S RESPECTIVE PRODUCTS IS GIVEN OR ASSUMED BY EITHER PARTY AND ALL SUCH WARRANTIES, CONDITIONS, UNDERTAKINGS AND TERMS ARE HEREBY EXCLUDED. 14. [* * *] 15. Limitation of Liability. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, ----------------------- WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 12 INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION EVEN IF THE PARTY SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. 16. Term and Termination. -------------------- 16.1 Term. This Agreement shall commence on the Effective Date and shall ---- terminate two (2) years thereafter (the "Term"). This Agreement may only be renewed or extended pursuant to an agreement in writing that is signed by the authorized representatives of both parties. 16.2 Termination for Breach. This Agreement may be terminated by either ---------------------- party for cause immediately by written notice upon the occurrence of any of the following events: (i) if the other ceases to do business, or otherwise terminates its business, other than by reason of a sale of all or substantially all of the assets of such party or the merger or consolidation of such party; (ii) if the other breaches any material provision of this Agreement and fails to fully cure such breach within thirty (30) days' of written notice describing the breach; or (iii) if the other becomes insolvent or seeks protection under any bankruptcy, receivership, trust, deed, creditor's arrangement, or comparable proceeding, or if any such proceeding is instituted against the other and not dismissed within thirty (30) days. Either party may cease marketing, selling, or distributing any product hereunder immediately and without notice if the other party reasonably believes that such action is necessary in order to avoid potential liability to third parties or under applicable law. 16.3 Effect of Termination. Upon termination of this Agreement, RN will --------------------- stop marketing and selling the Audible Products, but RN may distribute its existing inventory of Audible Products and may distribute Audible Products electronically or physically as necessary to meet customer commitments in effect as of the date of termination, in accordance with this Agreement for a period of up to one hundred eighty (180) days. RN shall continue to pay Audible for all Audible Products distributed during such 180 period as provided in Sections 2.1, 11.1 and Exhibit F. Upon termination of this Agreement, Audible shall stop marketing and selling the RealPlayer and shall be under no further obligation to use the RealPlayer as Audible's desktop player; however, Audible may continue distributing the RealPlayer as provided herein for a period of up to one hundred eighty (180) days. Termination by either party will not affect the rights of any end user under the terms of the End User License Agreement. 16.4 Survival. The provisions of Sections 2.8, Exhibit H, 10, 12, 13, 14, -------- 15, 16.3, 16.4, 17 and 18 shall survive expiration or termination of this Agreement. 17. Dispute Resolution. Any dispute arising out of or relating to this ------------------ Agreement shall be resolved in accordance with the procedures specified in this Section 17, which shall be the sole and exclusive procedures for the resolution of any such dispute. 17.1 Executive Negotiations. The parties shall attempt in good faith to ---------------------- resolve any dispute relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. In the event a dispute cannot be resolved, either party may give the other party written notice of any dispute not resolved in the normal course of business. Within fifteen (15) days after delivery of such a notice, the receiving party shall submit to the other a written response. The notice and response shall include a statement of each party's position and a summary of arguments supporting that position. Within thirty (30) days after delivery of the disputing party's notice, the senior executive _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 13 officers of Audible and RN shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this Section 17.1 are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. 17.2 Arbitration. If any dispute relating to this Agreement shall not have ----------- been resolved through the use of the non-binding procedures specified in Section 17.1 within one hundred (100) days of the initial notice of either party to the other of a dispute, such dispute shall be settled by binding arbitration; provided, however, that if one party has requested the other to participate in the non-binding procedure specified in Section 17.1 and the other has failed to participate, the requesting party may initiate arbitration before expiration of the above stated period. Arbitration shall be governed by AAA Rules, with arbitrators to be mutually agreed upon by the parties. Arbitration shall take place in King County, Washington. The arbitrators shall not be empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover such damages with respect to any dispute or disagreement resolved by arbitration. Notwithstanding the foregoing, the prevailing party in any arbitration or other proceeding based on a dispute arising out of this Agreement or the RMA Agreement shall be entitled to recover its reasonable attorneys' fees and costs. 17.3 Provisional Remedies. A party, without prejudice to the mandatory -------------------- procedures of this Section 17, may file a complaint for statute of limitations or venue reasons, or seek a preliminary injunction or other provisional judicial relief, if in its sole judgment such action is necessary to avoid irreparable damage or to preserve the status quo. Notwithstanding such action, the parties will continue to participate in good faith in the procedures specified in this Section 17. 18. General. ------- 18.1 Independent Contractor. The relationship created by this Agreement is ---------------------- one of independent contractors, and not partners, franchisees or joint venturers. No employees, consultants, contractors or agents of one party are employees, consultants, contractors or agents of the other party, nor do they have any authority to bind the other party by contract or otherwise to any obligation, except as expressly set forth herein. They will not represent to the contrary, either expressly, implicitly or otherwise. 18.2 Notices. All notices and demands under this Agreement will be in ------- writing and will be delivered by personal service, confirmed fax, confirmed e- mail, express courier, or certified mail, return receipt requested, to the address of the receiving party set forth below, or at such different address as may be designated by such party by written notice to the other party from time to time. Notice will be effective on receipt. Notices should be addressed to: _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 14
RN: AI: Russell Braun Travis Millman GM, Strategic Products VP, Business Development RealNetworks, Inc. Audible Inc. 1111 Third Avenue, Suite 2900 65 Willowbrook Blvd. Seattle, WA 98101 Wayne, NJ 07470 Voice: (206) 674-____ Voice: 973-890-4070, x237 Fax: (206) 674-____ Fax: 973-890-2442 E-mail: rbraun@real.com E-mail: travis@audible.com With a copy to: With a copy to: Kelly Jo MacArthur, VP & General Counsel Voice: (206) 674-2213 Brian Fielding, Managing Director Fax: (206) 674-2695 Business & Legal Affairs E-mail: kellyjo@real.com Voice: 973-890-4070, x225 Fax: 973-890-2442 E-mail: bfielding@audible.com
18.3 No Assignment. This Agreement may not be assigned by either party ------------- without the prior written consent of the other, except pursuant to the sale of substantially all assets of a party, or a merger or consolidation. This Agreement shall be binding upon and inure to the benefit of the parties' permitted successors and assigns. 18.4 Export Licenses. The parties acknowledge that the laws and --------------- regulations of the United States may restrict the export and re-export of certain commodities and technical data of United States origin. Each party agrees that it will not export or re-export the Products in any form without the appropriate United States or foreign government licenses. In particular but without limitation, none of the Products, Documentation or underlying information or technology may be exported or re-exported (i) into (or to a national or resident of) Cuba, Iraq, Libya, Yugoslavia (Serbia and Montenegro), North Korea, Iran, Angola, Sudan, Syria or any other country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury Department's list of Specially Designed Nationals or the U.S. Commerce Department's Table of Deny Orders. 18.5 U.S. Government Contracts. If either party is acquiring Products and ------------------------- Documentation on behalf of the U.S. Government, the following provisions apply: if Products are supplied to the Department of Defense ("DOD"), Products are subject to "Restricted Rights," including a legend to be affixed to the Products, as that term is defined in the DOD Supplement to the Federal Acquisition Regulations ("DFAR") in paragraph 252.227-7013(c)(1). If Products are supplied to any unit or agency of the U.S. Government other than DOD, the U.S. Government's rights in the Products will be as defined in paragraph 52.227- 19(c)(2) of the Federal Acquisition Regulations ("FAR"). 18.6 Miscellaneous. This Agreement, and the Exhibits attached hereto and ------------- made a part hereof, together with the RMA Agreement dated as of November 12, 1998, constitutes the complete and exclusive agreement between RN and Audible with respect to its subject matter, and supersede all prior oral or written understandings, communications or agreements not specifically incorporated herein or therein. This Agreement, when executed in combination with the RMA Agreement dated as of November 12, 1998, supersedes in whole the Bundling Agreement dated as of July 27, 1997. This Agreement may _________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission. 15 not be modified except in a writing duly signed by an authorized officer of RN and Audible. The waiver by either party of any breach of this Agreement by the other party will not waive subsequent defaults by such party of the same or a different kind. If any provision of this Agreement is held to be unenforceable for any reason, such provision shall be reformed only to the extent necessary to make it enforceable, and such decision shall not affect the enforceability of such provision under other circumstances, or of the remaining provisions hereof under all circumstances. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions. Any and all remedies herein expressly conferred upon a party shall be deemed cumulative and not exclusive of any other remedy conferred hereby or by law, and the exercise of any one remedy shall not preclude the exercise of any other. Headings shall not be considered in interpreting this Agreement. 18.7 [* * *]. 18.7.1 [* * *]. 18.8 Governing Law. This Agreement shall be governed by the laws of the ------------- State of Washington, United States of America, excluding that body of law known as conflicts of law. This Agreement shall not be governed by the United Nations Convention of Contracts for the International Sale of Goods, the application of which is hereby expressly excluded. INTENDING TO BE LEGALLY BOUND, the parties have executed this Agreement by their duly authorized representatives, to be effective as of the date first written above. AUDIBLE INC. REALNETWORKS, INC. By /s/ Andy Huffman By /s/ Rob Glaser --------------------------- ----------------------------- Andy Huffman Rob Glaser President & CEO CEO Date: 11/12/98 Date: 11/23/98 ------------------------ ------------------------- 16 EX-10.4 8 EXHIBIT 10.4 EXHIBIT 10.4 RealMedia Architecture Partner Program Internet Agreement This Agreement is entered into as of November 12, 1998 (the "Effective Date") by and between RealNetworks, Inc., a Washington corporation with a principal place of business at 1111 Third Avenue, Suite 2900, Seattle, Washington 98101 ("RN") and Audible Inc., a Delaware corporation with an address at 65 Willowbrook Blvd., Wayne, NJ 07470 ("Partner"). WHEREAS, RN has developed and owns all right, title and interest in the RealMedia Architecture ("RMA", as further defined below), an open platform for development of streaming media applications and tools, which allows software developers to build new applications and extend current applications to inter- operate with a wide variety of datatypes; WHEREAS, RN has established a licensing program (the "Partner Program") which allows independent software developers to create, market and sell applications based on RMA, and to receive other benefits of participating in the Partner Program; and WHEREAS, Partner desires to participate in the Partner Program and to receive the attendant rights and benefits; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS 1.1 "License Key" means the authorization code that is generated by the License Key Tool and that enables RMA Server Software to stream RealMedia datatypes. License Keys that generate User-Streams and enable features of a Partner Product are provided to a Partner's end-user customers. 1.2 "License Key Tool" means the version of the License Key Tool that is provided to Partner by RN, which is specific and unique to the Partner Product. The License Key Tool is used to generate unique License Keys for a Partner Product. 1.3 "Licensed Software" means RN Players, the RealMedia SDK, including associated RealMedia Libraries, RMA Server Software, whether in Object Code or Source Code form, License Key Tools and License Keys, and related User Documentation and specifications. 1.4 "New Release" means a new major release of the RMA Servers or the Partner Products in which major new functionality has been added in addition to any complement of bug fixes supplied, and which is designated as a change in the digit to the left of the decimal point in the product version number [(x).x.x]. "Update" means a minor release, enhancement, revision, modification or upgrade of the RMA Servers or Partner Products, designated as a change in the tenths digit in the product version number [x.(x).x], or in the digit to the right of the tenths digit in the product version number [x.x.(x)]. By way of clarification, if either party markets a new and distinct product along with and in addition to an existing program, then such new and distinct product shall be treated as a New Release, not an Update. 1.5 "Object Code" means computer code assembled or compiled in magnetic or electronic binary form on software media, which are readable and useable by machines, but not generally readable by humans without reverse-engineering, reverse-compiling or reverse-assembly. 1.6 "Partner Product(s)" means the products and applications developed by Partner which are compatible with RMA Servers, as further described on Exhibit A hereto. Partner Products shall include: (a) "Partner Client Software," which means software that connects to an RMA Player and utilizes the RMA application programming interfaces ("APIs"); -1- (b) "Partner Tools," which means software tools that may import datatypes and export datatypes using the RealMedia Libraries; and/or that are used to perform RMA-related functions including, but not limited to, server administration, plug-in file systems, server monitoring, and assembly; and (c) "Partner Server Applications," which means software that interfaces with an RMA Server and adds datatypes that can be streamed from an RMA Server. 1.7 "RealMedia Architecture" or "RMA" means the software platform developed by RN that allows for the development of streaming media products and tools, and which is designed specifically for the existing infrastructure of the Internet and corporate Intranets. RMA includes the following components: (a) "Players," which are stand-alone applications or as components embedded in other applications that play media files. (b) "RealMedia Datatypes," which are datatypes that can be streamed using RMA Server APIs and played using RMA Player APIs. (c) "RealMedia Libraries," which are contained in the RealMedia SDK and are Object Code implementations of various APIs. (d) "RealMedia SDK" or "SDK," which contains the tools and information needed for software developers to create tools for use in producing streaming media and to adapt or build applications that stream from RMA Servers and play in Players. The SDK contains a Player, Player APIs, Server APIs, RealMedia Libraries, Sample Source Code and RealMedia Server Software for use solely in developing Partner Products. (e) "RMA Server Software" or "RMA Server" in Object Code form, which streams files reliably over networks, and which has the capabilities set forth on Exhibit B hereto. (f) "Sample Source Code," which provides an example of how to develop an RMA application. 1.8 "Term" is defined in Section 8.1. 1.9 "Territory" means the world, except as otherwise limited by Section 15.5. 1.10 "User Documentation" means RN's user manuals, technical manuals, release notes including advertisements for RMA Servers, installation and operation instructions, and other data and documentation describing the use of RMA Servers normally supplied to RN's customers. 1.11 "User-Stream" means the stream of media-compatible data necessary to deliver the media type associated with a Partner Product from an RMA Server to a single end-user client computer. The number of User-Streams being delivered by a given RMA Server is measured by counting the number of end- users simultaneously served by User-Streams originating at that RMA Server. 2. DEVELOPMENT LICENSE 2.1 License. Subject to the terms and conditions of this Agreement, RN grants ------- to Partner a non-exclusive, nontransferable license to use and install the RealMedia SDK for the sole purpose of developing Partner Products that are based upon the RMA architecture. Partner, including its designated subcontractors, if any, shall only use the SDK on a single computer or on a computer network. Partner may make a single copy of the SDK for back-up and archival purposes only, provided that any copy must contain all proprietary notices included in the original. Partner may download associated online documentation for purposes of using the SDK, but may not make further copies of the documentation. 2.2 Limitations. ----------- -2- (a) The SDK may be used solely to develop and test a Partner Product. It may not be used for any commercial, non-commercial, educational or internal purpose, and may not be used in any way that allows or causes the transmission of audio, video or other media files across the Internet or any computer network without a separate written license agreement from RN. (b) Partner is expressly prohibited from using, licensing, selling, transferring or otherwise distributing any Partner Product except as expressly provided in this Agreement. (c) Except as expressly provided herein, Partner shall not copy, modify, reproduce, display, decompile, reverse engineer, store, translate, sublicense, assign, sell, lease or otherwise transfer or distribute the SDK, or any of its rights therein, in whole or in part, nor may Partner use the SDK to clone any client, server or other RN product. All rights not specifically granted herein to Partner are reserved to RN. (d) Nothing contained in this Agreement shall be deemed or construed to grant Partner the exclusive right to develop, or have distributed by PN, Partner Products for any particular category of datatypes. 