-----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, KW4XNkD+iXRB5nDyWEo4eFHRS26vCPP1gBnztDf3uB7XACodgrGP1SgAcT8WcYRf kiZJZrYntidAeRrrdCFRDw== 0000891618-01-000245.txt : 20010329 0000891618-01-000245.hdr.sgml : 20010329 ACCESSION NUMBER: 0000891618-01-000245 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EUPHONIX INC \CA\ CENTRAL INDEX KEY: 0000948640 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 770189481 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26516 FILM NUMBER: 1582862 BUSINESS ADDRESS: STREET 1: 220 PORTAGE AVE CITY: PALO ALTO STATE: CA ZIP: 94306 BUSINESS PHONE: 6508461138 MAIL ADDRESS: STREET 1: 220 PORTAGE AVENUE CITY: PALO ALTO STATE: CA ZIP: 94306 10-K 1 f70624e10-k.txt FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM __________ TO __________ . COMMISSION FILE NUMBER 0-26516 ------------------------ EUPHONIX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 77-0189481 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
220 PORTAGE AVENUE, PALO ALTO, CALIFORNIA 94306 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (650) 855-0400 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE ------------------------ Indicate by check mark whether the registrant has filed (1) all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on February 15, 2001, as reported on the Nasdaq SmallCap Market, was approximately $8,542,518. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the Registrant's Common Stock as of February 15, 2001 was 12,192,099. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, which is anticipated to be filed within 120 days after the end of the Registrant's fiscal year ended December 31, 2000, are incorporated by reference in Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I.................................................................. 1 Item 1. Business.................................................... 1 Item 2. Properties.................................................. 14 Item 3. Legal Proceedings........................................... 14 Item 4. Submission of Matters to a Vote of Security Holders......... 14 PART II................................................................. 15 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................................... 15 Item 6. Selected Financial Data..................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 17 Item 7A. Quantitative And Qualitative Disclosures About Market Risk...................................................... 25 Item 8. Financial Statements and Supplementary Data................. 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 49 PART III................................................................ 49 Item 10. Directors and Executive Officers of the Registrant.......... 49 Item 11. Executive Compensation...................................... 49 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 49 Item 13. Certain Relationships and Related Transactions.............. 49 PART IV................................................................. 49 Item 14. Exhibits, Financial Statements and Reports on Form 10-K..... 49 SIGNATURES.............................................................. 53
i 3 PART I The Business section and Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations and beliefs concerning future events and include statements regarding our expectations or beliefs that: our RocketPowered products will allow collaboration and project transfer between studios and across different software and hardware platforms; the market requiring audio production for computer-based audio such as Internet web pages, interactive CD-ROM, DVD-ROM and games may continue to grow; as the complexity of audio production increases, there will be an increased need for larger-scale mixing consoles; the Euphonix system will become the control center for automating and streamlining significant portions of the audio production process; our brand name recognition and loyalty will benefit us as we seek to increase our share of our target market; we are well- positioned to take advantage of new opportunities offered by the Internet as one of the few companies to employ an Internet Protocol based architecture; due to the rapid proliferation of new technologies, intellectual property protection will be less influential on our ability to compete than the ability of our research and development personnel and our ability to enter new markets and service our customers; as technology in the professional audio industry advances, prices for mixing consoles and other audio equipment will decrease and as a result our products may increasingly compete against lower priced products, as well as products in the high-end price range; and our available cash and cash equivalents will be sufficient to meet our anticipated needs for working capital and capital expenditures through the end of 2001. These statements are subject to risks and uncertainties, and our future actual results could differ materially from such forward-looking statements. Factors that could adversely affect the business include: our ability to introduce and sell new products according to our plans; changes in the market for our products and the growth of the professional audio market; worldwide and European market acceptance of our and our competitors' products; the strength of our competitors; our ability to manage our expenses according to our plans over the course of the next year and our ability to raise new capital if necessary. These factors and others are described in more detail in the section of this Annual Report entitled "Risk Factors That May Affect Results of Operations and Financial Condition" beginning on page 21. ITEM 1. BUSINESS. Founded in California in July 1988, Euphonix, Inc. develops, manufactures and supports networked digital audio systems for music, film and television post-production, broadcast, sound reinforcement and multimedia applications. Our core products consist of high-performance digital audio consoles, digital-control analog audio consoles, disk-based multi-track recorders and audio format converters. Our products are used to produce audio content for entertainment industry markets including music and CDs, film and television audio post-production, television and radio broadcast, concert and theater sound reinforcement, multimedia and the Internet. We are an industry leader in providing software-driven functionality that serves to automate and streamline the audio production process, while providing high quality audio and extended functionality relative to the current audio industry standards. Our high performance audio systems play a major role in the production of popular music, motion picture and television projects. Many feature films and television programs are scored and mixed on our digital-control analog CS Series and System 5 high-performance digital audio consoles. Our business strategy is to supply digital solutions to meet our customers' needs as the entertainment industry converts from analog to digital production and distribution methods. We produce a variety of software, scalable hardware and services for recording, editing, and mixing audio for high-end professional use. During the year ended December 31, 2000, we introduced a number of new initiatives and entered into a number of strategic alliances. (1) In February 2000, we announced a software licensing agreement with Rocket Network Inc. to develop future software releases for the R-1 multi-track recorder and System 5 digital audio console that will allow users to tap into the online production and collaboration capabilities of Rocket Network. 1 4 Euphonix is presently the only company serving the high-end market with an Internet-Protocol-based architecture, which gives us a strategic advantage as the audio industry begins to migrate aspects of the content production process to the Internet. Rocket Network provides important technology and services that will accelerate this migration. Rocket Network's online production and collaboration technology enables Euphonix-equipped studios to network with each other to create music and audio for CDs, films, television and the Internet. Future RocketPowered products from Euphonix will allow collaboration and project transfer between studios and across different software and hardware platforms. Traditionally, the movement of projects between bricks-and-mortar studios has been limited by a high degree of platform incompatibility between various tape and digital audio formats. (2) At the NAB 2000 Convention in April 2000, Euphonix emphasized our ongoing commitment to designing and innovating practical, flexible solutions for today's digital-conscious television broadcast and post-production communities. The broadcast and post production industries are changing, as they transition from analog to digital production and delivery techniques. Stations require enhanced flexibility and multi-purpose tools to handle a diverse range of productions at variable sampling frequencies and bit rates. A high priority for us is to develop appropriate solutions for the broadcast community that translate into user-friendly control surfaces, reliable fail-safe operation and outstanding multi-channel sound quality. (3) In May 2000, we launched Listen-In(TM) Service, which allows live audio streaming from System 5 to studio clients around the world. This Internet-enabled remote monitoring service offers our customers real time System 5 facilities and secure access to a control room mix via a high-speed Internet connection. (4) In September 2000, at the Audio Engineering Society Convention in Los Angeles, Euphonix demonstrated solutions from Digidesign, Rocket Network and Sonic Solutions that were inter-networked with Euphonix technologies to demonstrate how companies are collaborating to streamline the audio production process. Euphonix licensed proprietary technology developed by Digidesign to deliver value to studio operators, producers and musicians who record and mix high-quality audio projects. "Pro Tools(TM)" users can now work directly with the Euphonix System 5 digital console and R-1 recorder to mix and produce DVD-Audio projects at 24 bit/96 kHz. Euphonix and Sonic Solutions are working on ways to make file transfer and system integration as seamless as possible. Sonic Solutions and Euphonix systems are being used to create DVD-Audio releases, and the two companies are well positioned for further integration and continued compatibility, which will help make efficient DVD-Audio production possible. Leading record companies, including Warner Music Group and BMG, are using System 5, R-1 and Sonic Solutions systems to create some of the first 24 bit/96 kHz DVD-Audio releases. With three times the audio resolution of CDs, DVD-Audio is becoming the new standard for high-quality consumer audio software. (5) In September 2000, Euphonix System 5 received the coveted TEC Award for high-performance digital system in the Large Format Console category, which was awarded by readers of Mix magazine, a leading international trade magazine for the professional audio industry. INDUSTRY OVERVIEW Audio content for the entertainment industry is produced by professionals in four primary applications: music (CDs, DVD-Audio, tapes, music for film and television), post production (sound for film, video, DVD and television), broadcast (sound for broadcast television) and live sound reinforcement (sound for live concerts and theater). The market requiring audio production for computer-based audio such as Internet web pages, interactive CD-ROM, DVD-ROM and games, has developed and, we believe, may continue to grow in the future. 2 5 Mixing consoles serve as the central component of most professional audio production studios, and are used by all applications of the professional audio market throughout the production process, which includes recording, editing and mixing. A mixing console electronically blends, routes and enhances sound from musical instruments, voices, sound effects and pre-recorded material. Mixing consoles that are used in each market during the different stages of production share a high degree of common functionality. Professional mixing consoles are used to process, combine, and reduce a large number of individual audio inputs (typically 20-100) to produce a smaller number of outputs (typically 2-8) for the audio engineer to hear or record. Audio inputs and outputs to mixing consoles have traditionally been transmitted via analog methods. The entertainment industry is rapidly replacing analog methods with digital methods. Euphonix provides solutions for both analog and digital processing as well as products to convert audio between analog and digital formats. We also produce digital disk-based multi-track recorders to replace tape-based systems used to record the many channels of sound that are subsequently fed through the mixing console during typical professional audio productions. We expect that as the complexity of audio production increases in all market segments due to consumer demand for higher quality and more captivating sound, including the audio requirements of High Definition Television, or HDTV, there will be an increased need for larger-scale mixing consoles. STRATEGY Our goal is to remain one of the leading providers of sound production tools for the entertainment industry through developing innovative, high value, user oriented products. Our strategy includes the following key elements: Develop a family of products Our goal is to leverage our reputation and substantial investment in digital control technology, digital signal processing and distributed computer processing to develop a family of digital product offerings to support recording, editing and mixing functions. Our plan is to focus on the needs of the high-end professional music recording, short and long form post production and on-air broadcast facilities. In the long term, we intend to develop, internally or through acquisitions or licensing, a range of compatible audio production products that will enable the Euphonix system to become the control center for automating and streamlining significant portions of the audio production process. Capitalize on Leading Edge Technology Since our inception in 1988, we have dedicated ourselves to bringing cost-effective digital hardware and software technology to professional audio mixing. In 1991, we brought to market the first commercially successful digitally controlled audio mixing console with performance which we believe rivaled high-end products from other manufacturers at a significantly lower price. In 1999, we launched the System 5 high performance digital console and a 48-track 96 kHz version of the R-1 Multitrack Recorder. Our product architecture and technology have been designed to enable the professional user to express more easily creative talents while reducing labor and time-intensive operations, at a more favorable price-performance ratio than existing mixing systems. Provide Complete Scalable Solutions We offer modular systems that provide customers a range of functionality and flexibility, allowing them to configure our systems to meet their professional needs and financial resources. A key focus of our product development efforts is to make an initial investment in a Euphonix system, and then upgrade their system as their needs and finances permit. Leverage Brand Name Recognition We seek to enhance our reputation for technical innovation, high quality and favorable price-performance. To date, as a result of our product architecture, customer satisfaction, excellent price-performance and 3 6 significant industry visibility, Euphonix has generated brand name recognition and loyalty, which will benefit us as we seek to increase our share of our target market. Build Global Presence Our sales strategy is to build a worldwide presence in order to fully address our target markets and to serve customers that operate on an international basis. Our sales outside the United States as a percentage of our net revenues were approximately 40% in 2000, 33% in 1999, and 43% in 1998. In addition to our New York, Los Angeles, Nashville and Palo Alto offices in the United States, we have offices in Tokyo and a network of sales representatives outside of the United States. In April 2000, we entered into a joint venture agreement with Audio Export George Neumann & Company Gmbh (Audio Export), a leading German-based audio distributor and service provider, to build Euphonix Europe Ltd., an international distribution organization serving the European, Middle Eastern and African markets. Headquartered in London, Euphonix Europe supports a network of highly skilled service and distribution centers throughout Europe, the Middle East and Africa. One of the objectives of the joint venture is to increase the sales potential of Euphonix products in Europe. Audio Export has an established sales and service organization and provides Euphonix with the "local" management bandwidth, experience necessary to address multiple geographic boundaries. PRODUCTS Our products include the System 5 High Performance Digital Audio Console and the 48-track R-1 Multi-track Recorder, both introduced in 1999, the CS3000 Series Digital-Control Analog Console and a family of high-performance multi-channel audio format converters as described below. System 5 High-Performance Digital Audio Console Introduced in September 1999 at the Audio Engineering Society convention in New York City, the System 5 is our flagship high-performance digital audio console. In development for over three years, the System 5 is the first digital console to provide the following benefits to customers: 24-bit, 96 kHz digital audio interfacing and processing, simple user interface, and high degrees of modularity, scalability, and fault tolerance. We believe that the adoption rate of digital technology by the audio industry has been slow, due to the perceived reduction in audio quality and in ease of use and in fault tolerance brought on by early generations of digital audio consoles. System 5 was designed from inception to address these concerns as significant investments were made in producing breakthroughs in sound quality, ease of use, and fault tolerance. The System 5 offers a modular, scalable architecture that is configurable to a broad range of sizes and applications for the production of audio for music CDs and DVDs, film and television soundtracks, live television broadcasts and live auditorium performances. Since the product's introduction, we have delivered System 5s to customers for applications in the major segments of professional audio production. The System 5 is the only large-scale audio console to employ multiple Pentium-based computers connected with an Internet Protocol network and Microsoft's Windows NT operating system. We believe this architecture will benefit over time with performance increases and price reductions brought on by the rapid technology development of standard computing and networking platforms. CS3000 Series Digital-Control Analog Console Introduced in 1997, the Euphonix CS3000 has been designed for operational speed, high sound quality and flexible configuration control and processing. CS3000 options and upgrades may be factory-installed or added in the field, allowing customers to tailor the product to their exact requirements and then to subsequently modify and upgrade their CS3000 as their needs change. We offer specific features developed for individual market applications to all customers in order to ensure compatibility between each CS3000 and to provide customers with the ability to change applications across market applications. The CS3000 can use the 4 7 same version of software for various applications. The base CS3000 may currently be specified with hardware variations to accommodate differences in application of the product by the music ("D" & "M" Systems), post production ("P" & "F" Systems) and broadcast ("B" Systems) market applications. R-1 Multi-Track Recorder We debuted the 24-track version of the R-1 Multi-track Recorder at the AES show in San Francisco during September 1998. The R-1 shipments began in the first quarter of 1999. At the AES show in New York during September 1999, we announced version two of the R-1 Multi-track Recorder in a 48-track 96 kHz configuration. It was the professional audio industry's first product to offer a user-friendly transition from analog or 16-bit digital tape recording to 24-bit disk recording. The R-1 provides the users of over 50,000 professional multi-track tape recorders with a replacement product that significantly improves sound quality, reliability, and operational efficiency while maintaining a user-interface that has remained an industry standard since the early 1970's. Key features include: Improved Sound Quality results from 24-bit, 96 kHz domain conversion, transmission and storage combined with 40-bit floating point Digital Signal Processing. Almost 100% of the installed tape recorders are either analog or 16-bit digital, providing significantly less audio resolution than the R-1. Operational Feel and Efficiency surpasses tape recorders where possible, yet emulates tape recorders where tradition dictates, to provide recording engineers with a minimal learning curve transition to disk recording. Reliability is an essential attribute for equipment that is required to capture performances that may only happen once in a lifetime. The R-1 has been designed for equal or better fault tolerance and endurance when compared with tape recorders. Long-Term Storage has long been a desire for the audio industry. Extremely low wear and tear and long shelf life are well known attributes of hard-disk technology. Tape technology suffers from constant media and component wear that occurs every time audio is recorded and played back. Tape has a significantly shorter shelf life than disk storage products. Random Access to audio anywhere in a recording reduces waiting time for recording artists and engineers. The R-1 provides instant locating and looping capabilities. Tape is rewound and fast-forwarded hundreds of times in a typical recording session while recording engineers and artists wait. Cut and Paste Editing is provided on the R-1 to permit sound manipulation not possible on tape recorders. Basic editing functions are provided so recording engineers do not have to spend time and money transferring to editing equipment in order to implement a basic adjustment or correction to a recorded track. Non-Destructive Recording is possible on the R-1. When enabled, this feature allows more than one take of a recording to be kept for every track. In comparison, tape technology requires the destruction of a previous recording every time an existing track is used to record a new take. The R-1 reduces the risk of accidentally erasing or recording over a once in a lifetime performance. Modular, Scalable, and Open Architecture provides the ability to expand or re-purpose systems over time in much the same way computer owners can increase the size, performance, or feature sets of their PCs as new technology and product offerings permit. Future Internet-Based Products In February 2000, we announced plans to incorporate features into future versions of the System 5 and R-1 to allow project and workflow transfers and collaboration via the Internet. We believe that we are well positioned to take advantage of new opportunities offered by the Internet as one of the few companies to employ an Internet Protocol based architecture. 5 8 TECHNOLOGY Our proprietary technology is central to our product offering and our business strategy. The key elements of our technology are described below. Digital Signal Processing Our products employ state-of-the-art digital signal processing techniques and software in their digital subsystems. We intend to continue to develop digital signal processing technology in order to improve fidelity, simplify interfaces and reduce costs involved with digital audio transmission and processing. Digital Control of Analog Audio Processing Traditionally, the predominant mode of audio processing and transmission has been analog due to its simplicity, cost-effectiveness, high sound quality and the extensive analog infrastructure, which currently exists in the professional audio market. Euphonix is a market leader in providing digital control in conjunction with analog or digital processing and transmission. We utilize an architecture that physically separates the mixing control surface from the audio processing hardware. We have replaced manual (mechanically coupled) control methods with digital control technology so that the audio processing hardware may be controlled remotely over a digital link by the separated control surface. Because of this separation, it is possible to insert a computer in the link between the controller and the processing circuit so that audio may be operator or computer manipulated. A high degree of computer automation can then be provided with appropriate software. The elimination of bulky and expensive mechanical controls, the ability to share digital controls for different functions and the relocation of the audio processing hardware to a separate enclosure has allowed a substantial reduction in size, weight, heat generation and cost of the console surface. Hard Disk Recording and Editing We utilize technology to record and edit sound using off-the-shelf computer hard disks. Scalable, Distributed Computer Processing The computer power required to instantly reconfigure and automate a mixing console is proportional to the console's size (number of controls per channel multiplied by the number of channels). Two approaches may be taken in order to provide adequate computer power to reset and automate a large-scale mixing console. The first is to use a large, fast and powerful central computer that has sufficient capacity to manipulate all of the console's controls in the required period of time for the largest possible console. The second is to distribute the processing load over multiple processors that have sufficient capacity to handle their share of the processing load. We have chosen the distributed processing method because it has the added benefit of being scalable. The Euphonix system may be configured in, and upgraded to, a range of sizes. Our customers benefit because they only pay for computer power that is proportional to the size of their systems, yet more computer power can be added as their systems are upgraded. Because of the lighter demand placed on each individual microprocessor in a distributed system, the use of low-cost components is possible to further leverage price performance. Another benefit of our distributed processing architecture is our systemwide SnapShot(TM) Recall performance within one video frame ( 1/30 of a second), which we believe is superior to competitive commercial offerings. Multi-Processor Communications and Real-time Operating Systems Euphonix has developed real-time operating system technologies for interfacing the multiple microprocessors required to support our large distributed processing system. A typical large Euphonix console will contain as many as 125 independent microprocessors of different varieties and functions, all working together as one system. In addition, the Euphonix system provides interfaces to microprocessors in third-party peripheral studio equipment. This seamless networking of internal processors (Euphonix components) and 6 9 external equipment (third-party digital audio workstations, tape machines and MIDI devices) provides a powerful foundation to encourage new product development by both Euphonix and third-party manufacturers. Audio Format Conversion We have developed proprietary technology to convert audio between the various signal transmission formats that are used in broadcast, post production and music studios. We have focused development on the primary formats that are endorsed by the Audio Engineering Society including: analog, Audio Engineering Society/European Broadcasting Union digital, and MADI (Multi-channel Audio Digital Interface). Sample Rate Conversion technology is employed to convert digital audio between formats that are operating at different sampling frequencies such as 44.1kHz for CD-Audio, 48kHz for professional audio production and 96kHz for emerging standards such as DVD-Audio. Advanced User Interface Methods for Audio Processing Our digitally controlled system gives the user real-time feedback of the system's performance, thereby enabling the user to evaluate and improve the audio mix more effectively and efficiently. We have developed several user interface methods for the professional audio market that are designed to simplify and improve the user's understanding of how the mixing console is affecting the sound. Our interface techniques are designed to allow the operator to harness the power of digital control in a user-friendly manner. For example, graphical user interfaces are used extensively to show views of settings and parameters, enabling a "what you see is what you hear" display. Such graphical comparisons and various archival, marking and retrieval methods allow for greater operator efficiency. CUSTOMERS The Euphonix product line has been adopted by many professional audio facilities worldwide, with more than 500 Euphonix consoles currently installed. The following table sets forth a partial list of Euphonix customers:
CUSTOMER LOCATION SAMPLE PROJECT/OTHER -------- -------- -------------------- MUSIC Max Martin Stockholm, Sweden Max Martin is one of the world's leading songwriter/producers. He has achieved international chart success with such acts as Britney Spears (for whom Martin wrote the smash hit "Oops....I did it again"), 'N Sync, Celine Dion and Backstreet Boys (for whom he wrote "I Want It That Way"). Sony Music Entertainment Tokyo, Japan Sony Music Entertainment will be installing a 202-channel System 5 into their state-of-the-art Tokyo facility. The Hit Factory New York The world's largest commercial recording facility. Brandon's Way Los Angeles Ubiquitous producer, song writer and artist, Babyface's commercial studio houses four Euphonix consoles. Fleetwood Mobile London Mobile unit for concert recording.