3. DISTRIBUTION OF PARTNER PRODUCTS 3.1 By Partner. ---------- (a) Partner Client Software. Partner shall have the right and license to ----------------------- market, promote, license and distribute the Partner Client Software bundled with the RMA Player both physically and electronically in all channels of distribution, including from Partner's web site, and including but not limited to CD-ROM installation disks and/or third party OEM disks. Such bundle may, in Partner's discretion, contain other Partner software. Such distribution right shall be for the latest versions of the RMA Player released by RN during the Term and shall be free of any royalty obligation. Partner's Authorized Distributors shall have the right and license to market promote, license and distribute the Partner Client Software both physically and electronically in all channels of distribution, including from Partner's web site, and including but not limited to CD-ROM installation disks and/or third party OEM disks. End users who license, acquire or purchase the Partner Client Software and RMA Player during the Term shall have the right to use the same in perpetuity. Partner Client Software shall be distributed by RN in accordance with Section 3.2(a). Partner may include a link offering or promoting the Partner Client Software from the Partner website to a hidden link on a RN website from which the Partner Client Software may be downloadable, and may promote the Partner Client Software on Partner's website. (b) Partner Tools; Partner Server Applications. If applicable, subject to ------------------------------------------ the terms and conditions set forth in this Agreement, and payment of the License Fees set forth in Section 7.1, RN grants Partner a non- exclusive license to distribute Partner Server Applications and Partner Tools containing any Licensed Software through all methods and channels of distribution in the Territory during the Term, including through electronic distribution. (c) Limitations; Requirements. ------------------------- (i) Partner's end-user license agreements for the Partner Products shall prohibit further distribution of the RMA Libraries, any RMA files or other components of RMA by Partner's end-users. (ii) Partner shall include a prominent and valid copyright notice, in the form reasonably requested by RN, in Partner Products specifying that components of Partner's Products are owned by and used under license from RN and its suppliers. Partner shall not alter or remove any copyright or trademark notices contained in any Licensed Software or User Documentation. In addition, Partner shall display RN's "RMA logo" and the words "RMA Compatible" on the -3- product packaging and all product manuals and documentation, in accordance with any Trademark Usage Guidelines provided by RN. (iii) Partner may only distribute Partner Products that have been designed, developed, and tested to function with an RMA Server. To ensure that all components of the Partner Products interoperate properly and are compatible with the RMA Server, RN may elect to test the Partner Products or, at RN's option, will have the Partner Products tested by a third party testing lab at Partner's expense. Under no circumstances shall Partner Products be held to a standard any greater than that applicable RN and/or other third-party products. RN shall provide development support to Partner to aid in Partner's resolution of problems discovered in the testing process, as set forth in Section 6.1. (iv) Partner agrees to promptly deliver to RN all releases, including beta releases, of its Partner Products, for use by RN as set forth in Section 3.2. 3.2 By RN. ----- (a) Partner Client Software. Partner hereby grants RN a non-exclusive ----------------------- perpetual royalty-free right and license to market, promote and distribute, by itself or through Authorized Distributors, the Partner Client Software, in the Territory By any means and in all channels of distribution. Provided that RN determines that the Partner Client Software is compatible with RMA, the Partner Client Software complies with the technical specifications agreed upon by the parties, that Partner continues to support the Partner Client Software in a commercially reasonable manner through upgrades if applicable, technical support and promotion), RN agrees to promote, market and distribute the Partner Client Software as follows: (i) RN will make good faith effort to include the Partner Client Software as a standard feature in the RN Players in all non- electronic distribution channels. (ii) RN will include the Partner Client Software in all full-featured versions of the RN Players distributed electronically over the Internet. All Players which do not include the Partner Client Software will include an automatic download feature that makes the Partner Client Software available whenever a Player attempts to receive a Partner datatype. (iii) RN will promote the Partner Client Software from the RN Partner page website. (iv) RN shall not be obligated to include the Partner Client Software in any special versions of the Player provided to a RN third party licensee if such licensee will not accept the Partner Client Software (v) In the event that either party secures a distribution arrangement with an OEM or other distributor that necessitates that either the RMA Server or the Partner Product be compiled or "ported" to run on a third party platform, the parties will negotiate in good faith and cooperate as reasonably necessary to enable such arrangement. (b) Partner Tools; Partner Server Applications. RN and Partner agree to ------------------------------------------ negotiate in good faith a mutually acceptable Electronic Distribution Agreement which Agreement may allow RN the non-exclusive right and license to market, promote and distribute, by itself or through Authorized Distributors, the Partner Tools and Partner Server Applications, in the Territory during the Term. 4. DISTRIBUTION OF THE RMA SERVER 4.1 Grant of License. Subject to the terms and conditions of this Agreement, ---------------- and payment of the License Fees set forth in Section 7.1, if applicable, RN grants Partner a non-exclusive, non-transferable right and license, in the Territory during the Term, to: -4- (a) market, license and distribute Object Code copies of the RMA Server Software and User Documentation to end-user customers only in conjunction with a Partner Product. (b) license and distribute one copy of the Partner Client Software with each copy of the RMA Server Software distributed to an end-user customer; (c) generate License Keys with an authorized, RN-provided License Key Tool, and duplicate, market and distribute License Keys associated with Partner Product to Partner's authorized resellers and distributors ("Authorized Distributors") and end-user customers; (d) sublicense to Authorized Distributors the right to market, license and distribute Object Code copies of the RMA Server Software, User Documentation and License Keys to end-user customers only as part of a bundle with partner Client Software; and (e) determine the price at which Partner and its Authorized Distributors will license and distribute the Partner Products, RMA Server Software and License Keys to end-user customers, independent of any License Fee payable by Partner to RN. 4.2 Distribution Requirements. ------------------------- (a) End User License Agreements. Partner shall distribute and shall cause --------------------------- its Authorized Distributors to distribute to their end-user customers RN's standard end-user Server License Agreement, which is contained in RN's product packaging. The license granted in such end-user license agreement shall be between RN and Partner's end-user's. A copy of RN's standard end-user Server License Agreement is attached hereto as Exhibit C. (b) Fulfillment for RMA Servers. Partner may either: (i) download RMA --------------------------- Servers from a private RN download site; or (ii) place an order with RN for physical pre-packaged copies of the RMA Servers. RN will ship all physical product to Partner or Partner's authorized designee, by shipment method specified by Partner. All orders are shipped F.O.B. RN's designated fulfillment location. As a convenience, RN may prepay freight charges, and such charges will be billed to Partner. All risk of loss or damage in transit will be borne by Partner. Partner shall inspect the RMA Servers upon receipt at the delivery location. Acceptance shall be deemed to occur unless Partner provides RN with notice of non-acceptance within three (3) business days of receipt. A Partner may only reject an RMA Server for one of the following reasons: (i) missing labels or User Documentation, (ii) defective media, or (iii) defective performance. (c) Source Code Escrow. (i) Partner will deposit with Data Securities ------------------- International, Inc. (the "Escrow Agent"), a complete and correct set of the Source Code version (as defined immediately below) and Object Code version of the Partner Products to be held in escrow (the "escrow products") and shall enter into the Escrow Agent's Master Preferred escrow agreement (attached hereto as Exhibit D), pursuant to which RN shall have the right to require that the Escrow Agent provide some or all of the Escrow Products to RN or third parties if so required by a governmental agency or court with jurisdiction over RN, or in the event that partner undertakes or is subject to any of the actions set forth in Section 8.2(b), or if Partner is in material breach of this Agreement. Partner shall pay any required escrow fee directly to the Escrow Agent. (ii) RN's access to the Source Code version of the Partner Products shall be SOLELY for the purpose of fixing any bugs related to the Partner Products that render the RMA unusable as contemplated under the terms of this Agreement. RN shall have no derivative rights in the Partner Products under any circumstances and may use any "fix" as contemplated by this subsection SOLELY under the terms and conditions of this Agreement. (iii) The Source Code version of the Partner Products referred to in this Section 4.2.c shall not include rights to components of the Partner Products which are licensed by third parties to Partner as follows: CyLink Corporation rights to DSS (Digital Signature Standard) under patents no. 4,200,770 ("Diffie/Hellman Patent") -5- and 4,218,582 ("Hellman/Merkle Patent"); and DSP Group, Inc. rights regarding G.723.1 speech CODEC. Partner hereby agrees that, under the direction of RN and pursuant to third-party license rights to be obtained by RN for those third-party components, Partner will provide to RN assistance to integrate those licensed components into the Partner Products as required solely for the purpose set forth in 4.2.c(ii) above. (d) Trademark Usage. If Partner distributes the RMA Server Software as --------------- part of a Bundle, Partner shall prominently display RN's "RMA logo" and the words "RMA Compatible" on the product packaging and all product manuals and documentation, in accordance with any Trademark Usage Guidelines provided by RN. (e) Updates; New Release. During the Term, Partner shall make available -------------------- to RN at no charge, upon release by Partner, a copy of all Updates and New Releases to the Partner Products. Each Update or New Release shall, upon release by Partner, be subject to all of the terms and conditions of the Agreement. 5. MARKETING CONSIDERATIONS In consideration for participating in the Partner Program, Partner shall be entitled to receive the following marketing considerations from RN: 5.1 Trademark License. Partner shall have the right to use RN's trademarks and ----------------- logos in connection with Partner's user interfaces, packaging, collateral material and website, subject to compliance with RN's Trademark Usage Guidelines. Partner agrees to furnish RN with samples of any proposed usage of RN's trademarks or logos, and obtain RN's prior approval for such usage, which approval will not be unreasonably withheld. 5.2 Customer Mailings. RN will send semi-annual emails throughout the Term to ----------------- RN's targeted customers promoting the Partner Products. Partner shall have the right to review and approve the contents of such email, which approval won't be unreasonably withheld. At Partner's discretion, such emails may list Partner's universal resource locators ("URL's") so that prospective customers can obtain additional information about the Partner Products. Additionally, RN will solicit from existing RN customers their desire to receive collateral material from Partner. On Partner's behalf, providing that Partner reimburses RN for its costs of mailing and supplies all collateral material, RN will make one "bonded" mailing during the Term to RN's customers who indicate a desire to receive collateral material about the Partner Products. 5.3 Participation in RN Events. RN agrees to feature Partner in the Partner -------------------------- Lab at RN's RealMedia user conference. From time to time, RN will also include Partner in RN press releases, and offer Partner the opportunity to participate in trade shows and conference displays as RN deems appropriate. 5.4 Real Developer Program. RN will provide partner a complimentary membership ---------------------- in the Real Developers program at the "Apps Developer" level for one year from the Effective Date. 5.5 Advertising Impressions. During the Term, RN will provide Partner, without ----------------------- charge, a minimum of 5,000 page impressions of advertising on RN's website, Real.com, in such locations as RN determines in its discretion. Such advertising shall commence simultaneously with the Gold release of the Partner Client Software. 6. SOFTWARE SUPPORT; UPGRADES 6.1 Development Support. RN shall provide complimentary technical support to ------------------- Partner in connection with Real Developers program for ninety (90) days from the Effective Date. Such support includes unlimited telephone support and priority e-mail support, and five (5) additional support calls after the expiration of the 90-day period. -6- 6.2 Technical Support for Partner Products. Partner shall be solely -------------------------------------- responsible for providing, and agrees that it will provide, all end-user technical and customer support for the Partner Products. 6.3 Technical Support for RMA Servers. Partner agrees that it will provide --------------------------------- first-tier technical and customer support, by telephone and e-mail and in accordance with RN's reasonable minimum support requirements, for RMA Server Software distributed by Partner and its Authorized Distributors. RN will enroll Partner, without charge, in a one-day RealMedia technical training seminar at RN's facilities, to train Partner to provide first-line technical support to its end-user customers for RMA Server Software. Partner shall be responsible for all out-of-pocket costs it incurs to attend such seminar. RN shall provide second-tier technical support, by telephone and email, from 8:00 A.M-5:00 P.M. PST Monday through Friday to Partner's primary support contact for RMA Servers. RN's telephone "hotline" shall be staffed by technical personnel with a working knowledge of the RMA Servers. RN shall not provide technical support to Partner's Authorized Distributors or end-users, unless such customers purchase technical support service from RN directly. 6.4 Updates; New Releases. During the Term, RN shall make available to Partner --------------------- at no charge, upon release by RN, a copy of all corresponding Updates on the RN website. RN shall make New Releases available free of any additional charge and shall, upon release to Partner, be subject to all of the terms and conditions of the Agreement. 7. PAYMENT 7.1 License Fees. In consideration of the rights and licenses granted herein, ------------ Partner agrees to pay RN the following License Fees: (a) In the event at any time during the Term Partner distributes RMA Server code or RMA-based tools, Partner shall pay RN the sum of Ninety Dollars ($90.00) plus Eight Percent (8%) of the total gross revenue received by Partner from the sale, license or distribution of all RMA- based products, including Partner Products, RMA Servers, License Keys, Updates, New Releases and any site licenses. (b) Notwithstanding Section 7.1(a), Partner shall not owe RN any License Fee on the sale of Partner Products and License Keys that enable datatypes other than streaming audio or video to customers who have purchased their RMA Server directly from RN, provided Partner does not distribute an additional RMA Server or New Release to such customers. (c) RN reserves the right to revise the License Fees set forth above within thirty (30) days of the start of each calendar year and again upon the commercial release of each New Release. RN shall provide Partner thirty (30) days' written notice of any change in the License Fee. 7.2 Payment Terms. Partner will provide RN with a written report by the 20th ------------- day of each month for the preceding calendar month setting forth: (a) the number of RMA Servers distributed, (b) the names and address to whom the RMA Servers were distributed; (c) the number of Partner Products distributed; (d) the number of License Keys distributed; (e) the type and number of any other RMA-based products or related licenses distributed; (f) the price per unit charged for each of the foregoing; (g) gross revenue receivable by Partner (whether or not actually collected); and (h) the amount due to RN pursuant to Section 7.1 for the preceding month. The report shall be accompanied by the payment due. Payments shall be calculated based on sales invoiced by Partner and its Authorized Distributors, whether or not the revenue is actually collected. All payments due hereunder shall be made in United States Dollars, without withholding or offset of any kind. Interest shall accrue on all amounts past due hereunder at the monthly rate of one and one half percent (1.5%) or at the maximum legal rate, whichever is less. 7.3 Rebates. RN will pay Partner a rebate of License Fees, according to the ------- following schedule: (a) If Partner has paid RN between $250,000 and $500,000 in License Fees during the Term, RN shall pay Partner a rebate of Five Percent (5%) of the total License Fees paid; -7- (b) If Partner has paid RN between $500,001 and $1,500,000 in License Fees during the Term, RN shall pay Partner a rebate of Ten Percent (10%) of the total License Fees paid; and (c) If Partner has paid RN $1,500,001 or more in License Fees during the Term, RN shall pay Partner a rebate of Fifteen Percent (15%) of the total License Fees paid. (d) RN shall pay all rebates within ninety (90) days of receipt of the final monthly report and accompanying License Fees after the expiration of this Agreement. The payment of a rebate by RN shall not be deemed as evidence of or confirmation that RN agrees that total amount due and owing RN under this Agreement has been paid by Partner, and shall not in any way affect RN's right to conduct any audit as set forth in Sections 7.4 and 7.5 during the period set forth therein. 7.4 Books and Records. Partner shall keep books of account with respect to the ----------------- amounts due and the calculations required to be made under Section 7.1. Upon RN's reasonable written request, and no more than once per year of the Term, RN may audit and inspect all such books of account, through an independent third party auditor and during normal business hours, provided that such auditor shall undertake in writing to protect the confidentiality of the business data and records of Partner. The cost of any such audit shall be paid by RN; provided, however, that in the event RN initiates an audit under this Section 7.4 and it is finally determined that the amount reported and paid by Partner pursuant to Section 7.1 for the period(s) audited is, in the aggregate, less than ninety-five per cent (95%) of the aggregate amount actually due, then Partner shall pay the reasonable costs and expenses of said audit. If any such audit reveals an underpayment of license fees, Partner shall make any correcting payment within thirty (30) days. Any underpayment shall be subject to interest of one and one-half percent (1.5%) per month or the maximum amount allowed by law, whichever is less. Partner will maintain the books and records applicable to each reporting period for at least three years following the close of such period. 7.5 Audit of Authorized Distributors. For all Authorized Distributors, -------------------------------- Partner, in its sole discretion, shall either: (a) retain for itself the right to audit the books and records of any such Authorized Distributor; or (b) require that the Authorized Distributor agree in writing to permit, upon the written request of RN to Partner, an independent auditor paid by RN to examine the necessary books and records of any such Authorized Distributor, provided that such accountant shall agree to protect the confidentiality of the business data and records and to disclose to RN only the accuracy or inaccuracy of the reporting required hereunder. Any such audits shall be arranged through Partner. 8. TERM AND TERMINATION 8.1 Term. This Agreement shall commence as of the Effective Date, and ---- terminate two (2) years thereafter ("the Term"), unless earlier terminated as provided herein. 8.2 Termination by Either Party. Either party may terminate this Agreement --------------------------- immediately upon written notice to the other party in the event of any of the following: (a) should the other party fail to perform any material term or condition of this Agreement, which shall constitute a default of this Agreement, and such default has not been corrected within thirty (30) days of written notice from the non-breaching party. In the event of a breach of Section 9 no cure period need be provided. (b) should the other party (i) make a general assignment for the benefit of creditors; (ii) institute proceedings to be adjudicated a voluntary bankrupt, or consent to the filing of a petition of bankruptcy against it; (iii) be adjudicated by a court of competent jurisdiction as being bankrupt or insolvent; (iv) seek reorganization under any bankruptcy act, or consent to the filing of a petition seeking such reorganization; or (v) have a decree entered against it by a court of competent jurisdiction appointing a receiver, liquidator, trustee, or assignee in bankruptcy or in insolvency covering all or substantially all of such party's property or providing for the liquidation of such party's property or business affairs provided that such decree is not dismissed within 45 days. -8- 8.4 Effect of Termination. --------------------- (a) Upon the effective date of termination of this Agreement for a material breach by Partner, the licenses granted hereunder shall terminate immediately. Partner will either immediately return all Licensed Software to RN or certify in writing to RN that all copies of all Licensed Software have been destroyed. RN may discontinue promotion and distribution of Partner Products or continue to distribute Partner Products during the Sell-Off Period, set forth in Section 8. 3(b), at its sole discretion. Notwithstanding anything in this Agreement to the contrary, under no circumstances may Partner distribute Partner Client Software after the expiration or termination of this Agreement, for any reason, without RN's express written consent. (b) For two (2) months after the expiration or termination of this Agreement other than by reason of Partner's material breach ("Sell-Off Period"), Partner may advertise and sell the Partner Products, RMA Server and the License Keys in its inventory or necessary to fulfill orders confirmed as of the expiration or termination date, and shall pay License Fees and render statements in the same manner as during the Term. After the end of the Sell-Off Period, Partner shall return to RN, at Partner's expense, all copies of the Partner Products, RMA Server and the License Keys, or RN may instruct Partner to destroy them. Partner shall furnish RN with affidavits certified by an officer of Partner evidencing such destruction. (c) Any termination of this Agreement shall not release Partner from paying any amount that may then be owing to RN, or that may become due to RN in the future. (d) Notwithstanding any other terms or conditions of the Agreement, the rights of end-user customers to use any RMA Servers or License Keys distributed by Partner shall survive any termination or expiration of the Agreement, provided that License Fees for said RMA Servers and License Keys have been paid to RN. 9. CONFIDENTIALITY "Confidential Information" means any trade secret information or information otherwise designated by a party as being confidential relating to either party's products, product plans, designs, computer code, technical information, costs, pricing, financing, marketing plans, business opportunities, personnel, research and development or know-how. Confidential Information shall not include information that (i) is or becomes generally known or available through no fault of the receiving party, (ii) was known by or disclosed to the receiving party prior to disclosure, (iii) is independently developed by the receiving party, or (iv) is made generally available by the disclosing party without any restriction. The parties shall use reasonable efforts and at least the same care that each uses to protect its own Confidential Information of like importance, to prevent unauthorized dissemination or disclosure of the other party's confidential information during and for three (3) years following the last day of the Term. Neither party will use the other's Confidential Information for purposes other than those necessary to directly further the purposes of this Agreement. Neither party will disclose to third parties the other's Confidential Information without the prior written consent of the other party, provided, however, that nothing will preclude a party from making disclosure to a third party for the purpose of due diligence in a financing transaction, merger, acquisition, business combination or other similar transaction, or from making any disclosures to any governmental agency having jurisdiction over the disclosing party, or unless otherwise required by law, government order or court proceeding. Each party shall return the Confidential Information to the other party upon termination of the Agreement or upon the request of the other party. Except as expressly provided in this Agreement, no ownership or license right is granted in any Confidential Information. 10. PROPRIETARY RIGHTS -9- 10.1 Partner. Partner shall retain all right, title and interest in and to the ------- Partner Products, including any copyright, patent, trade secret, or other intellectual property rights therein, subject to RN's underlying ownership in any Licensed Software included therein, and Partner Confidential Information. Notwithstanding the foregoing, Partner agrees that it shall not register or attempt to register any patents in connection with any Partner Product, including, but not limited to, in any device, process, method, function or invention included therein or necessary for the operation thereof, which would in any way interfere with, limit or prohibit RN's continued use, development or ownership of RMA. 10.2 RN. RN shall retain all right, title and interest in and to the Licensed -- Software, including any copyright, patent, trade secret, or other intellectual property rights therein, all RN trademarks and all RN Confidential Information, and any copies thereof, regardless of the media or form on or in which the Licensed Software or copies may exist. Partner acknowledges and agrees that the Licensed Software is proprietary to RN, and is protected by the copyright laws of the United States and international copyright treaties. Unauthorized copying of the Licensed Software, including modification, merger or inclusion with any other software, is expressly forbidden. Partner shall not be deemed, by anything contained in or done pursuant to this Agreement, to acquire any right, title or interest in any trademark, copyright, patent or other intellectual property of RN, and shall do nothing to prejudice the value or validity of RN's rights therein or ownership thereof. 11. LIMITED WARRANTY. 11.1 RN warrants, solely for the benefit of Partner, that for a period of ninety (90) days from the date of delivery to Partner: (i) the Licensed Software, if operated as directed, will substantially achieve the functionality described in the User Documentation, and (ii) that the media containing the Licensed Software, if provided by RN, is free in material respects from defects in material and workmanship; provided, however, that the foregoing warranty is expressly contingent (and shall be otherwise void) upon: (1) the use of the Licensed Software strictly in accordance with the instructions and User Documentation therefor; (2) the absence of misuse or damage thereto; (3) the absence of any alteration or modification thereto; and (4) Partner's acceptance of Licensed Software for distribution with knowledge that the media upon which the Licensed Software are reproduced may contain certain defects. RN makes no representation or warranty that the information or functions contained in the Licensed Software will meet Partner's requirements or that the use or operation of the Licensed Software will be uninterrupted, error free or secure, or that any Licensed Software defects are correctable or will be corrected. THE FOREGOING WARRANTY SHALL NOT APPLY TO THE SAMPLE SOURCE CODE, WHICH IS PROVIDED TO PARTNER AS IS, WITHOUT WARRANTY OF ANY KIND. 11.2 NO OTHER WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RN ------------------- AND ITS LICENSORS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE EXPRESSLY DISCLAIMED, WITH REGARD TO THE LICENSED SOFTWARE AND THE USER DOCUMENTATION. THIS LIMITED WARRANTY GIVES PARTNER SPECIFIC LEGAL RIGHTS. PARTNER MAY HAVE OTHERS, WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION. 11.3 Remedies. RN's entire liability and Partner's exclusive remedy for any -------- breach of the limited warranty set forth in Section 11.1 shall be, in RN's sole discretion: (i) to replace Partner's defective media; or (ii) to advise Partner how to achieve substantially the same functionality with the Licensed Software as described in the User Documentation through a procedure different from that set forth in the User Documentation. Repaired, corrected or replaced Licensed Software and User Documentation shall be covered by this limited warranty for period remaining under the warranty that covered the original Software, or if longer, for thirty (30) days after the date RN either shipped to Partner the repaired or replaced Licensed Software or RN advised Partner as to how to operate the Licensed Software so as to achieve the functionality described in the Documentation, whichever is applicable. 12. INDEMNIFICATION 12.1 Each party (the "Indemnifying Party") agrees to hold harmless, indemnify and defend the other party (the "Indemnified Party") from and against any losses, damages, costs and expenses (including reasonable -10- attorneys' fees and costs) arising out of or relating to any claims that the Indemnifying Party's products infringes any copyright, patent, trademark, trade secret or other proprietary right of any third party. The Indemnifying Party shall not be liable in the event that (i) the Indemnified Party continued marketing, sale, distribution or use of the Indemnifying Party's products after receiving prior written notice from the Indemnifying Party that the Indemnified Party should cease such activities due to a third party claim of infringement against such products; or (ii) the claim of infringement results from the Indemnified Party's combination or use of the Indemnifying Party's products with any third party product, program or data not supplied by the Indemnifying Party. 12.2 Conditions of Indemnification. A party's obligation to indemnify the ----------------------------- other party is expressly conditioned on the Indemnified Party: (i) giving written notice of the claim promptly to the Indemnifying Party; (ii) giving the Indemnifying Party sole control of the defense and settlement of the claim; (iii) providing to the Indemnifying Party all available information and assistance (at the Indemnifying Party 's expense); and (iv) not compromising or settling such claim. 13. LIMITATION OF LIABILITY UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, EVEN IF THE PARTY SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. 14. DISPUTE RESOLUTION Any dispute arising out of or relating to this Agreement shall be resolved in accordance with the procedures specified in this Section 14, which shall be the sole and exclusive procedures for the resolution of any such dispute. 14.1 Executive Negotiations. The parties shall attempt in good faith to ---------------------- resolve any dispute relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. In the event a dispute cannot be resolved, either party may give the other party written notice of any dispute not resolved in the normal course of business. Within fifteen (15) days after delivery of such a notice, the receiving party shall submit to the other a written response. The notice and response shall include a statement of each party's position and a summary of arguments supporting that position. Within thirty (30) days after delivery of the disputing party's notice, the senior executive officers of Partner and RN shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this Section 14.1 are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. 14.2 Arbitration. If any dispute relating to this Agreement shall not ----------- have been resolved through the use of the non-binding procedures specified in Section 14.1 within one hundred (100) days of the initial notice of either party to the other of a dispute, such dispute shall be settled by binding arbitration; provided, however, that if one party has requested the other to participate in the non-binding procedure specified in Section 14.1 and the other has failed to participate, the requesting party may initiate arbitration before expiration of the above stated period. Arbitration shall be governed by AAA Rules, with arbitrators to be mutually agreed upon by the parties. Arbitration shall take place in King County, Washington. The arbitrators shall not be empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover such damages with respect to any dispute or disagreement resolved by arbitration. -11- 14.3 Provisional Remedies. A party, without prejudice to the mandatory -------------------- procedures of this Section 14, may file a complaint for statute of limitations or venue reasons, or seek a preliminary injunction or other provisional judicial relief, if in its sole judgment such action is necessary to avoid irreparable damage or to preserve the status quo. Notwithstanding such action, the parties will continue to participate in good faith in the procedures specified in this Section 14. 15. GENERAL 15.1 Independent Contractor. The relationship created by this Agreement ---------------------- is one of independent contractors, and not partners, franchisees or joint venturers. No employees, consultants, contractors or agents of one party are employees, consultants, contractors or agents of the other party, nor do they have any authority to bind the other party by contract or otherwise to any obligation, except as expressly set forth herein. They will not represent to the contrary, either expressly, implicitly or otherwise. 15.2 Notices. All notices and demands under this Agreement will be in ------- writing and will be delivered by personal service, confirmed fax, confirmed e- mail, express courier, or certified mail, return receipt requested, to the address of the receiving party set forth below, or at such different address as may be designated by such party by written notice to the other party from time to time. Notice will be effective on receipt. Notices should be addressed to:
RN: AI: Russell Braun Travis Millman GM Strategic Products VP, Business Development RealNetworks, Inc. Audible Inc. 1111 Third Avenue, Suite 2900 65 Willowbrook Blvd. Seattle, WA 98101 Wayne, NJ 07470 Voice: (206) 674-2288____ Voice: 973-890-4070, x237 Fax: (206) 674-____ Fax: 973-890-2442 E-mail: RBraun@real.com E-mail: travis@audible.com With a copy to: With a copy to: Kelly Jo MacArthur, VP & General Counsel Brian Fielding, Managing Director Voice: (206) 674-2213 Voice: 973-890-4070, x225 Fax: (206) 674-2695 Fax: 973-890-2442 E-mail: kellyjo@real.com E-mail: bfielding@audible.com