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CUSTOMER LOCATION SAMPLE PROJECT/OTHER -------- -------- -------------------- Jon Kelly London Independent music producer for such artists as Paul McCartney, Kate Bush, Tori Amos. Emerald Entertainment Group Nashville One of the largest recording and production companies in the world. Twice named Billboard Magazine's Country Recording Studio of the Year. Cia. dos Technicos Brazil High-end commercial recording facility. Realsongs Los Angeles Studio of multiple Grammy-winning songwriter, Diane Warren (How Do I Live, Because You Loved Me). 143 Records Los Angeles Studio of producer, arranger, composer and musician, David Foster (Because You Loved Me, The Power of Love). Tiger Recording Australia High-profile commercial music facility. Seal Los Angeles Internationally-renowned musician, who purchased a CS3000 for home studio. Thrill Hill Recording New Jersey Studio of superstar Bruce Springsteen. Carter Burwell New York Film scores for Being John Malkovich, Three Kings and The General's Daughter. Upgraded Euphonix CS series with System 5. Soundproof Studios Los Angeles First commercial recording facility to install System 5 in Southern California. Laurent Voulzy France Internationally-acclaimed vocalist. Hans Zimmer/Media Ventures Los Angeles Academy Award Winning film scorer whose credits include Gladiator, The Lion King and The Prince of Egypt. James Newton Howard Los Angeles Academy Award Nominee film composer. Scores include Dinosaur, The Sixth Sense and Snow Falling on Cedars. Snuffy Walden Productions Los Angeles BMI Film & TV Music Award winner, whose television scores include The West Wing, Once and Again and Felicity. Thomas Newman Los Angeles Dual 1996 Academy Award Nominee. Scored films such as The Green Mile and American Beauty. LDS Motion Pictures Salt Lake City Motion Picture facility houses two CS series mixing consoles and one System 5. POST PRODUCTION Liberty Livewire Los Angeles Liberty Livewire ordered three large-format System 5s for installation at its Todd West Lantana facility. Recently, one of the System 5s was used during pre-dubbing and re-mixing of director Billy Bob Thornton's movie, "All the Pretty Horses" starring Matt Damon, Ruben Blades and Sam Shepard.
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CUSTOMER LOCATION SAMPLE PROJECT/OTHER -------- -------- -------------------- The Idea Room at Warner Bros. Burbank Post Production for feature films and film trailers. Cool Beans Digital Audio New York Largest Post Facility in NYC. Installed three Euphonix System 5s. Avenue Edit Chicago Installed two Euphonix CS series mixing consoles and recently purchased two System 5 digital consoles. Aoi Studio Company, Ltd Tokyo Short-form post production facility first in Japan to install System 5 and 48-track R-1. One Union Recorders San Francisco High profile post production facility clients include Microsoft, Sattchi & Sattchi and Hal Riney. FILM Skywalker Sound Marin County, CA Skywalker Sound, a division of Lucas Digital, ordered two System 5s. Films re-recorded at the facility, and its predecessor, Sprockets Systems, have won numerous Academy Awards for motion-picture sound or sound-effects editing. Winner of six prestigious TEC Awards from Mix magazine readers as the best Post Production Facility for 1992, 1993, 1994, 1996, 1997 and 1998. Deluxe Toronto Toronto Deluxe Toronto is the premier film dubbing facility in Canada. Owned by the Rank group, Deluxe has purchased 4 feature film dubbing consoles. They have dubbed films such as "Dungeons and Dragons", and the upcoming Sundance award winning Hedwig and the Angry Inch. Media Principia Montreal Media Principia is a state-of-the-art film production company. The first Media Principia project mixed on the System 5 was "The Baroness and The Pig" while shot on location in Hungary. BROADCAST World Wrestling Federation Entertainment Connecticut WWF Entertainment installed System 5 for rigorous post and ON-AIR broadcast schedule. China Television People's Republic of On-Air Broadcaster. China Fisher Broadcasting -- KOMO TV Seattle Full Digital On-Air Broadcast Studio. NBC Los Angeles TV show Tonight Show with Jay Leno. KTVT Dallas/Fort Worth On-Air Broadcaster. Tokyo Arvic Japan On-Air Broadcaster. WMUR New Hampshire On-Air Broadcaster. Sky DTH Television Florida Direct TV for South America. LIVE SOUND REINFORCEMENT The Gothenburg Opera House Sweden Live sound reinforcement.
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CUSTOMER LOCATION SAMPLE PROJECT/OTHER -------- -------- -------------------- Royal Caribbean Cruise Lines Finland Live sound reinforcement. MULTIMEDIA Bull Frog Music Studios (a division of Electronic Arts) France Sound for multimedia games. Interplay California Sound for multimedia games. SEGA Tokyo Sound for multimedia games. OTHER Eastman School of Music University of Rochester Sound recording education. Launch Media Los Angeles Internet Music Magazine. University of Michigan Ann Arbor Sound recording education. Citrus College Southern California Sound recording education. The Art Institute of Seattle Washington Sound recording education. Alchema College of the Arts London Sound recording education.
MARKETING Our marketing strategy has been to create awareness of our products and to differentiate our products from those of our competitors in terms of performance and cost-effectiveness. We participate in trade shows, direct-mail advertising and selective advertisements in industry publications. We believe that our high quality products, technical innovation, support and service result in significant industry awareness of our products, and numerous word of mouth referrals for our products. We differentiate our products through one-on-one sessions with the key decision makers of our current and prospective customers during which our trained engineers and distributors perform product demonstrations. To address all markets during 2000, we produced market specific product literature, broadened our base of publications in which we advertise, attended trade shows and communicated through direct mail and email communications. SALES AND DISTRIBUTION We sell our consoles through our direct sales organization in the United States and Japan, and work with a network of international sales representatives and distributors for sales in other countries. We conduct our direct sales activity in the United States from our sales offices in Los Angeles, New York and Nashville. Our international distributors typically cover an exclusive geographic region. Distributors generally order and purchase systems from us based on orders they receive for Euphonix systems. In many cases, we ship directly to our end users. Some of our distributors provide direct customer support and installation, while the other distributors receive customer support and installation from our international sales offices. There were no customers who accounted for 10.0% or more of our net revenues in fiscal 2000, 1999 or 1998. A key element of our strategy is to continue to build a worldwide presence through our international sales presence and our network of sales representatives in order to address fully our target markets and to serve customers that operate on an international basis. We believe that revenues from customers outside the United States will begin to account for a greater portion of our revenues, due to improving economic conditions in many international countries. We will continue to maintain sales efforts of our console in international markets through our international sales presence and our network of international distributors and sales representatives. 10 13 CUSTOMER SERVICE AND SUPPORT Providing excellent customer service and support is a key element of our strategy to maintain and build our reputation for high quality and enhance brand name loyalty. We provide service, support and training to our customers and sales representatives through a wide range of support services, including on-site and telephone support and training in the use of our consoles. Our customer service organization provides the following services: Systems Installation and Training. Our systems installation personnel assist customers in the configuration, installation and testing of Euphonix systems at the customer's site. The systems can usually be installed in less than one day, which we believe to be considerably less time than required for other manufacturers' large format consoles. We provide demonstration equipment for use by customers as well as prospective purchasers at each of our sales offices. We may also provide on-site training following installation of our system, as well as advanced operations documentation regarding the Euphonix system. Technical Support. Our technical support personnel provide telephonic assistance to customers and sales representatives. These personnel assist customers in the use of their systems, and diagnose and solve technical hardware and application problems with the aid of self-diagnostic programs within the Euphonix system. We provide a fifteen-month warranty on the Euphonix system covering defects in materials and workmanship. This policy provides that within the fifteen-month period, we repair or replace any defective products sold to the customers. Technical support personnel maintain a supply of similar or spare modules to deliver to customers if necessary for repair, and in more complicated situations will dispatch an on-site technician to assist the customer. We also offer an on-line 24-hour computer bulletin board to maintain communications with our customers. RESEARCH AND DEVELOPMENT Our research and development strategy is to develop high-quality enhancements to our products, focusing on modularity and upgradeability of such products, as well as new products for our target market segments. Our research and development and engineering staff consists of highly trained software, electronic and mechanical engineers and technicians with technical backgrounds in computer software design, digital signal processing, analog audio processing and high speed audio communications. Our research and development expenses for the years ended December 31, 2000, 1999 and 1998 were $3.6 million, $4.5 million, and $4.6 million. PROPRIETARY RIGHTS We generally rely on a combination of trade secrets, copyright law and trademark law, contracts and technical measures to establish and protect our proprietary rights in our products and technologies. However, we believe that such measures provide only limited protection of our proprietary information, and there is no assurance that such measures will be adequate to prevent misappropriation. We currently have two United States registered trademarks, five issued United States patents and several applications for United States patents pending with respect to certain elements of our hardware and software. We have no foreign patents nor have we filed any applications for any foreign patents. We believe that, due to the rapid proliferation of new technologies in the audio, video and general software industries, intellectual property protection of our proprietary technology will be less influential on our ability to compete in our target markets than the ability of our research and development personnel to design products that continue to address evolving customer requirements, our ability to enter new markets and the ability of Euphonix to service our customers. MANUFACTURING AND SUPPLIERS Our manufacturing operations for mixing consoles, located in Palo Alto, consist primarily of materials and procurement management, testing and final assembly of products, quality assurance and shipping. We 11 14 subcontract other functions, including the production of printed circuit boards, specialized metal finishing and other subassemblies, which currently are not cost-effective for us to perform. Our systems undergo complete testing and quality inspection at the board level and final assembly stages of production. We and our manufacturing vendors are dependent upon single or limited source suppliers, such as Analog Devices and Maxim Integrated Products, for numerous components and parts used in our products, some of which are critical to our continued uninterrupted production because they supply key components, such as integrated circuits, included in our base system. See the section entitled "Risk Factors That May Affect Results of Operations and Financial Condition" for