15.3 No Assignment. This Agreement may not be assigned by either party ------------- without the prior written consent of the other, except pursuant to the sale of substantially all assets of a party, or a merger or consolidation. In the event of a sale of substantially all assets of Partner, or a merger or consolidation involving Partner, the terms and conditions contained in Section 4 of this Agreement shall not survive. This Agreement shall be binding upon and inure to the benefit of the parties' permitted successors and assigns. -12- 15.4 Survival. The following provisions shall survive the expiration or -------- termination of this Agreement: 2.2, 7.2, 7.4, 7.5, 8.4, 9-14, and 15.4. 15.5 Export Licenses. The parties acknowledge that the laws and ---------------- regulations of the United States may restrict the export and re-export of certain commodities and technical data of United States origin. Each party agrees that it will not export or re-export the Products in any form without the appropriate United States or foreign government licenses. In particular but without limitation, none of the Products, Documentation or underlying information or technology may be exported or re-exported (i) into (or to a national or resident of) Cuba, Iraq, Libya, Yugoslavia (Serbia and Montenegro), North Korea, Iran, Angola, Sudan, Syria or any other country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury Department's list of Specially Designed Nationals or the U.S. Commerce Department's Table of Deny Orders.__ 15.6 U.S. Government Restricted Rights and Export Restriction. The --------------------------------------------------------- Licensed Software and User Documentation are provided with RESTRICTED RIGHTS. Use, duplication or disclosure by the Government is subject to restrictions set forth in subparagraphs (a) through (d) of the Commercial Computer Software-- Restricted Rights at FAR 52.227-19 when applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013, and in similar clauses in the NASA FAR supplement, as applicable. Manufacturer is Progressive Networks, Inc./1111 Third Avenue, Suite 500/ Seattle, Washington, 98101. Partner acknowledges that none of the Software or underlying information or technology may be downloaded or otherwise exported or re-exported: (i) into (or to a national or resident of) Cuba, Iran, Iraq, Libya, North Korea, Syria, Sudan or Angola or any other country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury Department's list of Specially Designated Nationals or the U.S. Commerce Department's Table of Denial Orders. 15.7 Miscellaneous. This RMA Agreement, and the Exhibits attached hereto ------------- and made a part hereof, together with the business Agreement between the parties dated as of November 12, 1998,constitute the complete and exclusive agreement between RN and Partner with respect to its subject matter, and supersede all prior oral or written understandings, communications or agreements not specifically incorporated herein or therein. This RMA Agreement, when executed in combination with the business Agreement between the parties dated as of November 12, 1998, supersedes in whole the Bundling Agreement dated as of July 27, 1997. This Agreement may not be modified except in a writing duly signed by an authorized officer of RN and Partner. The waiver by either party of any breach of this Agreement by the other party will not waive subsequent defaults by such party of the same or a different kind. If any provision of this Agreement is held to be unenforceable for any reason, such provision shall be reformed only to the extent necessary to make it enforceable, and such decision shall not affect the enforceability of such provision under other circumstances, or of the remaining provisions hereof under all circumstances. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions. Any and all remedies herein expressly conferred upon a party shall be deemed cumulative and not exclusive of any other remedy conferred hereby or by law, and the exercise of any one remedy shall not preclude the exercise of any other. Headings shall not be considered in interpreting this Agreement. 15.8 Announcements. The parties agree that neither party shall publicize -------------- the existence of this Agreement until such time as the initial publicity announcement is made pursuant to the business Agreement between the parties dated as of November 12, 1998. Each party must obtain the prior written consent of the other party before publishing any press release or other publicity concerning this Agreement which includes any details of the other company's products or personnel. -13- IN WITNESS WHEREOF, the parties have entered into this Agreement as of the Effective Date written above. REAL NETWORKS, INC. AUDIBLE, INC._____________________ By: /s/ Robert Glaser By: /s/ Andy Huffman ------------------------- ------------------------------ Name: Robert Glaser Name: Andy Huffman ----------------------- ---------------------------- Title: CEO Title: President and CEO ---------------------- --------------------------- Date: 11/24/98 Date: 11/12/98 ----------------------- ---------------------------- -14- EX-10.21 9 EXHIBIT 10.21 EXHIBIT 10.21 A G R E E M E N T This Agreement (this "Agreement") is entered into as of April 13, 1999, (the "Effective Date") by and between DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware corporation with principal offices at 2880 Junction Avenue, San Jose, California 95134 (hereinafter "Diamond"), and AUDIBLE, INC., a Delaware corporation with principal offices at 65 Willowbrook Boulevard, Wayne, New Jersey 07470 (hereinafter "Audible"). WHEREAS, Audible(TM) is the creator and provider of an Internet-based service that permits customers to use a computer with an Internet browser to select and download spoken word audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information in a secure Audible-proprietary file format, via the World Wide Web (currently using the URL "http://www.audible.com"(TM)), and to play back such content using Audible's proprietary software by means of a personal computer, an audio-capable personal digital assistant and/or a portable audio devices; WHEREAS, Diamond is the developer and owner of certain Internet audio MP3- compatible hardware products, including the Rio family of portable audio players, and wishes the Rio II portable audio player and follow-on hardware products thereto to be AudibleReady, as defined below; WHEREAS, Audible and Diamond both believe it is in their best interests to enable Audible content on Diamond hardware products and, for that purpose, desire to undertake certain development work with respect to achieving the goal of making the Rio Products AudibleReady and Audible's client software compatible with the Rio Products, pursuant to the terms and conditions of this Agreement; WHEREAS, Diamond desires to license such developments from Audible for the purpose of allowing users of the Rio Products to access and play audio content available through Audible, pursuant to the terms and conditions of this Agreement; and WHEREAS, in furtherance of the work described above, Audible and Diamond both desire to engage in certain promotion and marketing efforts with respect to both Audible's services and the Rio Products, pursuant to the terms and conditions of this Agreement. NOW THEREFORE, in consideration of the premises stated above, the mutual covenants of the parties and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows: I. DEFINITIONS ----------- For purposes of this Agreement, in addition to the capitalized terms defined elsewhere herein, the following terms shall have the meanings described below: 1.1 Affiliate means (a) an entity that controls, is controlled by, or is under --------- common control with a party; or (b) an entity that shall purchase or succeed to all or substantially all of the assets of that party. "Control" means ownership, directly or indirectly, of more than fifty percent (50%) of the outstanding shares or securities (representing the right to vote for the election of directors or other managing authority), or if the entity does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, "control" means more than fifty percent (50%) of the ownership interest representing the right to make the decisions for such corporation, company or other entity. A corporation, company or other entity shall be deemed to be an Affiliate only so long as such control. 1.2 Anticipated Launch Date means the date on which it is anticipated that the ----------------------- first commercial version of the Rio II will be released, as established by Diamond from time to time. As of the Effective Date, the Anticipated Launch Date is [***]. 1.3 Audible Development Work means the software development work to be ------------------------ performed by Audible and its agents, as defined in Section 2.2 of this Agreement. 1.4 Audible Firmware means the computer software to be provided by Audible to ---------------- Diamond, in either source or object code, under this Agreement and which consists of (i) the CODEC, (ii) a security module with various components designed to ensure that the Rio Products handle Content in compliance with Audible's security policies as determined by Audible and (iii) a Content interpretation and navigation module, and any upgrades, enhancements and modifications to any of the above from time to time either provided by Audible to Diamond or developed by Diamond with the permission of Audible. 1.5 Audible Software means the modified version of the Client Software to be ---------------- developed by Audible under Section 2 of this Agreement, for use with the Rio II and other Rio Products, and any updates, upgrades, and enhancements thereto and new versions thereof provided to users of Rio Products.. 1.6 audible.com means the Internet-based service controlled or sponsored by ----------- Audible which permits customers to use a computer with an Internet browser to select, download and license copies of Content, for pay, in an Audible- proprietary file format, via a World Wide Web site currently using the URL "http://www.audible.com"(TM) 1.7 AudibleReady means the brand adopted by Audible, as it may be changed from ------------ time to time, to signify that designated equipment and/or software is enabled for access to, downloading and playback of Audible's Content. - 1.8 Client Software means Audible's proprietary "AudibleManager" software, that --------------- is used as of the Effective Date to download and playback Content and transfer the Content to the portable device. 1.9 CODEC means a decompression algorithm provided by Audible to Diamond ----- hereunder, that is used to enable compatible computing and/or hardware devices to playback Content, and any replacement algorithm selected by mutual agreement of the parties. 1.10 Content means spoken word audio content that is either licensed by Audible ------- from third parties or produced by or on behalf of Audible (e.g., literary, business, and entertainment works, ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 2 and other types of spoken word content), which content is encoded into Audible's file format and is accessible for playback using the then-current Audible decoder(s). 1.11 Diamond Development Work means the software development work to be ------------------------ performed by Diamond and its agents, as defined in Section 2.5 of this Agreement. 1.12 Integration means the combination during the Term of a version of the ----------- Audible Firmware (or such other security algorithm as agreed to by the parties) with the Rio II and other Rio Products, as a core, embedded component thereof, for distribution by Diamond as part of such Rio Products to enable access to and downloading of Content by Rio Product users, as permitted under this Agreement. "Integrated" means that the Diamond Product in question has been enabled to access and download Content as a core, embedded component of the product. 1.13 Intellectual Property means any copyright, patent, registered design, --------------------- copyright, design right, topography right, rights in mask works, trade mark, service mark, application to register any of the aforementioned rights, rights in the nature of any of the aforementioned rights, moral rights, trade secrets, rights in unpatented know-how, right of confidence and any other intellectual or industrial property rights of any nature whatsoever recognized in any part of the world. 1.14 Manager shall mean a person in the management chain of the applicable ------- party who is a senior executive in terms of responsibility, and who is familiar with the administration of this Agreement. 1.15 Rio Products means Diamond's family of portable hardware devices released ------------ by Diamond during the Term for playback of audio content via the Internet, including content in MP3 format, that Diamond will develop, commencing with the Rio II product, and any follow-on products thereto, whether such products are branded with the trademark "RIO" or with other names. 1.16 Rio II means the next major release of the Diamond Rio Internet mobile ------ audio device currently scheduled for commercial availability by the Anticipated Launch Date. 1.17 Term means the period described in Section 14, herein, commencing on the ---- Effective Date and including any renewals and extensions of this Agreement. 2. DEVELOPMENT AND INTEGRATION OF PRODUCTS ---------------------------------------- 2.1 Audible's Commitment. Subject to the terms of this Agreement, -------------------- including without limitation, the fulfillment by Diamond of its obligations under this Agreement, Audible hereby agrees to perform the Audible Development Work as described in Section 2.2. 2.2 Audible Development Work. ------------------------ (a) Development of Audible Software. Audible, with the assistance of ------------------------------- Diamond as reasonably requested by Audible, shall exercise its reasonable best efforts to develop Audible Software for use with the Rio II. The Audible Software, when used with the Rio II and ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 3 other required user interface elements, will be designed to facilitate (i) the downloading of Content from audible.com by users of the Rio II who register with audible.com directly or indirectly through a Diamond portal, and (ii) transfer of Content to the Rio II for portable playback of Content. Audible agrees to commit the necessary resources and management involvement to support this project and to accomplish the objectives of the project. Audible and Diamond shall agree in good faith, after the release of the AudibleReady Rio II product, with respect to further development of the Audible Software required to make follow-on Rio Products AudibleReady pursuant to the terms of this Agreement. (b) Modification of Audible Firmware. Audible, with the assistance of -------------------------------- Diamond as reasonably requested by Audible, shall exercise its reasonable best efforts to develop and deliver to Diamond modifications to the Audible Firmware for the successful Integration with the Rio II. Delivery of the Audible Firmware shall be pursuant to a schedule mutually agreed by the parties, taking into account the Anticipated Launch Date. Audible agrees to commit the necessary resources and management involvement to support this project and to accomplish the objectives of the project. Audible and Diamond shall agree in good faith, after the release of the AudibleReady Rio II product, with respect to further modifications to the Audible Firmware required to make follow-on Rio Products AudibleReady pursuant to the terms of this Agreement.. Audible does not warrant that the Audible Development Work will permit the successful Integration with the Rio Products. (c) Specifications. The Audible Development Work will be conducted in -------------- accordance with such technical specifications as may be determined by Audible, in its reasonable discretion, with the assistance of Diamond as reasonably requested by Audible. Audible's obligation to complete the Audible Development Work and permit Integration is subject to the ability of the Integrated product to permit the offering of Content by means of the Audible Software on a secured, per program and subscription basis as currently done by Audible with its MobilePlayer, and the availability to Rio Products users of substantially all of Audible's on-device navigation features and functionality. Audible agrees to exercise its reasonable best efforts to develop the Audible Software in a manner that provides for as smooth experience as possible for the user with respect to account creation with audible.com and downloading of Audible Content Bundles as described in Section 6 below. (d) Non-Exclusivity. The Audible Development Work will be performed --------------- by Audible on a non-exclusive basis and shall not affect the right of Audible to perform research, development and integration efforts for others or on its own behalf with respect to the same or similar technologies as are the subject of this Agreement. (e) Use of Development Work. Notwithstanding any other provision of ----------------------- this Agreement, Audible shall have the right to use, reproduce, modify and distribute, in its discretion, the Audible Development Work (and any portion thereof), and any deliverables to Diamond in connection therewith, and to use, make, license and sell products based thereon, during and after the Term of this Agreement. This shall include the right to permit the installation of Audible Software and Audible Firmware or any portion thereof as part of an OEM product or an after-market product for Windows-based personal computers, audio-capable ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 4 personal digital assistants, and portable audio devices. This Agreement does not grant to Diamond any right or interest in and to any future developments by or on behalf of Audible or any new products and services offered by Audible, except as expressly provided in this Agreement 2.3 Diamond's Obligations Regarding Audible Development Work. Diamond -------------------------------------------------------- agrees reasonably to cooperate with Audible in furtherance of successfully completing the Audible Development Work. As part of this, Diamond agrees to promptly provide to Audible, [***]: (a) Access and Assistance. Such access to Diamond's personnel and --------------------- other resources as Audible may reasonably request in connection with the performance of the Audible Development Work, including without limitation, such design, technical assistance, development tools, application program interfaces ("APIs") and software (in source code and object code format, as appropriate) as are necessary or desirable to enable Audible to perform the Audible Development Work, and make the Audible Software interoperate with the Rio II; and (b) Prototypes and Production Models. To the extent available, -------------------------------- development environments, prototypes and production models of the Rio II as necessary to implement the Audible Development Work. In the event Diamond does not have available such hardware, Audible may purchase such hardware as is needed and the cost thereof shall be paid by Diamond. 2.4 Diamond's Commitment. Subject to the terms of this Agreement, -------------------- including without limitation, the fulfillment by Audible of its covenants under this Section 2, Diamond hereby agrees to perform the Diamond Development Work as described in Section 2.5. 2.5 Diamond Development Work. ------------------------ (a) Diamond Development Work. Diamond, with the assistance of Audible ------------------------ as reasonably requested by Diamond, shall exercise its reasonable best efforts to Integrate the Audible Firmware as stated above with the Rio II and to allow users of the Rio II to playback Content. Diamond agrees to commit the necessary resources and management involvement to support the Diamond Development Work and to accomplish the objectives of the project. Diamond and Audible shall agree in good faith, after the release of the AudibleReady Rio II product, with respect to further Diamond Development Work required to make follow-on Rio Products AudibleReady pursuant to the terms of this Agreement. Diamond shall not modify the Audible Firmware for any purpose except with the prior written approval of Audible. (b) Specifications. The Diamond Development Work will be conducted in -------------- accordance with such technical specifications as may be determined by Diamond, in its reasonable discretion, with the approval of Audible which shall not be unreasonably denied. Such specifications shall provide that the Rio II will incorporate the Audible Firmware, and will be compatible with, and able to interoperate with, the Audible Software, and enable playback of the Content. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 5 (c) Audible's Obligations Regarding Diamond Development Work. Audible -------------------------------------------------------- agrees reasonably to cooperate with Diamond in furtherance of successfully completing the Diamond Development Work. As part of this, Audible agrees to promptly provide to Diamond, [***], such access to Audible's personnel and other resources as Diamond may reasonably request in connection with the performance of the Diamond Development Work, including without limitation, such design, technical assistance, development tools, and software [***] as are necessary or desirable to enable Diamond to perform the Diamond Development Work and make the Audible Software and the Audible Firmware interoperate with the Rio II. (d) Non-Exclusivity. The Diamond Development Work will be performed --------------- by Diamond on a non-exclusive basis and shall not affect the right of Diamond to perform research, development and integration efforts for others or on its own behalf with respect to the same or similar technologies as are the subject of this Agreement. (e) Updates. Diamond and Audible, with each other's assistance as -------- reasonably requested by the other party, shall exercise its reasonable best efforts to Integrate updates, fixes and enhancements to the Audible Firmware, the Audible Software, the Rio Products and the OEM Rio Products as defined below, with the approval of the party whose technology it is, for purposes of maintaining the security features of the Audible Firmware, and correcting any material errors and bugs affecting any major functionality of the Audible Software, the Integrated Rio Products and OEM Rio Products with Audible technology, as such errors and fixes are documented by instances of data loss or product malfunction.. 2.6 Representatives; Meetings. Each party hereby agrees to have at least ------------------------- one Manager designated as the primary contact person on its behalf for matters relating to this Agreement and its implementation. Each party hereby further agrees that, through the end of [***], they will endeavor in good faith to have once a week a conference call, and monthly a meeting, with the joint technical and business personnel of the parties to discuss the progress of the development work and technical and business issues presented by this Agreement. Thereafter, upon the written request of the other party, the parties will make reasonable efforts to meet, at a mutually agreeable times and locations, to confidentially discuss the progress of work under this Agreement, product trends, implementation issues, areas of collaboration, and other related issues. [***]. Each party further agrees to provide the other with periodic reports regarding the progress of work under this Agreement. 2.7 Implementation Schedule. The Audible Development Work and the Diamond ----------------------- Development Work shall be implemented promptly and diligently in accordance with an implementation schedule to be mutually agreed upon by the parties, taking into account the Anticipated Launch Date, which schedule shall become a part of this Agreement upon approval by the parties. Both parties recognize that time is of the essence to this Agreement with respect to the development work that needs to be performed by the Anticipated Launch Date and, as it respects their own development work, the parties agree to exercise their best efforts to permit the Integrated Rio II that is AudibleReady to be available on the Anticipated Launch Date. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 6 2.8 Development Costs. [***]. ----------------- 2.9 Review Rights. Each party will have the right, in its reasonable ------------- discretion, to conduct technical reviews of the progress of the other party's performance of its development work at the facilities of the other party and at such other locations where any part of the work may be performed. Each party will provide reasonable cooperation to the other in performing such reviews, including without limitation, providing that party with access to all work in progress, documents and other materials, as reasonably requested by the reviewing party. Each party may perform such reviews at a mutually agreeable time and date during normal business hours at the location where the work is being performed by providing the other with advance written notice. In performing such reviews, each party shall not unduly interfere with the operation of the other's business activities, and shall comply with the other party's reasonable safety and security policies and procedures. Diamond hereby agrees to provide to Audible or its designee the opportunity to review in detail, prior to release, the code of the Integrated Rio II for purposes of determining compliance with Audible's security and functional requirements. 2.10 Testing ------- (a) Goals of Testing. The parties agree to cooperate with each other ---------------- in the testing of the Audible Software and the Integrated Rio II, for the purposes of determining that: (i) the Audible Firmware has been successfully Integrated into the Rio II; (ii) the Audible Software and the Rio II are compatible, interoperable and able to interface with each other and with Content; (iii) when used with other necessary hardware, software and interfaces (if any), the Audible Software and the Rio II are compatible, interoperable and able to interface with audible.com; (iv) the use of the Audible Software in combination with the Rio II preserves the functionality of the Rio II without materially degrading its performance (as described in the applicable specifications); and (v) the use of the Rio II in combination with the Audible Software preserves the functionality of the Audible Software without materially degrading its performance (as described in the applicable specifications) (the foregoing, collectively, constituting "Testing"). (b) Testing Procedures. Testing and acceptance of the development ------------------ work and resulting products of the parties shall occur in accordance with such testing plan(s), procedures and schedule(s) as are mutually agreed to by the parties. In the event defects in the form of non-conformities with the Testing specifications are discovered during the implementation of the acceptance plan(s), each party shall exercise prompt and reasonable efforts to correct and remediate the defect(s), and subsequently thereto the acceptance plan(s) shall continue. Neither shall unreasonably withhold or delay its approval of the Testing and the development work. (c) Third Party Components. Notwithstanding any provision of this ---------------------- Agreement to the contrary, neither party shall be responsible for the manufacture or performance or failure to perform of hardware, software or other components provided by third parties and which are used in connection with the operation of that party's products or services, or for errors or omissions of the other party's employees and agents. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 7 2.11 [***]. 3. PRODUCT BRANDING AND INTEGRATION OBLIGATIONS -------------------------------------------- 3.1 By Audible. ---------- (a) Branding. Audible agrees that, at Diamond's request, it will -------- incorporate appropriate Diamond/Rio II branding into the Audible Software, thereby creating a co-branded version of the software for the exclusive use of customers of the Integrated Rio II product. Such Diamond/Rio II branding shall be subject to Diamond's supplying Audible with high- resolution digital artwork, logos, and other materials, in appropriate formats, which Diamond desires to be incorporated into the software. The placement, form and format of any such branding shall be as mutually agreed upon by the parties. Nothing herein is intended to preclude Audible from doing any other type of branding on its products and services. In addition, Audible agrees to feature prominently the Rio II product on audible.com by means of placements, banners or other ways that the parties mutually agree to. The web site shall refer visitors to audible.com who are interested in acquiring Rio Products back to a Diamond web site. Diamond shall develop a system for tracking visits to its web sites which are triggered by a referral from audible.com. (b) Further Development. Audible agrees that, for as long as Diamond ------------------- is in compliance with the terms of this Agreement, it shall exercise reasonable commercial efforts to update, upgrade, and modify the Audible Software so as to make it interoperable and compatible with follow-on Rio Products which are manufactured by or for Diamond pursuant to technical specifications to be agreed to by the parties 3.2 By Diamond. ---------- (a) Branding and Integration. Diamond agrees that, commencing with ------------------------ the Rio II product release, by the Anticipated Launch Date it will Integrate the Rio Products to make them AudibleReady, and will prominently brand the Rio Products with the AudibleReady logo (which logo will be provided by Audible to Diamond) on (i) the Rio II units (as described below), (ii) the box in which the Rio II is distributed, (iii) Diamond's in-box materials (e.g., manuals, user guides, inserts, etc.), and (iv) as appropriate, Rio II-related marketing materials (e.g., print advertising, Diamond's web site, banner advertisements). The placement, form and format of such branding shall be as mutually agreed upon by the parties; however, Diamond agrees that it shall include the AudibleReady logo [***] such branding shall be legible and reasonably easy to distinguish. The mutually agreed-upon placement, form and format of the AudibleReady logo to be included on the Rio II shall be attached to this Agreement as an Exhibit within 15 days of the Effective Date of this Agreement. Nothing herein is intended to preclude Diamond from doing any other type of branding on its products. To the extent that, notwithstanding the parties' development efforts in accordance with Section 2 above, the Rio II cannot be Integrated by the Anticipated Launch Date, the parties hereby agree to continue to work in ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 8 good faith to Integrate the Rio Products as promptly as possible, subject to Audible's rights under Section 12.2(a). (b) Further Development. Diamond agrees that, for as long as Audible ------------------- is in compliance with the terms of this Agreement, it shall exercise reasonable commercial efforts to Integrate the Rio Products that follow the Rio II in order to enable access by users to audible.com and downloading of the Content using the Rio Products, pursuant to technical specifications to be agreed to by the parties. 3.3 Diamond's OEM Obligations. In the event that OEM products based on or ------------------------- derived from Diamond Rio Products (the "OEM Rio Products") are to be authorized by Diamond, Diamond agrees to use its good faith efforts to promote and seek to Integrate Audible technology and AudibleReady branding in such products, and to participate in Audible co-marketing programs with respect to such products. Such efforts will include, without limitation, introducing Audible to existing and prospective OEMs of Diamond. Audible acknowledges and agrees that the decision whether to include Audible technology, AudibleReady branding and to participate in Audible co-marketing programs will be in the reasonable discretion of Diamond and its OEMs. Third party OEMs Integrating Audible's technology in their products must receive the necessary Intellectual Property licenses directly from Audible. [***]. 4. DISTRIBUTION AND INSTALLATION OF THE AUDIBLE SOFTWARE. ----------------------------------------------------- 4.1 Provision of the Audible Software. Subject to Diamond's compliance of --------------------------------- its obligations under Section 2 above, Audible hereby agrees to provide Diamond with a master copy of the Audible Software prior to the Anticipated Launch Date to enable the Content on the Rio II. 4.2 Distribution By Diamond. Commencing with the first commercial release ----------------------- of the Rio II, Diamond hereby agrees to make its best reasonable efforts to ship the Integrated Rio II, with a copy of the Audible Software in-box with each unit shipped to Diamond's distributors and customers. Diamond agrees to pay for the cost of making the required copies of the Audible Software for such purposes. Diamond further agrees to make its best reasonable efforts during the Term, for as long as the Audible Software meets Diamond's reasonable quality criteria, to distribute a version of the Audible Software as a core component of future releases and natural upgrade path(s) of the Rio Products, subject to Diamond's right to discontinue the product. 4.3 Installation of the Audible Software. With respect to copies of the ------------------------------------ Audible Software distributed by Diamond with Integrated Rio products, Diamond agrees that, as part of the initial software installation process for the Rio II, the Audible Software and registration with audible.com will be a default part of the installation process which may be deselected at the end user's option. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 9 5. GRANT OF LICENSES ----------------- 5.1 License to Audible Software. --------------------------- (a) Subject to the terms and conditions of this Agreement, Audible hereby grants to Diamond a [***] license to use, reproduce, and make, or have others make for it, one or more copies of the Audible Software in object code form only, solely to: (i) Distribute a copy of the Audible Software in connection with the sale of Integrated Rio Products to end users, pursuant to non- exclusive sublicenses thereof, solely for the purpose of the end users' personal use of the Integrated Rio Products, solely to play Content using the Integrated Rio Products, and not for redistribution; (ii) Distribute a copy of the Audible Software to OEMs for further distribution as part of the sale of OEM Rio Products to end users or on a standalone basis, pursuant to non-exclusive sublicenses thereof, solely for the purpose of the end users' personal use, and solely to play Content using the OEM Rio Products, and not for redistribution; (iii) Distribute a copy of the Audible Software to end users on a standalone basis, pursuant to non-exclusive sublicenses thereof, solely for the purpose of the end users' personal use, and solely to play Content. (iv) Implement Diamond's marketing and promotion obligations under this Agreement; and (v) Provide support to recipients of the Integrated Rio Products from Diamond and OEM Rio Products that include Audible technology as permitted above. (b) Scope of Use of Audible Software. No right to modify the Audible -------------------------------- Software or to use or receive any software created by Audible for a third party is granted to Diamond hereunder. In addition, Diamond shall not, and shall not permit any third party to, modify, translate, decompile, nor create or attempt to create, by reverse engineering or otherwise, the source code from any object code supplied hereunder, or adapt the Audible Software in any way or use it to create a derivative work. Portions of the Audible Software may not be used independently of the Audible Software, but only in connection with enabling the Integrated Rio Products, OEM Rio Products and personal computers to access and download Content. Any right not expressly granted to Diamond by this Agreement is hereby expressly reserved by Audible. No identifying marks, copyright or proprietary right notices may be deleted from any copy of the Audible Software or from any portion thereof. Diamond shall not make to any recipient of the Audible Software any warranty or representation regarding the Audible Software or Audible's products and/or services which does not comport with Audible's written representations to users of its products and services, unless such warranties and ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 10 representations have been approved in writing in advance by Audible after review thereof. All rights not expressly granted to Diamond are hereby reserved to Audible. 5.2 License to Audible Firmware. Subject to the terms and conditions of --------------------------- this Agreement, Audible hereby grants to Diamond a [***] license to use and reproduce the Audible Firmware for the sole purpose of performing the Diamond Development Work and the Integration and making and selling, or having others make and sell for Diamond, Rio Products so that users of the Integrated Rio Products can use the Rio Products to playback the Content therewith. No identifying marks, copyright or proprietary right notices may be deleted from any copy of the Audible Firmware or from any portion thereof. Diamond shall not make to any recipient of the Rio Products any warranty or representation regarding the Audible Firmware unless such warranties and representations have been approved in writing in advance by Audible after review thereof. All rights not expressly granted to Diamond are hereby reserved to Audible. Notwithstanding the above, Audible hereby grants to Diamond for the Term a [***] license to use, reproduce and distribute (pursuant to an end user software license agreement) [***] contained in the security module of the Audible Firmware for the sole purpose of [***] to customers of the Integrated Rio Products. 5.3 License to Diamond Data and Software. Subject to the terms of this ------------------------------------ Agreement, Diamond hereby grants to Audible a [***] license to use, reproduce and make one or more copies of, adapt, and create derivative works based upon, and have others do any of the foregoing for Audible, the APIs, information, software, and tools to be provided to Audible by Diamond under this Agreement for purposes of developing, supporting, refreshing, enhancing, and modifying the Audible Software, the Audible Firmware, the Integrated Rio Products, the Content and any future derivations therefrom (collectively, the "Diamond Information"). Furthermore, Diamond hereby grants to Audible a [***] license to distribute the Diamond APIs and related software required to interoperate with the Rio Products and OEM Rio Products to end users, pursuant to non-exclusive sublicenses thereof, only for the purpose of using them with the Rio Products or OEM Rio Products. 5.4 Term. The licenses granted to Diamond under this Section 5 shall ---- commence on the Effective Date and expire upon expiration or earlier termination of the Term as described below. With respect to units of Integrated Rio Products sold or otherwise transferred to end users prior to the end of the Term, the licenses to the Integrated Audible Firmware and any Audible Software distributed in connection therewith to the users (including any Audible Software otherwise distributed in connection with OEM Rio Products pursuant to this Agreement) shall continue for as long as the user uses the Rio unit in compliance with the applicable terms of the licenses from Diamond and Audible. Upon termination or earlier expiration of the Term, each party shall retain a [***] license to use the Audible Software and the Integrated Audible Firmware, in the case of Diamond, and to the Diamond Information, in the case of Audible, for the sole purpose of providing any necessary maintenance and support to that party's customers using the Integrated Rio Products and OEM Rio Products. 5.5 Sublicensing of the Audible Software and Subdistribution of Audible ------------------------------------------------------------------- Firmware and Audible Software. (a) Any permitted sublicenses granted by - ----------------------------- Diamond to end users of the ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 11 Audible Software as stated in Section 5.1(a) above shall comport with and be subject to the terms and conditions generally applicable to users of the Client Software, as such terms are published on or through audible.com, or as such terms are otherwise provided by Audible, either by means of a direct license from Audible to the end user or, if the parties agree, by means of a form of end user agreement that covers the license terms for both Audible's and Diamond's products and of which both Audible and Diamond are contractual beneficiaries. (b) To the extent Diamond wishes to distribute the Audible Firmware and/or Audible Software to a third-party OEM, wholesaler or retailer for sale by that third-party under a private label of the third-party or as part of specially designed hardware for that party, Diamond shall have the right to effect such distribution subject to the terms of this Agreement and Audible's prior written approval which shall not be unreasonably withheld. 5.6 Export Approvals. Diamond shall obtain, with Audible's cooperation, ---------------- any licenses or approvals that may, from time-to-time, be required by the United States Department of Commerce, or by any other agency or department of the U.S. government, prior to undertaking any export or overseas distribution of any Integrated Rio Products or any Audible Software or other software and data resulting from the development work of either Audible or Diamond, and hereby agrees to indemnify and hold harmless Audible, its affiliates, shareholders, directors, and officers for any damages, costs, penalties, fines, and attorneys' fees resulting from the failure or alleged failure to obtain such licenses or approvals. 5.7 Right to Access Content. The parties agree that, notwithstanding any ----------------------- other provision of this Agreement, at all times all Content will be served, controlled and delivered from an Audible server. Diamond acknowledges and agrees that no provision of this Agreement, including this Section 5.7, constitutes a sublicense of or to Content itself or the right to use Content as part of any product or service not controlled and served by Audible. All use of Content is subject to the terms of the licensing agreements between Audible and content owners. 5.8 Proprietary Rights Notices. In addition to the other terms of this -------------------------- Agreement, no identifying marks, copyright or proprietary right notices may be deleted from any copy of any materials provided by one party to the other hereunder. 5.9 No Other rights. No right or license is granted under this Agreement --------------- for the use or other utilization of the parties' Intellectual Property, directly or indirectly, for the benefit of any person or entity other than the party who owns such property. In no event shall Diamond use, or allow the use of, the Audible Software, the Audible Firmware (including any modifications thereto), or any other materials provided by Audible to Diamond in connection with any service bureau or timesharing arrangement or for purposes not related to the Integration. Likewise, in no event shall Audible use, or allow the use of, the Diamond Information (including any modifications thereto), or any other materials provided by Diamond to Audible in connection with any service bureau or timesharing arrangement or for purposes not related to the Integration. Except as expressly provided in this Agreement, no license under any Intellectual Property rights, express or implied, are granted by one party to the other under this Agreement. Audible and ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 12 Diamond shall have no obligation under this Agreement to provide any hardware, services or software that are not expressly provided for herein. 6. PROMOTION AND MARKETING OBLIGATIONS ----------------------------------- 6.1 Promotion in General. The parties agree to promote and market -------------------- audible.com, the Rio Products and the Audible Software in accordance with this Section 6 and Schedule A.. 6.2 Level of Efforts. In achieving the marketing and promotional goals ---------------- stated in Schedule A, the parties shall exercise their best efforts and their marketing and promotional efforts shall be no less aggressive than the efforts they undertake with respect to other entities in similar markets that provide core applications for audio content for use in connection with mobile hardware. 6.3 Promotional Materials. During the Term, each party hereby grants to --------------------- the other the right to create its own promotional materials to be used in its distribution and promotion of the Rio Products, audible.com and the Content, but reserves the right to reasonably approve any and all such materials prior to their use. Once approved, promotional materials may not be disapproved for further use unreasonably. All costs associated with the development, production and delivery of such promotional materials are the responsibility of the party creating the materials. In addition, each party grants to the other the right to use the logos and trademarks of the other party which are listed in Schedule B hereto in promotional materials created by that party, including business cards, for as long as this Agreement is in force, subject to prior review and approval by the trademark owner for trademark quality control purposes. 6.4 Conduct. During the term, in conducting all activities relating to ------- this Agreement, each of Diamond and Audible agrees to: (i) conduct business in a manner that reflects favorably at all times on the business of the other party; (ii) not employ deceptive, misleading or unethical practices that are detrimental to the parties, their products, and services; (iii) not make any false or misleading representations with regard to the other party's products and services; (iv) not publish or employ any misleading or deceptive advertising material; and (v) not make any representations, warranties or guaranties to anyone with respect to the specifications, features or capabilities of the other products that are inconsistent with the literature distributed by the other party, including all warranties and disclaimers contained in such literature. 7. AUDIBLE CONTENT --------------- 7.1 Editorial Control Over Content. Audible reserves the right and ------------------------------ discretion to determine the information to be available as part of the Content and the inclusion or deletion of any item as part of Content. In addition, Audible reserves the right to include or delete any item or part of Content from any Audible Content Bundle as described in Schedule A in the event Audible no longer possesses the right to use such Content, in which case Audible will replace the deleted item with an item of Content of similar value and quality. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 13 8. FEES, REVENUE SHARING AND PAYMENTS ---------------------------------- 8.1 Revenue Sharing By Audible In consideration of the covenants of -------------------------- Diamond under Sections 3 and 4 above, and for as long as Diamond Integrates the Audible Firmware into the Rio Products and/or OEM Rio Products that incorporate the Audible technology and incorporates Audible's AudibleReady branding into its Rio Products and on-box, in-box and other marketing branding requirements described above, Audible agrees to share with Diamond a percentage of revenue generated from the sales of Content to end users of Integrated Rio Products ("Fees") as follows: (i) Audible agrees to pay Diamond a royalty equal to [***] percent ([***]%) of Net Content Revenue. (ii) "Net Content Revenue" shall mean the amount of (y) actual gross cash receipts derived from transmission of Content to each individual Audible account of an end user of an Integrated Rio Product, or to a customer that establishes an Audible account after clicking through to audible.com directly from Diamond's RioPort web site, in each case for a rolling period of 12 months following the creation of each such customer account, less (z) any third party licensor payments, cash, trade or promotional discounts, sales or use taxes, excise taxes, value-added taxes, and duties. 8.2 Revenue Sharing by Diamond. In consideration of the covenants of -------------------------- Audible under Section 3.1(a) above, Diamond agrees to pay Audible a royalty equal to [***] percent ([***] %) of Net Unit Revenue. "Net Unit Revenue" shall mean the amount of (y) actual gross cash receipts derived by Diamond from the sale of Rio Products and OEM Rio Products to customers referred to Diamond from audible.com, less (z) any cash, trade or promotional discounts, sales or use taxes, excise taxes, value-added taxes, cost of any third-party bundled items, and duties. 8.3 Payments. Each party shall pay the fees payable to the other under -------- this Section 8, in United States Dollars, on a quarterly basis, within 30 days of the end of each calendar quarter during the Term and for as long thereafter as the customer events that trigger the payment of fees hereunder take place (i.e., the sale of Content to new Integrated Rio Products customers and the - ---- referrals sales from audible.com), provided that, for payments after the Term, the party entitled to the fees is not in material breach of this Agreement. Such payments shall be accompanied by documentation of the calculation of the fees for that quarter. For this purpose, this Section 8 survives expiration or early termination of this Agreement. 8.4 Audit Provisions. Each party agrees to keep records in accordance ---------------- with generally accepted accounting principles and in sufficient detail to permit a review of the accuracy of all fees and payments under this Agreement. Such records shall be kept for three years following the termination or expiration of this Agreement. Upon a party's written request for an audit, the other party shall permit independent auditors designated by the requesting party which are reasonably acceptable to the party being audited (which approval shall not be unreasonably withheld) to examine, during ordinary business hours, books, records, and materials of the party ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 14 being audited, for the purpose of determining the correctness of payments made or due for the period examined. The cost of any such audit shall be borne by the party requesting the audit, and the audit shall be conducted in such a manner as not to interfere with the audited party's normal business activities. The auditor will sign a confidentiality agreement and will only disclose to the party requesting the audit any amounts overpaid or underpaid for the period examined. All requests for audits will be provided in writing and will be made at least thirty (30) days prior to any audit. Such request will not occur more than twice each year. In the event an audit identifies an underpayment to a party, the party which made the underpayment shall promptly pay an amount equal to the sum of such underpayment. 8.5 Taxes. ----- (a) Diamond. All taxes, duties, fees and governmental charges of any ------- kind (except United States or state taxes based on the net income of Audible) which are levied, assessed or otherwise imposed by or under the authority of any government or political subdivision on Diamond on any Fees payable to Diamond hereunder, or on any aspect of this Agreement, shall be borne by Diamond, and shall not be considered a part of, a deduction from, or an offset against payments due to Audible hereunder. (b) Audible. All taxes, duties, fees and governmental charges of any ------- kind (except United States or state taxes based on the net income of Audible) which are levied, assessed or otherwise imposed by or under the authority of any government or political subdivision on Audible on any Fees payable to Audible hereunder shall be borne by Audible, and shall not be considered a part of, a deduction from, or an offset against payments due to Diamond hereunder. 9. [***] 9.1 [***]. 9.2 [***]. 9.3 [***]. 10. INTELLECTUAL PROPERTY RIGHTS ---------------------------- 10.1 Audible Property. Notwithstanding any provision of this Agreement to ---------------- the contrary, subject to Diamond's ownership rights set forth in Section 10.2, Diamond hereby acknowledges and agrees that, as between Audible and Diamond, and for all purposes under the laws of all countries, including Section 117 of the United States Copyright Act and all applicable patent laws, Audible owns, will own, and at all times shall continue to own, any and all Intellectual Property in and to all proprietary materials of Audible provided to Diamond hereunder or otherwise made available to Diamond or its customers, including but not limited to, Audible Software, audible.com, Content licenses, Client Software, and Audible Firmware and all related documentation and information provided by Audible to Diamond, including without ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 15 limitation any updates, upgrades, enhancements, modifications, derivative works, customizations, patches, or other functionality or materials of any description arising from any of them whether made by or for Audible or Diamond, and all pre- existing Audible algorithms, processes, security data, software, and Audible hardware (collectively, the "Audible Intellectual Property"). Diamond hereby assigns to Audible all rights, title and interest it may have or acquire in or to any Audible Intellectual Property and will execute any documents reasonably required by Audible to evince such assignment. 10.2 Diamond Property. Notwithstanding any other provision of this ---------------- Agreement, subject to Audible's ownership rights set forth in Section 10.1, above, Audible hereby acknowledges and agrees that, as between Audible and Diamond, and for all purposes under the laws of all countries, including Section 117 of the United States Copyright Act and all applicable patent laws, Diamond owns, will own, and at all times shall continue to own, any and all Intellectual Property in and to the Rio Products and all related documentation and information provided to Audible, including without limitation the Diamond Information, and all pre-existing Diamond algorithms, security data, software, and Diamond hardware (the "Diamond Intellectual Property"). Audible hereby assigns to Diamond any rights it may acquire in or to the Diamond Intellectual Property and will execute any documents reasonably required by Audible to evince such assignment. 10.3 Notices on Copies. ----------------- (a) Diamond shall place the following notice on all tangible media containing copies of any Audible Software: This software is the property of Audible, Inc. Possession and use of this software must conform strictly to the license agreement between Diamond and Audible, Inc., and possession does not convey any right to disclose, reproduce or permit others to use the software without the specific written authorization of Audible, Inc. (b) Diamond shall place the following notice on all distributed copies of the Audible Software: Copyright (c) 199_ by Audible, Inc. All Rights Reserved (c) Audible shall place the following notice on all tangible media containing copies of any Diamond APIs: This software is the property of Diamond Multimedia Systems, Inc. (Diamond). Possession and use of this software must conform strictly to the license agreement between Diamond and Audible, Inc., and possession ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 16 does not convey any right to disclose, reproduce or permit others to use the software without the specific written authorization of Diamond. (d) Audible shall place the following notice on all distributed copies of the Diamond APIs: Copyright (c) 199_ by Diamond Multimedia Systems, Inc. All Rights Reserved 10.4 Trademarks. Diamond hereby acknowledges and agrees that "Audible", ---------- "audible.com", "AudibleReady" and all other variations of "Audible" used by Audible in connection with its products and services are trademarks belonging to Audible. Audible hereby acknowledges and agrees that "Diamond", "Rio", "RioPort" and "RioPort.com" and all other variations of "Diamond" and "Rio" used by Diamond in connection with its products and services are trademarks belonging to Diamond. The parties hereby agree that the use by it of any trademark of the other pursuant to rights granted under this Agreement shall not create any right, title or interest, in or to the other's marks and that all goodwill associated with the trademarks of the other party shall belong to that party. Each party hereby grants to the other a non-exclusive, limited license to use and reproduce the trademarks of the other listed in Schedule B for purposes of fulfilling each party's obligations under this Agreement, subject to the prior review and approval of such uses by the trademark owner, which approval shall not be unreasonably withheld or delayed. 10.5 Proprietary Notices. Each party agrees that it will not (and it will ------------------- not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the intellectual property and any other tangible materials provided by one party to the other. The existence of any copyright notice on software or any written works shall not be construed as an admission, or be deemed to create a presumption, that publication of such materials has occurred. 10.6 No Other Rights. Except as expressly provided in this Agreement, no --------------- license under any patents, copyrights, trademarks, trade secrets or any other intellectual property rights, express or implied, are granted by either party under this Agreement. 11. LIMITED WARRANTY ---------------- 11.1 Each party represents and warrants to the other that (i) it has all rights and authority necessary to perform under this Agreement; (ii) it has all rights, licenses and authority necessary to authorize the other party to exercise the rights granted to the other party under this Agreement; (iii) it will perform all services under this Agreement in a workmanlike manner, by qualified personnel, in accordance with high professional standards; and (iv) its services and products which are the subject matter of this Agreement are, or will be by January 1, 2000, Year 2000 compliant in that they will record, store, process, and present calendar dates falling on or after January 1, 2000, in substantially the same manner and with substantially the same ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 17 functionality, as calendar dates falling on or before December 31, 1999, and without any ambiguity as to the correct date, including leap year date data., and will not provide invalid results or end processing as a result of date data falling after January 1, 2000. 