a discussion of the risks regarding our manufacturing and supplies. COMPETITION The markets for our mixing products are intensely competitive and characterized by significant price competition. The markets for mixing consoles can be classified based on price, as follows: (1) low-end range products with prices up to $30,000; (2) mid-range products with prices from $30,000 to $100,000; and (3) high-end range products with prices over $100,000. Prices for mixing consoles generally vary based on the number of channels and the processing power per channel, which directly affects the quality of the sound output of the particular mixing consoles. Our products compete primarily with other mixing consoles in the high-end price range of our targeted market segments. We also have flexibility to compete with lower-priced products of our competitors by scaling down our high-end products. Competing companies in the high-end price range include, among others, Solid State Logic, (Owned by 3i, a venture capital company), AMS Neve, GLW a.k.a. Harrison, Amek Technology Group, Sony Corporation, Calrec Ltd., Soundtracs, D&R, Trident, Cantus, Fairlight, and Studer. In addition, we believe that, as technology in the professional audio industry advances, prices for mixing consoles and other audio equipment, including our products, will decrease, and as a result our products may increasingly compete against lower priced products, as well as products in the high-end price range. There are numerous companies, in addition to those listed above, that compete in the low-end and mid-range of the professional audio market. The introduction of the R-1 brings on new competitive issues for us. The R-1 allows us to sell to largely the same customer base that purchases our large format consoles. Some of the traditional console manufacturers sell traditional tape based multi-track tape machines. The primary competing companies in the traditional tape based multi-track recorder market segment include, among others, Studer and Sony. The R-1 is targeted as a direct replacement of traditional tape based products. Additionally, the R-1 competes with an array of companies producing other disk based products, that while technically similar, are less focused on the direct replacement of a multi-track recorder and more focused on editing of the audio than pure recording. These competitors include Fairlight and Augan. See the section entitled "Risk Factors That May Affect Results of Operations and Financial Condition" for a discussion of the risks regarding our competitors. BACKLOG An order is booked into backlog when a deposit or a purchase order is received from the customer. Our products are typically delivered to customers two to three months after receipt of an order. However, because shipment of the product is dependent upon other customer requirements or changing situations, the product may not be delivered for more than a year after the receipt of the order. We do not believe that our backlog at any particular point in time is indicative of future sales levels. EMPLOYEES As of December 31, 2000, we had 111 full-time employees and consultants. None of our employees are represented by a labor union, and we have never experienced a work stoppage, slowdown or strike. We consider our employee relations to be good. 12 15 In March 2001, we reduced the number of employees by nine, or approximately 8% of the total workforce, through terminations and attrition. The reduction in force affected personnel in sales/marketing, production support, administration and engineering departments. EXECUTIVE OFFICERS Our executive and other officers and their ages as of December 31, 2000 are as follows:
NAME AGE POSITION ---- --- -------- Steven W. Vining..................... 45 Chief Executive Officer and Director Paul L. Hammel....................... 55 Senior Vice President of Operations Steven H. Milne...................... 42 Vice President of Engineering Piers Plaskitt....................... 46 President Scott W. Silfvast.................... 38 Chief Product Officer and Director Jeffrey A. Chew*..................... 51 Chief Operating Officer
- --------------- * Re-joined Euphonix in January 2001. Steven W. Vining was appointed as our Chief Executive Officer in October 2000 and has served as a director since November 2000. From 1996 to September 2000, he served as President of the Windham Hill Group. From 1993 to 1996, Mr. Vining was Vice President and General Manager BMG Classics U.S. one of the leading classical music labels worldwide. From 1991 to 1992, Mr. Vining was Senior Director of Marketing at RCA Victor. Prior to that, Mr. Vining held a variety of executive and managerial positions for Intersound International Corporation, a leading independent classical, and jazz firm featuring all digital recordings. Prior to that, Mr. Vining was employed by Pickwick Records. Paul L. Hammel joined us in February 1998 as Senior Vice President of Operations. From 1994 to 1998, he was employed at Plantronics as Vice President Customer Services and President of Walker Equipment Division of Plantronics, Inc. From 1989 to 1994, Mr. Hammel was Vice President of Operations and Customer Services for GO Corporation. Steven H. Milne joined us in April 1996 as Vice President of Engineering. From 1992 to 1996, he was employed at Taligent, most recently as Director, Media Software Development. From 1986 to 1992, Mr. Milne was an engineer and manager working on audio for Apple Computer. Prior to that, Mr. Milne was employed by Sydis and Wang Laboratories, working on voice recording products. Piers Plaskitt joined us in August 1999 as President of Worldwide Sales and Marketing. From 1998 to 1999, he was employed at The New York Media Group, Inc. as Vice President, Director Sales and Marketing. From 1997 to 1998, Mr. Plaskitt was Vice President, Worldwide Sales and Marketing for Montage Group, Inc. From August 1983 to May 1997, Mr. Plaskitt was the President and Chief Executive Officer of the US operation of Solid State Logic. Scott W. Silfvast founded Euphonix, Inc. in July 1988. He has been a director since our inception, has served as Chief Product Officer since August 1999, Senior Vice President since June 1997 and served as President from March 1990 until May 1997. Mr. Silfvast also served as Chairman of the Board from July 1988 until February 1991. From 1983 to July 1988, he was an engineer for SRS, a measurement instrumentation company. Jeffrey A. Chew rejoined Euphonix as Chief Operating Officer in January 2001. From August 1998 to September 2000, he was Chief Financial Officer and Vice President of Finance for Sierra Imaging Inc., a supplier of embedded imaging chip sets and imaging host software. From 1997 to 1998 Mr. Chew was employed by Women.com Networks, Inc., a women's content provider on the Internet, in the position of Chief Financial Officer and Vice President of Finance. From 1991 to 1997, he was employed by Euphonix. In June 1991 he joined Euphonix as Finance Director and was appointed Chief Financial Officer and Director of Operations in January 1992 and Vice President of Finance in December 1993. From 1987 to 1991, he was a 13 16 self-employed program management/financial consultant. From 1983 to 1987, Mr. Chew served as Corporate Controller for Akashic Memories Inc. ITEM 2. PROPERTIES. We lease approximately 40,820 square feet of space at our headquarters located on Portage Avenue in Palo Alto, California, under a lease expiring in November 2001. Activities at this facility include engineering, manufacturing, management information systems, customer service, distribution and general administration. Of this 40,820 square feet of leased space, 13,377 square feet is sub-leased. In addition, we lease an additional 1,776 square feet in Palo Alto under a month-to-month lease. We also lease space for our sales and service offices in Los Angeles, New York, Nashville and our subsidiary in Woodinville, Washington. In addition, we rent an office for our subsidiary in Japan on a month to month basis. ITEM 3. LEGAL PROCEEDINGS. On February 8, 2001, Euphonix, Inc. filed a legal complaint in New York State Supreme Court in the county of Rockland against The Terminal Marketing Company Inc. ("Terminal") regarding Terminal's failure to pay its outstanding debts to Euphonix for equipment delivered to Terminal's client per the terms of purchase orders issued to Euphonix by Terminal. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 14 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. We effected the initial public offering of our common stock on August 22, 1995, at a price to the public of $8.00 per share. The following table sets forth, for the periods indicated, the high and low closing prices for our common stock:
HIGH LOW ----- ----- FISCAL 1999 First quarter............................................. $1.44 $1.03 Second quarter............................................ 1.25 0.63 Third quarter............................................. 2.13 0.75 Fourth quarter............................................ 1.69 0.75 FISCAL 2000 First quarter............................................. 4.50 0.91 Second quarter............................................ 4.09 2.25 Third quarter............................................. 2.75 1.69 Fourth quarter............................................ $2.22 $1.00
As of February 15, 2001, there were approximately 99 holders of record of our common stock. Our Common Stock is listed for quotation in the Nasdaq SmallCap Market under the Symbol "EUPH". We have not paid any cash dividends on our common stock and currently intend to retain any future earnings for use in our business. Accordingly, we do not anticipate that any cash dividends will be declared or paid on the common stock in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES In February 2000, we issued 240,000 shares of common stock to a private investor at a price of $1.25 per share, for total proceeds of $300,000. In February 2000, we executed Convertible Secured Promissory Notes for $1,500,000 with private investors. These Notes accrue interest at a rate of 10.00% per annum. Upon obtaining approval from our shareholders, the principal and accrued interest of the Note are convertible into shares of our common stock at a price per share of $2.53125. In April 2000, we executed Convertible Secured Promissory Notes for $800,000 with private investors. These Notes accrue interest at a rate of 10.00% per annum. Upon obtaining approval from our shareholders, the principal and accrued interest of the Note are convertible into shares of our common stock at a price per share of $3.625. In June 2000, we issued 147,928 shares of common stock to private investors at a price of $3.38 per share, for total proceeds of approximately $500,000. In September 2000, we executed a Convertible Secured Promissory Note for $400,000 with a private investor. This Note accrues interest at a rate of 8.00% per annum. Upon obtaining approval from our shareholders, the principal and accrued interest of the Note are convertible into shares of our common stock at a price per share of $2.3562. In December 2000, we executed Convertible Secured Promissory Notes for $1,800,000 with private investors. These Notes accrue interest at a rate of 8.00% per annum. Upon obtaining approval from our shareholders, the principal and accrued interest of the Note are convertible into shares of our common stock at a price per share of $1.26. All of the securities were issued pursuant to exemptions from registration under Section 4(2) of the Securities Act. We made no public solicitation in connection with the issuance of the above mentioned 15 18 securities, nor were there any other offerees. None of the offerings were underwritten. We relied on representations from the recipients of the securities that they purchased the securities for investment for their own account and not with a view to, or for resale in connection with, any distribution thereof. The investors also indicated to us that they were aware of our business affairs and financial condition and had sufficient information to reach an informed and knowledgeable decision regarding their acquisition of the securities. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data for the five-year period ended December 31, 2000, should be read in conjunction with our Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operation" included in Item 7 of this report.
YEAR ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net revenues............................. $15,839 $13,806 $15,614 $18,093 $18,237 Gross margin............................. 4,976 5,697 7,014 8,859 9,396 Operating loss........................... (6,353) (5,675) (5,306) (2,304) (1,836) Net loss................................. (8,313) (6,329) (5,240) (1,932) (1,398) Net loss per share: Basic and diluted, as adjusted......... $ (0.69) $ (0.74) $ (0.82) $ (0.35) $ (0.25) Shares used in computing net loss per share: Basic and diluted, as adjusted......... 12,021 8,541 6,404 5,576 5,515
DECEMBER 31, --------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Working capital.......................... $ 6,102 $ 6,993 $ 5,922 $ 9,095 $11,035 Total assets............................. 12,000 12,300 11,031 13,208 15,466 Long-term obligations.................... 6,531 2,166 -- 32 66 Shareholders' equity..................... $ 1,220 $ 6,797 $ 7,375 $10,487 $12,338
16 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Euphonix develops, manufactures and supports networked digital audio systems for music, film and television post production, broadcast, sound reinforcement and multimedia applications. As of December 31, 2000, we have shipped over 500 of our mixing consoles worldwide. The price of our mixing consoles generally ranges from $100,000 to $1 million, and is often the most expensive piece of equipment in the studio. We perform ongoing credit evaluations of our customers' financial condition prior to shipping the product, and we require a firm purchase order and generally a substantial deposit (anywhere from $10,000 up to 50% of the console's value). From time to time and depending on the financial condition of the customer, we may require an irrevocable letter of credit or a purchase order from a third-party lessor. Effective January 1, 2000, we changed our method of accounting for revenue recognition to comply with Securities and Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Previously, we recognized revenue generally upon shipment to customers including cases when installation was a condition of payment, provided all other revenue recognition criteria were met. Under the new accounting method adopted retroactive to January 1, 2000, we now defer all revenue until installation is complete (in those cases where installation is a condition of payment), provided all other revenue recognition criteria are met. If installation is not a term of our arrangement, we generally recognize revenue upon shipment. ANNUAL RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- Net revenues................................................ 100.0% 100.0% 100.0% Cost of revenues............................................ 68.6 58.7 55.1 ----- ----- ----- Gross margin.............................................. 31.4 41.3 44.9 ----- ----- ----- Operating expenses: Research and development.................................. 22.5 32.5 29.4 Sales and marketing....................................... 35.3 40.4 34.9 General and administrative................................ 13.7 9.5 14.6 ----- ----- ----- Total operating expenses.......................... 71.5 82.4 78.9 ----- ----- ----- Operating loss.............................................. (40.1) (41.1) (34.0) Interest income/(expense), net.............................. (10.7) (4.7) 0.4 ----- ----- ----- Loss before equity in net loss of investee.................. (50.8) (45.8) (33.6) Equity in net loss of investee.............................. (0.7) -- -- ----- ----- ----- Net loss before cumulative effect of change in accounting principle................................................. (51.5) (45.8) (33.6) Cumulative effect of change in accounting principle....... (1.0) -- -- ----- ----- ----- Net loss.................................................... (52.5)% (45.8)% (33.6)% ===== ===== =====
Net Revenues Net revenues in accordance with SAB 101 were $15.8 million in 2000. Applying the Company's historical revenue recognition policy, revenue for 2000 was $15.5 million, as compared to $13.8 million in 1999 and $15.6 million in 1998. This represented an increase of 12.3% in 2000 from 1999 and a decrease of 11.5% in 1999 from 1998. The higher revenue in 2000 was due primarily to the increased shipments of our System 5 all digital mixing console into the film/post-production segment of the market. In 2000, we added new Tier 1 17 20 film/post production studios to our list of customers, which include Skywalker Sound, Liberty Livewire (formerly Todd-AO) and Deluxe Laboratories in Toronto, all of whom purchased multiple systems. The decrease in revenues in 1999 as compared to 1998 was primarily due to not having an all digital console available for delivery (System 5) until the second half of the year. International sales accounted for 39.6% of our 2000 revenues, compared to 33.4% in 1999 and 43.1% in 1998. International sales increased by approximately $1.7 million, or 37.1%, in 2000 compared to 1999 and decreased $2.1 million, or 31.6%, in 1999 compared to 1998. The increase in international sales in 2000 compared to 1999 reflected higher sales in the Pacific Rim countries, especially in Japan, which more than offset declining sales in Europe. In order to improve our competitive position, in April 2000, we entered into a joint venture with Audio Export. Pursuant to this joint venture, Audio Export now manages (as well as owns 70% of) the Euphonix Europe sales and service organization, and is the exclusive distributor of Euphonix products in all Europe, Middle East and Africa. The decrease in international sales in 1999 compared to 1998 was attributed to weak sales in the Pacific Rim and Europe. The decline in Asian sales in 1999 was due to a weakness in the Asian economy. The decline in European sales in 1999 was the result of employee turnover within the international sales department and the loss of sales representatives, which limited our ability to maintain existing market share and penetrate new markets abroad. Gross Margins Cost of revenues consists primarily of purchased parts, components, assembly, test, procurement costs, production management/engineering, warehousing, product installation costs, warranty and provisions for inventory obsolescence. The resulting gross margins fluctuate based on factors such as the mix of products sold, the amount of direct, end-user sales versus sales through distributors, price discounts, sales promotion programs, and third-party hardware included in the systems sold by us. Gross margins decreased to 31.4% in 2000, as compared to 41.3% in 1999 and 44.9% in 1998. The decrease in gross margins during 2000 was primarily due to increased purchased parts and components costs. In 2000, we competed in an environment where global demand for many of our materials was far in excess of supply. This market situation, combined with slow payments to vendors due to cash flow constraints, led to higher prices in many instances and hampered us in our efforts to procure our material at lower costs. Even though the System 5 and R-1 recorder were introduced in 1999, we were still on a learning curve, which resulted in higher than normal warranty and scrap costs and labor inefficiencies. The decrease in gross margins in 1999 was primarily due to costs related to commencing shipments of the R-1 recorder, which began shipping in the first quarter of 1999, and the new System 5, which began volume shipping in the second half of 1999. Research and Development Research and development expenses decreased by $0.9 million, or 20.5%, in the year ended December 31, 2000 compared to 1999 and decreased $0.1 million, or 2.2%, in the year ended December 31, 1999 compared to 1998. Research and development expenses decreased as a percentage of revenues to 22.5% in 2000 from 32.5% in 1999 due to the decrease in research and development expenses in 2000 as noted above and higher revenues in 2000. Research and development expenses increased as a percentage of revenues to 32.5% in 1999 from 29.4% in 1998 primarily due to lower revenues in 1999. The decreased expenditures in 2000 were primarily due to a full twelve months of savings due to the reduction in force in our Woodinville facility, as compared to three months of savings in 1999. During 2000 we also experienced higher than normal employee turnover, resulting in a reduced number of employees and lower costs for the year. The decrease in 1999 was primarily due to a winding down of engineering development of the new R-1 Recorder and new System 5 digital console, both of which were under development in 1998 and began shipment in the first and second quarter of 1999, respectively. 18 21 Sales and Marketing Marketing and selling expenses remained approximately the same in 2000 as compared to 1999, and increased $0.1 million, or 2%, in 1999 as compared to 1998. In 2000, we realized eight months of savings relating to the joint venture with Audio Export, which was partially offset by higher salary and commission costs. The small increase in 1999 was primarily due to higher spending for advertising, tradeshows, travel, other professional fees and product demonstrations to support the new R-1 recorder and System 5 digital console introductions. As a percentage of revenues, marketing and selling expenses decreased to 35.3% in 2000, as compared to 40.5% in 1999. As a percentage of revenues, marketing and selling expenses increased to 40.5% in 1999, as compared to 34.6% in 1998, primarily due to lower revenues in 1999. This was primarily due to the savings relating to the joint venture with Audio Export, which was offset by higher salary and commission costs in marketing and selling expenses in 2000, and higher revenues in 2000. General and Administrative General and administrative expenses increased by $0.9 million, or 67.0%, in 2000 as compared to 1999, and decreased $1.0 million, or 43.1% in 1999 as compared to 1998. As a percentage of revenues, general and administrative expenses increased to 13.7% in 2000 from 9.4% in 1999, and decreased to 9.4% in 1999 from 14.6% in 1998. The increase in 2000 was primarily due to higher salary and benefits, recruitment expenses, outside accounting and legal expenses, and goodwill amortization relating to the joint venture with Audio Export. The decrease in 1999 was primarily due to a decrease in the allowance for doubtful accounts reserve due to the collection of previously reserved for balances and a reduction in payroll expenses. Interest expense and other charges Interest expense and other charges were $1.7 million in 2000, as compared to $748,000 in 1999 and $8,000 in 1998. This represented an increase of 132.2% in 2000 as compared to 1999, and 9,250% in 1999 as compared to 1998. As a percent of net revenues, interest expense and other charges increased to 11.0% in 2000 from 1999, and increased to 5.4% in 1999 from 0.05% in 1998. Interest expense for 2000 included a charge of $1,279,000 related to the beneficial conversion feature associated with the convertible promissory notes and attached warrants issued on February 22, 2000. Interest expense for 1999 included a charge of $613,000 related to the beneficial conversion feature associated with the convertible promissory notes issued in July 1999. Provision/(benefit) for Income Taxes No provision for federal and state income taxes was recorded for the years ended December 31, 2000, 1999 and 1998 as the Company incurred net operating losses during the period. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations primarily through cash flows from operations and the private sale of equity and debt securities. For the year ended December 31, 2000, cash and cash equivalents decreased by $251,000 to approximately $587,000. Also during this period, working capital decreased by $0.9 million to approximately $6.1 million. Our operating activities used cash of approximately $4.9 million in 2000, $7.4 million in 1999 and $2.6 million in 1998. Cash used in operating activities for 2000 was comprised primarily of net operating losses, an increase in prepaid expenses and other assets, an increase in accounts receivable and a decrease in accounts payable, offset partially by an increase in customer deposits, an increase in accrued liabilities and an increase in deferred revenue. Cash used in operating activities for 1999 was comprised primarily of net operating losses, an increase in inventory, an increase in accounts receivable, a decrease in allowance for doubtful accounts, and a decrease in accrued liabilities, offset partially by higher depreciation and amortization expense, an increase in accounts payable, an increase in customer deposits and a decrease in prepaid 19 22 expenses and other assets. Cash used in operating activities for 1998 was comprised primarily of net operating losses, a decrease in customer deposits and an increase in prepaid expenses and other assets, offset partially by higher depreciation and amortization expense, a decrease in income tax receivable and a decrease in accounts receivable. Our investing activities used cash of $278,000 in 2000 and $530,000 in 1999 and provided cash of $452,000 in 1998. In 1999, we received $601,000 in proceeds from the sales of short-term investments, as compared to $1.1 million in 1998. In 2000, we purchased $278,000 of property and equipment as compared to $1.1 million in 1999 and $657,000 in 1998. Our financing activities provided cash of $4.9 million in 2000, $7.2 million in 1999 and $1.9 million in 1998. Proceeds from the sale of common stock provided cash of $800,000 in 2000, $3.1 million in 1999 and $1.9 million in 1998. Proceeds from the issuance of convertible promissory notes provided cash of $4.0 million in 2000 and $4.1 million in 1999. Proceeds from the exercise of stock options provided cash of $135,000 in 2000. In March 2001, we issued convertible promissory notes to existing investors under which we borrowed $3,500,000. The notes accrue interest at 10% per annum with principal and accrued interest due March 31, 2002. The note contains a conversion feature which allows the holder to convert the principal plus interest into our common stock at a rate of $0.75 per share, at any point after shareholder approval. We also issued 350,000 shares of common stock to these investors in return for their agreement to loan us $3,500,000. We also extended until early 2002 the maturity dates for all promissory notes previously due in 2001. We believe that our available cash and cash equivalents will be sufficient to meet our anticipated needs for working capital and capital expenditures through the end of 2001. However, if our operating needs change, we may have to raise additional funds in order to meet our operating needs, to develop new or enhance existing products, to respond to competitive pressures, or to acquire or invest in complementary businesses, technologies, services or products. In addition, in order to meet our long-term liquidity needs, we may need to raise additional funds, establish a credit facility or seek other financing arrangements. Additional funding may not be available on favorable terms or at all. Moreover, the maturity dates of our outstanding promissory notes will become due in early 2002. Although, upon shareholder approval, the notes may be converted into shares of our common stock, there is no assurance that the investors will choose to convert their notes, and we may have to repay these loans. Impact of Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133." SFAS No. 138 amends the accounting and reporting standards for certain derivatives and hedging activities such as net settlement contracts, foreign currency transactions and intercompany derivatives. Based on our current operations, we have concluded that the future adoption of SFAS No. 133 will not have a material impact on our financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 has not had a material effect on the financial statements. 