11.2 THE WARRANTY CONTAINED IN SECTION 11.1 ABOVE IS A LIMITED WARRANTY AND IS THE ONLY WARRANTY MADE BY THE PARTIES HEREUNDER. EACH PARTY MAKES NO OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, AND EXPRESSLY EXCLUDED AND DISCLAIMED ARE ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NON-INFRINGEMENT. NEITHER PARTY PROVIDES A WARRANTY THAT OPERATION OF ANY SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE. 12. INDEMNIFICATION --------------- 12.1 General Indemnification. (a) Each party (the "Indemnifying Party") ----------------------- agrees to indemnify, defend and hold harmless the other, and its respective officers, directors, employees, agents, successors and assigns (collectively, the "Indemnified Party"), from any and all losses (including reasonable costs and expenses and reasonable attorney's fees) arising from or in connection with any of the following: (a) Any claim arising out of or based on a breach or alleged breach of the confidentiality obligations and intellectual property provisions set forth in this Agreement, by the other party or its employees, subcontractors, agents or other persons within that party's control; (b) Any claim by a third party to the extent based on any personal injuries, death or damage to tangible personal or real property resulting from any act or omission of the other party, or its employees, subcontractors or agents (solely in their respective capacities as employees, subcontractors or agents); and (c) Any claim by a third party to the extent based on any product or service or representation by the other party, or its employees, subcontractors, or agents (solely in their respective capacities as employees, subcontractors or agents). The Indemnifying Party's obligations are conditioned upon the Indemnified Party (a) giving the Indemnifying Party prompt written notice of any claim, action, suit or proceeding for which the Indemnified Party is seeking indemnity; (b) granting complete control of the defense and settlement to the indemnifying party; and (c) provides at the Indemnifying Party's expense reasonable assistance in the defense or settlement thereof.. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 18 12.2 Intellectual Property Indemnification. ------------------------------------- (a) Each party (the "Indemnifying Party") agrees to hold harmless, indemnify and defend the other party (the "Indemnified Party") from and against any losses, damages, costs and expenses (including reasonable attorneys' fees and costs) arising out of or relating to any claims that the Indemnifying Party's products infringes any United States, Canadian, Mexican, Japanese, and European Union countries patent, copyright, trademark, trade secret or other proprietary right of any third party. The Indemnifying Party shall not be liable in the event that (i) the Indemnified Party continues marketing, sale, distribution or use of the Indemnifying Party's products after receiving prior written notice from the Indemnifying Party that the Indemnified Party should cease such activities due to a third party claim of infringement against such products, or (ii) the claim of infringement results from the Indemnified Party's combination or use of the Indemnifying Party's products with any third party product, program or data not supplied by the Indemnifying Party. (b) The Indemnifying Party will pay all damages awarded by a court of competent jurisdiction or arbitral panel attributable to such claim or payable in settlement thereof, provided that the Indemnified Party (i) gives the Indemnifying Party prompt written notice of any claim, action, suit or proceeding for which the Indemnified Party is seeking indemnity, (ii) grants the Indemnifying Party complete control of the defense and settlement of the claim, and (iii) provides at the Indemnifying Party's expense reasonable assistance in the defense or settlement thereof. If any settlement results in any ongoing liability to, or prejudices or detrimentally impacts the Indemnified Party, and such obligation, liability, prejudice or impact can reasonably be expected to be material, then such settlement shall require the Indemnified Party's written consent, which consent shall not be unreasonably be withheld. The Indemnified Party shall be permitted to participate in such defense and settlement proceedings at its own expense. (c) THE PARTIES AGREE THAT THIS SECTION 10.2 STATES THE ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER WITH RESPECT TO THIRD PARTY CLAIMS FOR INFRINGEMENT OR MISAPPROPRIATION. 13. LIABILITY, DAMAGES AND DISCLAIMERS ---------------------------------- 13.1 Limitation of Damages. Except in connection with payments due to --------------------- third party indemnification under this Agreement and except for claims relating to the infringement or misappropriation of the intellectual property or confidential information of a party, NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY: (A) SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES ARISING FROM OR RELATED TO THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, THE OPERATION OR USE OF DEVELOPMENT WORK OR SERVICES, INCLUDING SUCH DAMAGES, WITHOUT LIMITATION, ARISING FROM LOSS OF OR DAMAGE TO DATA OR PROGRAMMING, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE SAVINGS OR OTHER BENEFITS, DAMAGE TO EQUIPMENT, AND ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 19 CLAIMS BY ANY THIRD PERSON, EVEN IF THE PARTIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; AND (B) CLAIMS MADE A SUBJECT OF A LEGAL PROCEEDING MORE THAN 24 MONTHS AFTER THE DATE UPON WHICH ANY SUCH CAUSE OF ACTION FIRST AROSE. 13.2 Disclaimer. THE PARTIES HEREBY EXPRESSLY DISCLAIM ANY DAMAGES ---------- DESCRIBED IN SECTION 13.1.. 14. TERM ---- 14.1 Term. The term of this Agreement shall commence on the Effective ---- Date and continue for an initial period of three years unless terminated earlier pursuant to Section 14.2 hereof (the "Term"). This Agreement will be automatically renewed for additional two year periods without notice unless either party notifies the other party in writing at least 90 days prior to expiration of the current term that it wishes not to renew this Agreement. 14.2 Termination. This Agreement shall terminate as provided below: ----------- (a) Audible may, at its option, terminate this Agreement upon 30 days' advance written notice to Diamond in the event that Diamond: files for bankruptcy or suffers an involuntary bankruptcy that is not dismissed within ninety (90) days; or ceases to conduct operations in the ordinary course of business; or fails to comply with any of its material obligations under this Agreement, which failure to comply continues for thirty (30) days following Diamond's receipt of written notice from Audible stating the nature of Diamond's non-compliance, or in the event Diamond fails to Integrate the Rio II for its first commercial release and such failure is not due to Audible's material breach of this Agreement; (b) Diamond may, at its option, terminate this Agreement upon thirty (30) days' advance written notice to Audible in the event that Audible: files for bankruptcy or suffers an involuntary bankruptcy that is not dismissed within ninety (90) days; or ceases to conduct operations in the ordinary course of business; or fails to comply with any of its material obligations under this Agreement, which failure to comply continues for 30 days following Audible's receipt of written notice from Diamond stating the nature of Audible's non-compliance. 14.3 Continuing Liability. The notification by either party of its intent -------------------- to terminate this Agreement does not relieve either party of any obligations which have accrued under the terms and conditions of this Agreement, inclusive of those terms and conditions which extend beyond the date of termination. 14.4 Effect of Termination. Upon termination of this Agreement for any --------------------- reason, the rights and obligations hereunder (except obligations for payments and the limited licenses that survive under Section 5.4) shall terminate, except that the provisions relating to proprietary rights, confidentiality, and indemnification shall remain in effect. Upon the termination or expiration of this Agreement, or upon a request by either party hereto, (i) all confidential ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 20 information of one party in the possession of the other shall be returned except to the extent necessary for the receiving party to continue exercising its rights after the termination or expiration of this Agreement or to protect its legal rights hereunder; and (ii) within thirty (30) days following termination, expiration, or receipt of such request, the party under the obligation to return the confidential information shall certify in writing the completion of such steps. Termination or expiration of this Agreement shall not effect the confidential nature of any such information. 15. CONFIDENTIALITY --------------- 15.1 Obligations. ----------- (a) Each of Diamond and Audible each agree to hold in strictest confidence any information and material which is related to the other's business and products, or which is designated as proprietary and/or confidential herein by either party. Each party agrees not to make use of such information and material (or cause or permit others to do so) other than for the performance of this Agreement. Both parties agree that proprietary and confidential information (whether or not marked as such) includes, without limitation, information related to research and development efforts, security data, CODEC information, software (in both source code and object code form), the terms of agreements with third parties, implementation data, cost information, supplier information, customer lists, salaries and business affairs of the parties to this Agreement or their clients. The parties' obligations of confidentiality under this Agreement shall survive termination of this Agreement. (b) Diamond acknowledges that the Client Software, the Audible Software, and the Audible Firmware are valuable property of Audible containing trade secrets of Audible and that, in the course of the implementation of this Agreement, Diamond will become privy to information regarding the Client Software, the Audible Software, and the Audible Firmware that Audible regards as proprietary and confidential. In this regard, Diamond agrees that neither Diamond nor its employees and agents shall communicate, disclose or in any manner convey any proprietary or confidential information regarding the Client Software, the Audible Software, or the Audible Firmware to any person, organization, company, institution or business without the prior written consent of Audible. (c) Audible acknowledges that the Diamond technology embodied in the Rio Products (excluding Audible Firmware and Audible Software) are valuable property of Diamond containing trade secrets of Diamond and that, in the course of the implementation of this Agreement, Audible will become privy to information regarding the Rio Products technology that Diamond regards as proprietary and confidential. In this regard, Audible agrees that neither Audible nor its employees and agents shall communicate, disclose or in any manner convey any proprietary or confidential information regarding the Rio Products technology to any person, organization, company, institution or business without the prior written consent of Diamond. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 21 15.2 Exclusions. The parties' obligations under this Section 15 shall not ---------- apply to (a) information that is or becomes a matter of public knowledge through no fault of or action by the party receiving it, (b) information that prior to disclosure was rightfully in the possession of the party receiving it as a result of disclosure by a third party under no obligation or restriction of confidentiality, (c) information that, subsequent to disclosure, is rightfully obtained by the receiving party from a third party under no obligation or restriction of confidentiality, and (d) information that is independently developed by the receiving party without resort to information of the other party that is confidential under this Agreement. The parties acknowledge that the disclosure of confidential information of the other would cause substantial harm to that party that could not be remedied by the payment of damages alone. Accordingly, the parties agree that such party will be entitled to preliminary and permanent injunctive relief and other equitable relief for any breach of this Section 15. 15.3 Intellectual Property. Notwithstanding the above, the parties --------------------- agree that whether or not intellectual property of the parties (including copyrighted works) is disclosed in confidence, the intellectual property rights of the parties shall remain in effect in accordance with the laws applicable to the intellectual property in question. Nothing in this Section is intended to affect the understandings of the parties elsewhere in this Agreement with respect to ownership and use of intellectual property. 16. GENERAL PROVISIONS ------------------ 16.1 Entire Agreement. This Agreement and its schedules constitute the ---------------- entire agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements and understandings which may exist between the parties, with respect to the subject matter hereof. All amendments to this Agreement must be in writing and signed by both parties. 16.2 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, this Agreement may not be assigned by Diamond voluntarily or by operation of law, to any other person, entities, firm, or corporation, in whole or in part, without the express written approval of Audible. Any attempt to do so shall be void. This Agreement shall apply to, inure to the benefit of, and be binding upon, the parties' permitted successors and assigns. 16.3 Internal Dispute Resolution. In the event of any problem, claim, or --------------------------- dispute arising from, out of, or based upon this Agreement, or the business relationship between the parties, the aggrieved party shall promptly notify the other party of the existence of the problem, claim, or dispute, and such other party shall promptly undertake all reasonable efforts to resolve the matter, including but not limited to, submitting such problem, claim or dispute for resolution to a Manager of each party. The Managers shall make a good faith effort to resolve the dispute as quickly as possible. In the event that the Managers cannot resolve such dispute within 20 days the matter may at the option of either party, be submitted for resolution to each party's chief executive with overall responsibility for the subject matter in dispute for a period of 20 days. 16.4 Governing Law and Arbitration. (a) This Agreement shall be governed ----------------------------- by and construed in accordance with the law of the State of New Jersey applicable to contracts between ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 22 residents of the State of New Jersey, and entered into and performed entirely in the State of New Jersey, without giving effect to principles of conflict of laws. Any action instituted by either party arising out of this Agreement for interim relief shall only be brought, tried and resolved in the State of New Jersey or the State of California, at the option of the party bringing the claim. (b) Any controversy or claim arising out of or relating to this Agreement for the breach hereof which cannot be settled by the parties pursuant to Section 16.3, shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association as set forth herein. Each party may select one (1) arbitrator. Selection shall be completed within 20 days of the receipt of a demand for arbitration. If either party fails to select an arbitrator within such twenty day period, the one (1) selected shall act as sole arbitrator. If two (2) arbitrators have been selected, the two (2) arbitrators selected shall select a third within fifteen (15) days after their selection. If they fail to do so, the third arbitrator shall be selected by the American Arbitration Association. The arbitrators shall set a date of hearing no later than sixty (60) days from the date all arbitrators have been selected and shall enter a decision within thirty (30) days of the end of the proceeding. The arbitration shall take place at a location to be agreed upon by the parties. If the parties are unable to agree, the arbitrators shall select a location in either New jersey, New York City, or California for the arbitration. In any such arbitration proceeding the arbitrators shall adopt and apply the provisions of the Federal Rules of Civil Procedure relating to discovery so that each party shall allow and may obtain discovery of any matter not privileged which is relevant to the subject matter involved in the arbitration to the same extent as if such arbitration were a civil action pending in a United States District Court; provided, however, that each party shall be entitled to no more than four ----------------- (4) depositions upon oral examination. The award of any arbitration shall be final, conclusive and binding on the parties hereto. The arbitrators may award any legal or equitable remedy. The arbitration award shall include an award of attorneys' fees, in the amount of such fees, to the prevailing party. Judgment upon any arbitration award may be entered and enforced in any court of competent jurisdiction. Either party to an arbitration hereunder may bring an action for injunctive relief against the other party if such action is necessary to preserve jurisdiction of the arbitrators or to maintain status quo pending the arbitrators decision. 16.5 Severability. If any provision of this Agreement or the application ------------ thereof to any person or circumstances shall, for any reason and to any extent, be void or unenforceable, the application of the remainder of this Agreement to such person or circumstances and the application of such provision to other persons or circumstances shall be interpreted so as best to reasonably reflect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provisions of this Agreement with valid and enforceable provisions that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. 16.6 Relationship. The parties agree that their relationship hereunder is ------------ that of independent contractors. Nothing in this Agreement or in the activities contemplated by the parties pursuant to this Agreement shall be deemed to create an agency, partnership, employment or joint venture relationship between the parties. Each party shall be deemed to be acting solely ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 23 on its own behalf and, except as expressly stated, has no authority to pledge the credit of, or incur obligations or perform any acts or make any statements on behalf of, the other party. Neither arty shall represent to any person or permit any person to act upon the belief that it has any such authority from the other party. Neither party's officers or employees, agents or contractors shall be deemed officers, employees, agents or contractors of the other party for any purpose. 16.7 Agreement Announcement. The parties agree that upon execution of ---------------------- this Agreement, both parties may announce and/or confirm the existence of this Agreement to the business, trade and general press, or to any other person or entity provided that the parties agree on the content, and date of the announcement, and venue and vehicle for the announcement. 