20 23 In November 2000, the Emerging Issues Task Force issue EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments." EITF 00-27 provides additional guidance on accounting for convertible debt instruments and convertible preferred stock with non detachable conversion options that are in-the-money at the commitment date. The Task Force affirmed the use of the accounting conversion price to calculate the beneficial conversion feature charge. Accordingly, any issuances of convertible securities since May 20, 1999 that were accompanied by warrants or other securities requiring an allocation of proceeds under APB 14, will require the application of the accounting conversion price to (1) determine whether the security includes a beneficial conversion feature or (2) to remeasure a previously measured beneficial conversion feature. The adoption of EITF 00-27 has not had a material effect on the financial statements. RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION A number of uncertainties exist that could affect our future operating results, including, without limitation, the following: WE HAVE INCURRED SIGNIFICANT LOSSES FOR THE PAST FIVE YEARS, AND MAY NEED TO RAISE ADDITIONAL FUNDING IN ORDER TO FUND OUR OPERATIONS We incurred net losses of approximately $8.3 million in 2000, $6.3 million in 1999, $5.2 million in 1998, $1.9 million in 1997, and $1.4 million in 1996, and we will continue to expend substantial funds to increase the versatility and functionality of the System 5 digital console in fiscal 2001. Although we recently received commitments from existing investors to loan us $3.5 million during 2001 and extended until early 2002 the maturity dates for all promissory notes previously due in 2001, if our operating needs change, we may need to raise additional capital in order to fund operations. Although we believe that additional debt or equity financing will be available from existing investors and others, there can be no assurance as to the terms and conditions of any such financing and no certainty that funds would be available when needed. The inability to obtain additional financing would cause a severe negative impact, and we may be unable to fund operations. THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN OUR SHARES BEING SUSPENDED OR DELISTED FROM THE NASDAQ The shares of our common stock are currently listed on the Nasdaq SmallCap Market. Due to their decline in price, our stock could be suspended or delisted from Nasdaq, which requires a minimum bid per share of $1.00 and a market capitalization of $35 million. If our stock is delisted from Nasdaq, it would be much more difficult to purchase or sell our stock or obtain accurate quotations as to our stock price. OUR STOCK PRICE HAS RECENTLY TRADED FAR BELOW THE INITIAL OFFERING PRICE AND COULD REMAIN AT THIS LOW PRICE, WHICH COULD AFFECT OUR ABILITY TO ACQUIRE OTHER COMPANIES, LEAVE US VULNERABLE TO HOSTILE TAKE OVER ATTEMPTS AND RESULT IN SECURITIES CLASS ACTION LITIGATION The market price of our common stock has traded at or significantly below the initial offering price of $8.00 per share. If the price per share does not increase, our investors may incur a substantial loss on their investment. In addition, the sustained depression of the market price of our common stock hampers our ability to conduct business, and in particular, could make it more difficult to pursue acquisitions of potential complementary businesses, leave us vulnerable to hostile takeovers and result in securities class action litigation. OUR STOCK PRICE MAY CONTINUE TO BE DEPRESSED DUE TO BROAD ECONOMIC, MARKET AND INDUSTRY FACTORS BEYOND OUR CONTROL Until recently, the market demand, valuation and trading prices of high technology companies was high. Recently, however, the share prices of high-technology companies, such as ours, have significantly decreased, and these stocks are now trading far below their historical highs. Our stock price may continue to be depressed because the market may perceive us to be a high-technology company. In addition, a variety of other factors beyond our control, such as general economic conditions, could cause our stock price to remain extremely low, regardless of our performance. 21 24 WE DERIVE ALL OF OUR REVENUES FROM SALES OF OUR DIGITALLY CONTROLLED AUDIO MIXING CONSOLE AND RECORDING SYSTEMS, AND ANY FACTOR THAT ADVERSELY IMPACTS THIS SYSTEM WILL SERIOUSLY HARM OUR BUSINESS Historically, we have derived virtually all of our revenues from sales of our digitally controlled audio mixing console system, which is based upon our hardware platform. We believe that sales of these systems, along with enhancements thereof, and the R-1 recorder and new System 5 digital console will continue to constitute a significant portion of our revenues. It is expected for the foreseeable future that a greater proportion of our revenue will come from the System 5 digital console. Accordingly, any factor adversely affecting our base system, whether technical, competitive or otherwise, could significantly harm our business and results of operations. CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR INTERNET ACTIVITIES OR RESULT IN ADDITIONAL COSTS OF DOING BUSINESS ON THE INTERNET Edeck enables audio files to be moved via the Internet. Our business plans for, and the success of, Edeck is dependent upon the Internet, which is at a relatively early stage of development. The enactment of any additional laws or regulations may impede the growth of the Internet, and if this happens, our operating expenses could increase and we may not be able to achieve profitability. In addition, the movement of files via the Internet could subject us to claims for defamation, negligence, copyright or trademark infringement, personal injury, or other theories based on the nature, content, publication and distribution of such materials. WE DEPEND UPON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PERCENTAGE OF OUR REVENUES. IF WE LOSE SIGNIFICANT CUSTOMERS, OR IF PURCHASES BY ONE OF OUR KEY CUSTOMERS DECREASES, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE HARMED Due to high average sales prices, we depend upon a limited number of customers for a substantial proportion of our revenues. If we lose one or more of our significant customers, or if purchases by one of our key customers decreases, our net sales will decline and our business will be harmed. In addition, the timing of revenue is influenced by a number of other factors, including the timing of individual orders and shipments, industry trade shows, seasonal customer buying patterns, changes in product development and sales and marketing expenditures, custom financing arrangements, production limitations and international sales activity. Moreover, our expense levels are based in part on our expectations of future revenue. Because our operating expenses are based on anticipated revenue levels and because a high percentage of our expenses are relatively fixed in the short term, variations in the timing of recognition of revenue could cause significant fluctuations in operating results from quarter to quarter and may result in unanticipated quarterly earnings shortfalls or losses. IF WE RAISE ADDITIONAL CAPITAL THROUGH THE ISSUANCE OF NEW SECURITIES, EXISTING STOCKHOLDERS WILL INCUR ADDITIONAL DILUTION If we raise additional capital through the issuance of new securities, our stockholders will be subject to additional dilution. In addition, any new securities issued may have rights, preferences or privileges senior to those securities held by our current stockholders. WE RELY ON DISTRIBUTORS AND SALES REPRESENTATIVES FOR A SUBSTANTIAL PORTION OF OUR INTERNATIONAL SALES In regions outside of the United States and Japan, we rely on distributors and sales representatives to sell our products. Any disruptions to these personnel may adversely affect our revenue and gross margins. WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE COMPETITION OF THE HIGH TECH INDUSTRY IN ORDER TO SUCCEED The markets for our products are characterized by changing technologies and new product introductions. Our success will depend in part upon our continued ability to enhance our base system with features including new software and hardware add-ons and to develop or acquire and introduce new products and features which meet new market demands and changing customer requirements on a timely basis. We are currently designing 22 25 and developing new products, primarily in the areas of recording, editing and mixing functions of sound production as well as digital audio processing and networking systems. There can be no assurance that products or technologies developed by others will not render our products or technologies non-competitive or obsolete. If this happens, our revenues will likely be lower and our business will suffer. CURRENT AND POTENTIAL COMPETITORS COULD DECREASE OUR MARKET SHARE AND HARM OUR BUSINESS The markets for our products are intensely competitive and characterized by significant price competition. We believe that our ability to compete depends on elements both within and outside our control, including the success and timing of new product development and introduction by us and our competitors, product performance and price, distribution, availability of lease or other financing alternatives, resale of used systems and customer support. In addition, although our products compete primarily with other mixing consoles in the high-end price range of our targeted market segments, we also believe that, as technology in the professional audio industry advances, prices for mixing consoles and other audio equipment, including our products, will decrease. As a result, our products may increasingly compete against lower-priced products, as well as products in the high-end price range. Although we believe that our audio mixing console has certain technological advantages over our competitors, maintaining such advantages will require continued investment by us in research and development, sales and marketing and customer service and support. There can be no assurance that we will have sufficient resources to be able to maintain such competitive advantages. There are numerous companies that compete in the professional audio market. Many of our competitors are larger and have greater financial, technical, manufacturing and marketing resources, broader product offerings, more extensive distribution networks and larger installed bases than ours. We believe that companies with large installed bases, in particular, may have a competitive advantage since many potential customers in our targeted markets are often reluctant to commit significant resources to replace their current products and to retrain operators to use new products despite technological advantages of such new alternative products. Some of our competitors also offer customers leasing or refinancing packages in connection with the purchase of their mixing consoles, which financing alternatives we do not generally offer. Furthermore, we compete with resellers of used mixing consoles and equipment who are able to sell high-end price range products at generally lower prices. WE DEPEND ON SINGLE AND LIMITED SOURCES FOR KEY COMPONENTS, AND IF WE LOSE ONE OR MORE OF THESE SOURCES, DELIVERY OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED AND OUR BUSINESS COULD SUFFER We and our manufacturing vendors are dependent upon single or limited source suppliers, such as Analog Devices and Maxim Integrated Products, for numerous components and parts used in our products. Currently, we use many sole or limited source suppliers, some of which are critical to our continued uninterrupted production because they supply key components, such as integrated circuits, included in our base system. In particular, we rely on single vendors to manufacture major subassemblies for our products, and other components are critical to the integrated circuits included in our base system. There can be no assurance that these suppliers will continue to be able and willing to meet our requirements for any sole-sourced components. We generally purchase these single or limited source components pursuant to purchase orders and have no guaranteed supply arrangements with such suppliers. In addition, the availability of many components to our subcontractors is dependent in part on our ability to provide our subcontractors, and in turn the subcontractor's ability to provide their suppliers, with accurate forecasts of their future requirements. Major delays or terminations in supplies of such components could significantly adversely affect our timely shipment of our products, which in turn would adversely affect our business and results of operations. The process of qualifying suppliers or designing out certain parts could be lengthy, and no assurance can be given that any additional sources or product redesign would be available to us or implemented on a timely basis. From time to time in the past, we have experienced interruptions in the supply of certain key components from suppliers, which delayed product shipments and there can be no assurance that we will not experience significant shortages for these components in the future. We do not maintain an extensive inventory of such components and any extended interruption or reduction in the future supply or increases in prices of any key components currently obtained from a single limited source supplier could have a material adverse effect on our business and results 23 26 of operations for any given period. If we encounter shortages in component supply, we may be forced to adjust our product designs and production schedules. The failure of one or more of our key suppliers or vendors to fulfill our orders in a timely manner could cause us to not meet our contractual obligations, could damage our customer relationships and could harm our business. OUR SUPPLIERS' ABILITY TO PRODUCE COMPONENTS IS DEPENDENT ON OUR AND OUR SUPPLIERS' ABILITY TO GENERATE ACCURATE FORECASTS, AND THE PROCESS OF QUALIFYING NEW SUPPLIERS IS LENGTHY Our suppliers rely on subcontractors to provide them with components, and their ability to timely procure such components is dependent in part on our ability to provide our subcontractors, and in turn the subcontractor's ability to provide their suppliers, with accurate forecasts of future requirements. The process of qualifying suppliers or designing out certain parts could be lengthy, and no assurance can be given that any additional sources or product redesign would be available to us or implemented on a timely basis. If we are unable to procure key components, shipments of our products would be delayed and revenues would fall. NEW LAWS COULD RESULT IN INCREASED EXPENDITURES, WHICH WOULD HARM OUR RESULTS OF OPERATIONS If different electrical, radiation or other standards applicable to our products are adopted in countries in which we sell our products, including the United States, we may have to increase our expenditures in order to make our products compliant with these laws. In addition, any failure to modify our products, if necessary, to comply with such standards would potentially subject us to fines and penalties, and would harm our business and results of operations. OUR INTELLECTUAL PROPERTY IS VERY IMPORTANT TO OUR BUSINESS, AND IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER We generally rely on a combination of trade secret, copyright law and trademark law, contracts and technical measures to establish and protect our proprietary rights in our products and technologies. We believe, however, that these measures provide only limited protection of our proprietary information, and there is no assurance that they will be adequate to prevent misappropriation. In addition, significant and protracted litigation may be necessary to protect our intellectual property rights, to determine the scope of the proprietary rights of others or to defend against claims of infringement. There can be no assurance that third-party claims alleging infringement will not be asserted against us in the future. Any such claims could seriously harm our business and results of operations. See "Business -- Proprietary Rights". WE MUST CONTINUALLY ATTRACT AND RETAIN OUR MANAGEMENT AND TECHNICAL PERSONNEL OR WE WILL BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY Our future success depends in part on our ability to attract, retain and motivate key management and technical employees. Competition for such personnel is intense in the high tech industry, especially in the Silicon Valley employment market, and we may be unable to successfully attract, integrate or retain sufficiently qualified personnel. We have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled and qualified employees. WE MUST EFFECTIVELY MANAGE AND SUPPORT OUR GROWTH IN ORDER FOR OUR BUSINESS STRATEGY TO SUCCEED We will need to continue to increase revenues and grow in all areas of operation in order to execute our business strategy. Managing and sustaining our growth will place significant demands on management as well as on our administrative, operational and financial systems and controls. If we are unable to do this effectively, we would have to divert resources such as management time away from the continued growth of our business and implementation of our business strategy, and our business and results of operations will be adversely affected. 24 27 WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES. California is in the midst of an energy crisis that could disrupt our operations and increase our expenses. In the event of an acute power shortage, that is, when power reserves for the state of California fall below certain critical levels, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently do not have backup generators or alternate sources of power in the event of a blackout, and our current insurance does not provide coverage for any damages we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our California facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS A disaster could severely damage our ability to deliver our products to our customers. Our products depend on our ability to maintain and protect our facilities, which are primarily located in or near our principal headquarters in Palo Alto, California. Palo Alto may exist on or near a known earthquake fault zone. Although the facilities in which we host our computer systems are designed to be fault tolerant, the systems are susceptible to damage from fire, floods, earthquakes, power loss, telecommunications failures, and similar events. Although we maintain general business insurance against fires, floods and some general business interruptions, there can be no assurance that the amount of coverage will be adequate in any particular case. CHANGES IN EXCHANGE RATES COULD HURT OUR REVENUES Our wholly-owned sales and service subsidiary in Japan conducts its business in the local currency. Changes in the value of the Yen relative to the value of the U.S. dollar, therefore, could adversely affect future revenues and operating results. We have not hedged transactions with external parties. EXISTING AND POTENTIAL LITIGATION MATTERS COULD SIGNIFICANTLY HARM OUR OPERATING RESULTS As described elsewhere herein, we are involved in a legal proceeding. If we do not achieve a favorable outcome in this litigation, or if we are involved in other litigation matters, our business and results of operations could be harmed. See "Legal Proceedings" and Notes to Consolidated Financial Statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Sales through our Japanese subsidiary are denominated in Japanese Yen. The receivables denominated in Yen are subject to foreign exchange risk, and we do not enter into hedging arrangements to mitigate the foreign currency risk with respect to such arrangements. Although an adverse change in the foreign exchange rate would have an effect on the price of our consoles sold in Japan and could result in foreign currency transaction losses, we believe that such losses would not be material. 25 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... 27 Report of Independent Auditors.............................. 28 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 29 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......................... 30 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998.............. 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... 32 Notes to Consolidated Financial Statements.................. 33
26 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Euphonix, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Euphonix, Inc. and its subsidiaries at December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements of the Company as of December 31, 1998 and for the year then ended were audited by other independent accountants whose report, dated March 4, 1999, expressed an unqualified opinion on those statements. As discussed in Note 1 to the consolidated financial statements, during the year ended December 31, 2000 the Company changed its method of recognizing revenue. PRICEWATERHOUSECOOPERS LLP San Jose, California March 26, 2001 27 30 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Euphonix, Inc. We have audited the accompanying Euphonix, Inc. consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the Euphonix, Inc. consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP San Jose, California March 4, 1999 28 31 EUPHONIX, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------- 2000 1999 -------- -------- Current assets: Cash and cash equivalents................................. $ 587 $ 838 Accounts receivable, (net of allowance for doubtful accounts of $142 in 2000 and $112 in 1999)............. 2,389 2,354 Inventories, net.......................................... 6,969 6,964 Prepaid expenses and other current assets................. 406 174 -------- -------- Total current assets.............................. 10,351 10,330 Property and equipment, net................................. 1,127 1,881 Other assets................................................ 522 89 -------- -------- Total assets...................................... $ 12,000 $ 12,300 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 1,841 $ 2,007 Accrued liabilities....................................... 1,174 1,090 Deferred revenue.......................................... 374 -- Customer deposits......................................... 860 240 -------- -------- Total current liabilities......................... 4,249 3,337 Notes payable............................................... 6,531 2,166 -------- -------- Total liabilities................................. 10,780 5,503 -------- -------- Commitments and contingencies (Note 5) Shareholders' equity: Preferred stock, $0.001 par value: 2,000,000 authorized shares, none issued and outstanding.................... -- -- Common stock, $0.001 par value: 20,000,000 authorized shares, 12,190,099 and 11,591,000 shares issued and outstanding in 2000 and 1999, respectively............. 12 12 Additional paid-in capital................................ 24,191 21,402 Unearned compensation..................................... (53) -- Accumulated other comprehensive income.................... 42 42 Accumulated deficit....................................... (22,972) (14,659) -------- -------- Total shareholders' equity........................ 1,220 6,797 -------- -------- Total liabilities and shareholders' equity........ $ 12,000 $ 12,300 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 29 32 EUPHONIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Net revenues................................................ $15,839 $13,806 $15,614 Cost of revenues............................................ 10,863 8,109 8,600 ------- ------- ------- Gross margin................................................ 4,976 5,697 7,014 ------- ------- ------- Operating expenses: Research and development.................................. 3,566 4,485 4,587 Sales and marketing....................................... 5,594 5,588 5,450 General and administrative................................ 2,169 1,299 2,283 ------- ------- ------- Total operating expenses.......................... 11,329 11,372 12,320 ------- ------- ------- Operating loss.............................................. (6,353) (5,675) (5,306) Interest and other income................................... 41 94 74 Interest expense and other charges.......................... (1,737) (748) (8) ------- ------- ------- Loss before equity in net loss of investee and cumulative effect of a change in accounting principle................ (8,049) (6,329) (5,240) Equity in net loss of investee.............................. (105) -- -- ------- ------- ------- Loss before cumulative effect of a change in accounting principle................................................. (8,154) (6,329) (5,240) Cumulative effect of a change in accounting principle....... (159) -- -- ------- ------- ------- Net loss.................................................... $(8,313) $(6,329) $(5,240) ======= ======= ======= Net loss per share, basic and diluted: Loss before cumulative effect of a change in accounting principle.............................................. $ (0.68) $ (0.74) $ (0.82) ======= ======= Adjustment for effect of a change in accounting principle.............................................. (0.01) ------- Net loss per share as adjusted, basic and diluted........... $ (0.69) ======= Pro forma amounts assuming the accounting change is applied retroactively (Note 1): Net loss.................................................. $(8,154) $(5,978) $(5,664) ======= ======= ======= Net loss per share, basic and diluted..................... $ (0.68) $ (0.70) $ (0.88) ======= ======= ======= Shares used in computing net loss per share, basic and diluted................................................... 12,021 8,541 6,404 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 30 33 EUPHONIX, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER --------------- PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT TOTAL ------ ------ ---------- ------------ ------------- ----------- ------- BALANCE AT DECEMBER 31, 1997......... 5,590 $ 6 $13,723 $(140) $(12) $ (3,090) $10,487 Issuance of common stock............. 1,040 1 1,949 -- -- -- 1,950 Exercise of stock options............ 5 -- 1 -- -- -- 1 Amortization of deferred compensation....................... -- -- -- 90 -- -- 90 Net loss............................. -- -- -- -- -- (5,240) Foreign currency translation adjustment......................... -- -- -- -- 87 -- Comprehensive loss................... -- -- -- -- -- -- (5,153) ------ --- ------- ----- ---- -------- ------- BALANCE AT DECEMBER 31, 1998......... 6,635 7 15,673 (50) 75 (8,330) 7,375 Beneficial conversion feature on issuance of convertible note payable............................ -- -- 613 -- -- -- 613 Issuance of common stock............. 2,903 3 3,051 -- -- -- 3,054 Conversion of note payable........... 1,981 2 2,065 -- -- -- 2,067 Exercise of stock options............ 72 -- -- -- -- -- -- Amortization of deferred compensation....................... -- -- -- 50 -- -- 50 Net loss............................. -- -- -- -- -- (6,329) Foreign currency translation adjustment......................... -- -- -- -- (33) -- Comprehensive loss................... -- -- -- -- -- -- (6,362) ------ --- ------- ----- ---- -------- ------- BALANCE AT DECEMBER 31, 1999......... 11,591 12 21,402 -- 42 (14,659) 6,797 Cumulative effect of a change in accounting principle............... -- -- -- -- -- (159) (159) Beneficial conversion feature on issuance of convertible note payable............................ -- -- 1,279 -- -- -- 1,279 Issuance of common stock to existing investors.......................... 148 -- 500 -- -- -- 500 Issuance of common stock in connection with the joint venture............................ 240 -- 660 -- -- -- 660 Exercise of stock options............ 134 -- 135 -- -- -- 135 Unearned compensation................ 77 -- 215 (215) -- -- -- Amortization of deferred compensation....................... -- -- -- 162 -- -- 162 Net loss............................. -- -- -- -- -- (8,154) Foreign currency translation adjustment......................... -- -- -- -- -- -- Comprehensive loss................... -- -- -- -- -- -- (8,154) ------ --- ------- ----- ---- -------- ------- BALANCE AT DECEMBER 31, 2000......... 12,190 $12 $24,191 $ (53) $ 42 $(22,972) $ 1,220 ====== === ======= ===== ==== ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 31 34 EUPHONIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(8,313) $(6,329) $(5,240) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 652 625 595 Deferred income taxes.................................. -- -- 81 Loss on disposal of fixed assets....................... 54 -- 161 Allowance for doubtful accounts........................ 30 (291) 180 Beneficial conversion on convertible note payable...... 1,279 613 -- Interest accrued on notes payable...................... 364 67 -- Amortization of unearned compensation.................. 162 50 90 Changes in assets and liabilities: Accounts receivable.................................. (65) (520) 187 Inventory............................................ 115 (1,405) (248) Prepaid expenses and other assets (including current).......................................... (98) 53 (50) Income tax........................................... -- -- 544 Accounts payable..................................... (166) 371 712 Accrued liabilities.................................. 84 (614) 482 Deferred revenue..................................... 374 (185) -- Customer deposits.................................... 620 142 (140) ------- ------- ------- Net cash used in operating activities............. (4,908) (7,423) (2,646) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available-for-sale securities...... -- 601 1,109 Purchase of property and equipment, net of retirements.... (278) (1,131) (657) ------- ------- ------- Net cash provided by (used in) investing activities...................................... (278) (530) 452 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable................... 4,000 4,100 -- Proceeds from sale of common stock........................ 800 3,054 1,951 Proceeds from exercise of stock options................... 135 -- -- Proceeds from short-term borrowings....................... -- -- 500 Repayment of short-term borrowings........................ -- -- (500) ------- ------- ------- Net cash provided by financing activities......... 4,935 7,154 1,951 ------- ------- ------- Net decrease in cash and cash equivalents................... (251) (799) (243) Cash and cash equivalents at beginning of year.............. 838 1,637 1,880 ------- ------- ------- Cash and cash equivalents at end of year.................... $ 587 $ 838 $ 1,637 ======= ======= ======= SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of notes payable into common stock............. $ -- $ 2,000 $ -- ------- ------- ------- Equity investment in joint venture........................ $ 657 $ -- $ -- ------- ------- -------