16.8 No Waiver. No waiver of any breach of the Agreement shall be deemed --------- to be a waiver of any subsequent breach. 16.9 Force Majeure. Neither party will be liable for any failure or ------------- delay in its performance under this Agreement due to causes, including, but not limited to, and act of God, an act of civil or military authority, fire, epidemic, flood, earthquake, riot, war, sabotage, labor shortage or dispute, failure of suppliers to perform or failures in supply chains, and governmental action, which are beyond its reasonable control; provided that the delayed party: (a) gives the other party written notice of such cause promptly, and in any event within 15 days of discovery thereof; and (b) uses its reasonable efforts to correct such failure or delay in its performance. 16.10 Attorneys' Fees. A prevailing party in an action to enforce this --------------- Agreement shall have the right to collect from the other its reasonable expenses incurred in enforcing this Agreement including attorneys' fees. 16.11 Construction of Agreement. This Agreement has been negotiated by ------------------------- the parties hereto, shall be deemed to have been drafted by both parties, and the language hereof shall be construed neutrally and not for or against any party. Where appropriate the singular shall include the plural. In the event of a conflict between the provisions of the Agreement and the provisions of any exhibit, the provisions of the exhibits shall control to the extent of the conflict but otherwise the two shall be read together as much as possible 16.12 Notices. All notices, requests or other communication required or ------- permitted hereunder shall be given or made in writing and shall be (i) delivered personally (including commercial carrier), (ii) sent by overnight mail service, postage prepaid, or (iii) sent by telecopier or email with confirmation of receipt and a copy by regular mail, addressed to the person stated below, at the address noted at the beginning of this Agreement, or at such other address as may from time to time be designated by such party to the other in writing. If to Audible: Audible, Inc. 65 Willowbrook Boulevard Wayne, New Jersey 0747 Attention: Travis Millman ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 24 With a copy to: Audible, Inc. 65 Willowbrook Boulevard Wayne, New Jersey 0747 Attention: Brian Fielding and to: PIPER & MARBURY L.L.P. 1200 19th Street, N.W. Washington, D.C. 20036 Attention: Edwin M. Martin, Jr., Esq. If to Diamond: Diamond Multimedia Systems, Inc 2880 Junction Avenue San Jose, California 9513 Attention: David Watkins With a copy to: Diamond Multimedia Systems, Inc 2880 Junction Avenue San Jose, California 9513 Attention: General Counsel Any notice, request or other communication shall be deemed to have been given and to be effective upon receipt or refusal by the addressee. Any party may change its address for notices hereunder, effective upon giving of notice of such change hereunder to the other party. 16.13 Other Remedies. Unless expressly stated to the contrary, subject to -------------- the appropriate limitations of liability herein contained, any and all remedies herein expressly conferred upon a party shall be deemed cumulative and not exclusive of any other remedy conferred hereby or by law, and the exercise of any one remedy shall not preclude the exercise of any other. 16.14 Counterparts. This Agreement may be executed in two or more ------------- counterparts, each of which will be deemed an original and all of which together will constitute one instrument. ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 25 16.15 Headings. The titles and headings of the various sections and -------- paragraphs in this Agreement are intended solely for convenience of reference and are not intended for any other purpose whatsoever or to explain, modify, or place any construction on any of the provisions of this Agreement. 16.16 No Waiver. A failure of either party to exercise any right provided --------- for herein shall not be deemed to be a waiver of any right hereunder. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the undersigned, with authority to do so and intending to be legally bound, as of the Effective Date. WITNESS: AUDIBLE, INC. /s/ Andrew J. Huffman - ------------------------------ ------------------------------- Name Name: Andrew J. Huffman ------------------------- Title: President & CEO ------------------------ Date: 05-07-99 ------------------------- WITNESS: DIAMOND MULTIMEDIA, INC. /s/ David Watkins - ------------------------------ ------------------------------- Name Name: David Watkins ------------------------- Title: President RIOPORT ------------------------- Date: 04-22-99 ------------------------- ________________ *** Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 26 EX-10.22 10 EXHIBIT 10.22 EXHIBIT 10.22 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO. COMMON STOCK PURCHASE WARRANT Warrant No. M-1 Number of Shares Set Forth on Schedule I Hereto AUDIBLE, INC. 1. Issuance. This Warrant is issued to Microsoft Corporation ("Microsoft") -------- by Audible, Inc., a Delaware corporation (hereinafter with its successors called the "Company"). 2. Purchase Price; Number of Shares. Subject to the terms and conditions -------------------------------- hereinafter set forth, the registered holder of this Warrant (the "Holder"), commencing on the date hereof, is entitled upon surrender of this Warrant with the subscription form annexed hereto duly executed, at the office of the Company or such other office as the Company shall notify the Holder of in writing, to purchase from the Company at the price per share (the "Purchase Price") set forth on Schedule A hereto such number of fully paid and nonassessable shares of ---------- Common Stock, $0.01 par value, of the Company (the "Common Stock") as is set forth on Schedule A hereto (the "Warrant Shares"). This Warrant is fully ---------- vested. 3. Payment of Purchase Price; Cashless Exercise. -------------------------------------------- (a) The Purchase Price may be paid in cash, by check or wire transfer in immediately available funds, or as provided in 3(b) below. (b) At any time during the term of this Warrant, the Holder may also elect to exercise this Warrant (the "Conversion Right") with respect to a particular number of Warrant Shares (the "Converted Warrant Shares"), and the Company shall deliver to the Holder (without payment by the Holder of the Purchase Price in cash or any other consideration (other than the surrender of rights to receive Warrant Shares hereunder)) that number of shares of Common Stock equal to the quotient obtained by dividing: (x) the difference between (i) the product of (A) the Current Market Price of a share of Common Stock multiplied by (B) the number of Converted Warrant Shares and (ii) the product of (A) the Exercise Price multiplied by (B) the number of the Converted Warrant Shares, in each case as of the Conversion Date (as defined in Section 3(c) below)), by (y) the Current Market Price of a share of Common Stock on the Conversion Date. No fractional Warrant Shares shall be issuable upon exercise of the Conversion Right, and if the number of Warrant Shares to be issued determined in accordance with the following formula is other than a whole number, the Company shall pay to the holder of this Warrant an amount in cash equal to the Current Market Price of the resulting fractional Warrant Share on the Conversion Date. (c) The Conversion Right may be exercised by the Holder by the surrender of this Warrant as provided in Section 3(b), together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of Converted Warrant Shares which are covered by the exercise of the Warrant. Such conversion shall be effective upon receipt by the Corporation of this Warrant, together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"). The Corporation shall issue to the Holder as of the Conversion Date a certificate for the Warrant Shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant of like tenor evidencing the balance of the Warrant Shares remaining subject to this Warrant. (d) The term "Current Market Price" for the Common Stock as of a specified date shall mean: (i) if the Common Stock is publicly traded on such date, the average closing price per share over the preceding 10 trading days as reported on the principal stock exchange or quotation system on which the Common Stock is listed or quoted; or (ii) if the Common Stock is not publicly traded on such date, the Board of directors of the Company shall determine Current Market Price in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 4. Partial Exercise. This Warrant may be exercised in part, and the Holder ---------------- shall be entitled to receive a new warrant, which shall be dated as of the date of this Warrant, covering the number of shares in respect of which this Warrant shall not have been exercised. 5. Issuance Date. The person or persons in whose name or names any ------------- certificate representing shares of Common Stock is issued hereunder shall be deemed to have become the holder of record of the shares represented thereby as at the close of business on the date this Warrant is exercised with respect to such shares, whether or not the transfer books of the Company shall be closed. 6. Expiration Date. This Warrant shall expire at the close of business on --------------- November 18, 2003, and shall be void thereafter. 7. Reserved Shares; Valid Issuance. The Company covenants that it will at ------------------------------- all times from and after the date hereof reserve and keep available such number of its authorized shares of Common Stock, free from all preemptive or similar rights therein, as will be sufficient to permit the exercise of this Warrant in full. The Company further covenants that such shares as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. 8. Adjustment of Number of Shares; Exercise Price; Nature of Securities -------------------------------------------------------------------- Issuable Upon Exercise of Warrants. ---------------------------------- (a) Exercise Price; Adjustment of Number of Shares. The Exercise Price set ---------------------------------------------- forth in Schedule A hereto and the number of shares purchasable hereunder shall be subject to adjustment from time to time as hereinafter provided. (b) Reorganization, Reclassification, Consolidation, Merger or Sale. If any --------------------------------------------------------------- capital reorganization or reclassification of the capital stock of the Company, or any consolidation or merger of the Company with another entity, or the sale of all or substantially all of the Company's assets to another person or entity (collectively referred to as a "Transaction") shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash or assets with respect to or in exchange for Common Stock, then, as a condition of such Transaction, reasonable, lawful and adequate provisions shall be made whereby the holder of this Warrant shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, upon exercise of this Warrant and in lieu of the Warrant Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such number, amount and like kind of shares of stock, securities, cash or assets as may be issued or payable pursuant to the terms of the Transaction with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby as if such shares were outstanding immediately prior to the Transaction, and in any such case appropriate provision shall be made with respect to the rights and interest of the holders to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Warrant Shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be practicable, in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof. (c) Stock Splits, Stock Dividends and Reverse Stock Splits. If at any time ------------------------------------------------------ after the first to occur of: (i) the IPO or (ii) the date 12 months after the date hereof, the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, or shall declare and pay any stock dividend with respect to its outstanding stock that has the effect of increasing the number of outstanding shares of Common Stock, the Exercise Price in effect immediately prior to such subdivision or stock dividend shall be proportionately reduced and the number of Warrant Shares purchasable pursuant to this Warrant immediately prior to such subdivision or stock dividend shall be proportionately increased, and conversely, in case at any time after the first to occur of: (i) the IPO or (ii) the date 12 months after the date hereof, the Company shall combine its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced. (d) Dissolution, Liquidation or Wind-Up. In case the Company shall, at ----------------------------------- any time prior to the exercise of this Warrant, dissolve, liquidate or wind up its affairs, the holder hereof shall be entitled, upon the exercise of this Warrant, to receive, in lieu of the Warrant Shares which the holder would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to such holder upon any such dissolution, liquidation or winding up with respect to such Warrant Shares, had such holder hereof been the holder of record of the Warrant Shares receivable upon the exercise of this Warrant on the record date for the determination of those persons entitled to receive any such liquidating distribution. (e) Accountant's Certificate. In each case of an adjustment in the ------------------------ Exercise Price, number of Warrant Shares or other stock, securities or property receivable upon the exercise of this Warrant, the Company shall compute, and upon the holder's request shall at the Company's expense cause independent public accountants of recognized standing selected by the Company and reasonably acceptable to the holder to certify such computation, such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (i) the number of shares of Common Stock of each class outstanding or deemed to be outstanding, (ii) the adjusted Exercise Price and (iii) the number of Warrant Shares issuable upon exercise of this Warrant. The Company will forthwith mail a copy of each such certificate to the holder hereof. In the event that the holder disputes such adjustment, the holder shall be entitled to select an additional firm of independent certified public accountants of national standing and paid for by the holder to certify such adjustment and the Company and the holder shall use their good faith best efforts to agree on such adjustment based on the reports of the two accounting firms. In the event that the Company and the holder are still unable to reach agreement as to such adjustment, the Company and the holder agree to submit such determination to binding arbitration. Upon determination of such adjustment, the Board of Directors shall forthwith make the adjustments described therein. 9. Fractional Shares. In no event shall any fractional share of Common ----------------- Stock be issued upon any exercise of this Warrant. If, upon exercise of this Warrant as an entirety, the Holder would, except as provided in this Section 9, be entitled to receive a fractional share of Common Stock, then the Company shall issue the next higher number of full shares of Common Stock, issuing a full share with respect to such fractional share. 10. Notices of Record Date, Etc. In the event of: --------------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, (b) any reclassification of the capital stock of the Company, capital reorganization of the Company, consolidation or merger involving the Company, or sale or conveyance of all or substantially all of its assets, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which any such reclassification, reorganization, consolidation, merger, sale or conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record in respect of such event are to be determined. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any such action is to be taken. 11. Amendment. The terms of this Warrant may be amended, modified or --------- waived only with the written consent of the Company and the holder of this Warrant. 12. Governing Law. The provisions and terms of this Warrant shall be ------------- governed by and construed in accordance with the internal laws of the State of New Jersey. 13. Successors and Assigns. This Warrant shall be binding upon the ---------------------- Company's successors and assigns and shall inure to the benefit of the Holder's successors, legal representatives and permitted assigns. 14. Business Days. If the last or appointed day for the taking of any ------------- action required or the expiration of any right granted herein shall be a Saturday or Sunday or a legal holiday, then such action may be taken or right may be exercised on the next succeeding day which is not a Saturday or Sunday or such a legal holiday. Original Issue Date: April 23, 1999 AUDIBLE, INC. By: /s/ Andrew J. Huffman --------------------- Andrew J. Huffman Title: President SCHEDULE I The Holder shall be entitled to exercise this Warrant for shares of Common Stock as follows: (i) In the event of the closing of the Company's initial public offering of shares of its Common Stock pursuant to an effective registration statement (the "IPO") within 12 months of the date hereof, the Holder shall be entitled to purchase 100,000 shares of Common Stock, as the Common Stock is then constituted, without taking into effect any adjustment in the shares of Common Stock by reason of reclassification, change, stock dividend, stock split, reorganization or other increases in the Common Stock (an "Adjustment"); and the "Purchase Price" shall be equal to the Company's initial per share "price to the public" in the IPO as set forth on the cover page of the final prospectus for the IPO. (ii) In the event that the Company has not closed an IPO prior to 12 months of the date hereof, the Holder shall be entitled to purchase 100,000 shares of Common Stock, as the Common Stock is then constituted, without taking into effect any Adjustment and the "Purchase Price" shall be $6.00 per share. Subscription To:____________________ Date:_________________________ The undersigned hereby subscribes for __________ shares of Common Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: ______________________________ Signature ______________________________ Name for Registration ______________________________ Mailing Address Assignment For value received ____________________________ hereby sells, assigns and transfers unto ______________________________________ _________________________________________________________________ Please print or typewrite name and address of Assignee _________________________________________________________________ the within Warrant, and does hereby irrevocably constitute and appoint _______________________ its attorney to transfer the within Warrant on the books of the within named Company with full power of substitution on the premises. Dated:_______________________ ______________________________ In the Presence of: _____________________________ -----END PRIVACY-ENHANCED MESSAGE-----