The accompanying notes are an integral part of these consolidated financial statements. 32 35 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: THE COMPANY Euphonix, Inc. (the "Company") was incorporated on July 6, 1988 in the state of California. Euphonix develops, manufactures and supports networked digital audio systems for music, film and television post production, broadcast, sound reinforcement and multimedia applications. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated on consolidation. Investments in which the Company has between 20% and 50% ownership are accounted for using the equity method. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Significant estimates made by management include allowance for doubtful accounts, inventory obsolescence, depreciation, amortization, taxes, contingencies and product warranty. Actual results could differ from those estimates. The Company believes that its available cash and cash equivalents will be sufficient to meet its anticipated needs for working capital and capital expenditures through the end of 2001. However, if the Company's operating needs change, it may have to raise additional funds in order to meet its operating needs, to develop new or enhance existing products, to respond to competitive pressures, or to acquire or invest in complementary businesses, technologies, services or products. In addition, in order to meet its long-term liquidity needs, the Company may need to raise additional funds, establish a credit facility or seek other financing arrangements. Additional funding may not be available on favorable terms or at all. Moreover, the maturity dates of the Company's outstanding promissory notes will become due in early 2002. Although, upon shareholder approval, the notes may be converted into shares of the Company's common stock, there is no assurance that the investors will choose to convert their notes, and the Company may have to repay these loans in 2002. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to the short-term maturities. FOREIGN CURRENCY TRANSLATION The functional currency for the Company's Japanese subsidiary is the Yen. Assets and liabilities are translated at exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses are translated into United States dollars at average exchange rates for the period. Gains and losses resulting from translation are accumulated as a component of other comprehensive income. FOREIGN CURRENCY RISK The Company does not enter into hedging arrangements to mitigate the foreign currency risk with respect to foreign currency denominated assets and liabilities. An adverse change in the foreign exchange rate could result in foreign currency transaction losses that could materially affect the Company's operations, financial position and cash flows. Foreign exchange (loss) gains were ($39,000), $48,000 and $14,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 33 36 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term financial instruments that are readily convertible into cash with original maturities of less then ninety days from the date of acquisition. The carrying amount reported in the balance sheets for cash and cash equivalents approximates fair value. SHORT-TERM INVESTMENTS The Company accounts for its investments in accordance with the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At December 31, 1998, the Company has categorized its short-term investments, which were substantially money market funds, that invest in government obligations and corporate securities, as available-for-sale, and had included them in short-term investments. Available-for-sale securities are carried at fair value with unrealized gains and losses, reported in a separate component of shareholders' equity. Unrealized holding gains and losses at December 31, 1998 were not material. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. The Company sold its short-term investments in 1999, and as of December 31, 2000 and 1999, the Company no longer held short-term investments. INVENTORIES Inventories are stated at the lower of standard cost (which approximates first-in, first-out) or market (net realizable value). PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost less accumulated depreciation. The Company provides for depreciation by charges to expense which are sufficient to write off the cost of the assets over their estimated useful lives on the straight-line basis. Leasehold improvement are amortized over the lesser of the lease term or the estimated useful life of the improvement. Useful lives by principal classes of property and equipment are as follows: Furniture and fixtures................................... 7 years Computer equipment and purchased software................ 3 years Leasehold improvements................................... 5 - 7 years Demonstration equipment.................................. 3 - 5 years
When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the asset and allowance for depreciation accounts, respectively, and any gain or loss on that disposal is credited or charged to income. Maintenance, repairs and minor renewals are charged to expense as incurred. Expenditures which substantially increase an asset's useful life are capitalized. ACCOUNTING FOR LONG-LIVED ASSETS The Company evaluates the recoverability of its long-lived assets and goodwill related to those assets in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived assets upon the occurrence of certain events and in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. 34 37 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) WARRANTY The Company provides a fifteen-month parts and labor warranty on its products. The Company accrues for estimated warranty costs upon shipment. COMPREHENSIVE INCOME The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes rules for the reporting and display of comprehensive income and its components; however, the adoption of the Statement had no impact on the Company's net loss or shareholders' equity. SFAS 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. REVENUE RECOGNITION AND CHANGE IN ACCOUNTING PRINCIPLE Effective January 1, 2000, the Company changed its method of accounting for revenue recognition to comply with Securities and Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Previously, the Company has recognized revenue generally upon shipment to customers including cases when installation was a condition of payment, provided all other revenue recognition criteria were met. Under the new accounting method adopted retroactive to January 1, 2000, the Company now defers all revenue until installation is complete (in those cases where installation is a condition of payment), provided all other revenue recognition criteria are met. The pro forma effect of the retroactive application for the years December 31, 2000, 1999 and 1998 is shown as a footnote to the Statement of Operations. The quarters for the year ended December 31, 2000, as restated for the effects of the change in accounting principle, are shown in Note 15. The pro forma effect of the retroactive application for the quarter ended December 31, 1999 (the quarter in which SAB 101 was adopted) is as follows:
FOURTH QUARTER ENDED DECEMBER 31, 1999 -------------------------------------- AS REPORTED ADJUSTMENT PRO FORMA ----------- ---------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue........................................... $ 5,022 $(289) $ 4,733 ------- ----- ------- Gross margin...................................... $ 2,686 $(159) $ 2,527 ------- ----- ------- Net loss.......................................... $ (771) $(159) $ (930) ======= ===== ======= Basic and diluted loss per share.................. $ (0.07) $ (0.09) ======= ======= Shares used in computing basic and diluted net loss per share.................................. 10,660 10,660 ======= =======
CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company manufactures and sells its products to end-users, sales representatives, distributors and leasing companies in the music, post production (film and television), and broadcast industries. The Company performs ongoing credit evaluations of its customers' financial condition, and prior to shipping the product, generally requires a substantial deposit (anywhere from $10,000 up to 50% of the mixing console's value) and a firm purchase order. From time to time and depending on the financial condition of the customer, the Company may require payment of a substantial portion of the purchase price, an irrevocable letter of credit or a purchase order from a third-party lessor. The Company is exposed to credit risks in the event of insolvency by its customers to the extent of 35 38 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) amounts recorded on the balance sheet. The Company maintains reserves for potential credit losses, and such losses have historically been within management's expectations. ADVERTISING COSTS The Company expenses advertising costs as incurred. Advertising expense was approximately $507,000, $457,000 and $504,000 in 2000, 1999 and 1998, respectively. RESEARCH AND DEVELOPMENT Research and development expenditures are charged to expense as incurred. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and the Financial Accounting Standards Board Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25" and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over the option vesting period. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services" and FIN 44. NET LOSS PER SHARE Basic and diluted net loss per share is computed by dividing the net loss available to holders of common stock for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share excludes potential shares of common stock if their effect is anti-dilutive. Potential common stock consists of shares of common stock issuable upon the exercise of stock options and shares issuable upon the conversion of convertible notes payable. The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation because to do so would be anti-dilutive for the period indicated:
DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- (IN THOUSANDS) Convertible notes payable................................... 5,199 2,888 -- Common stock options........................................ 3,279 2,558 1,800 ----- ----- ----- 8,478 5,446 1,800 ===== ===== =====
SEGMENT INFORMATION The Company follows the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). Based on business activities, management responsibility, financial reporting structure and geographical location, the Company has determined that it operates in a single business segment. 36 39 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) RECLASSIFICATIONS The Company has reclassified the presentation of certain 1999 and 1998 statement of cash flows information to conform to current year presentation. The reclassifications had no effect on the previously reported financial position or results of operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities, and is effective for fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133." SFAS No. 138 amends the accounting and reporting standards for certain derivatives and hedging activities such as net settlement contracts, foreign currency transactions and intercompany derivatives. Based on the Company's current operations, management has concluded that the future adoption of SFAS No. 133 will not have a material impact on the Company's financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 has not had a material effect on the financial statements. In November 2000, the Emerging Issues Task Force issued EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments." EITF 00-27 provides additional guidance on accounting for convertible debt instruments and convertible preferred stock with non detachable conversion options that are in-the-money at the commitment date. The Task Force affirmed the use of the accounting conversion price to calculate the beneficial conversion feature charge. Accordingly, any issuances of convertible securities since May 20, 1999 that were accompanied by warrants or other securities requiring an allocation of proceeds under APB 14, will require the application of the accounting conversion price to (1) determine whether the security includes a beneficial conversion feature or (2) to remeasure a previously measured beneficial conversion feature. The adoption of EITF 00-27 has not had a material effect on the financial statements. 37 40 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- BALANCE SHEET COMPONENTS:
DECEMBER 31, ---------------- 2000 1999 ------ ------ (IN THOUSANDS) INVENTORY, NET: Raw materials............................................ $2,474 $2,878 Work-in-progress......................................... 1,084 1,494 Finished goods........................................... 3,411 2,592 ------ ------ $6,969 $6,964 ====== ====== OTHER ASSETS: Equity investment in joint venture....................... $ 462 $ -- Other.................................................... 60 89 ------ ------ $ 522 $ 89 ====== ====== PROPERTY AND EQUIPMENT: Furniture and fixtures................................... $ 124 $ 248 Computer equipment and purchased software................ 2,080 2,226 Leasehold improvements................................... 330 326 Demonstration equipment.................................. 647 1,059 ------ ------ 3,181 3,859 Accumulated depreciation................................. (2,054) (1,978) ------ ------ $1,127 $1,881 ====== ======
Depreciation expense was $562,000, $610,000 and $536,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The capital cost of assets acquired under capital leases was $170,000 for the years ended December 31, 2000 and 1999. The accumulated depreciation for the assets acquired under capital lease was $170,000 and $168,000 for the years ended December 31, 2000 and 1999, respectively.
DECEMBER 31, ---------------- 2000 1999 ------ ------ (IN THOUSANDS) ACCRUED LIABILITIES: Accrued compensation and related......................... $ 445 $ 429 Accrued warranty......................................... 265 244 Accrued commissions...................................... 91 83 Sales tax payable........................................ 149 91 Other.................................................... 224 243 ------ ------ $1,174 $1,090 ====== ======
NOTE 3 -- JOINT VENTURE: In February 2000, the Company entered into a joint venture arrangement with Audio Export George Neumann & Company Gmbh ("Audio Export"). The joint venture was formed by the contribution by the Company of property and equipment with a net book value of $297,000 to its wholly owned subsidiary, Euphonix Europe. Concurrently, Audio Export contributed $680,000 in cash in exchange for common stock of Euphonix Europe, representing 70% of the outstanding common stock of Euphonix Europe after the transaction. The joint venture arrangement included a Shareholder Agreement between the Company and Audio Export and a distribution agreement between the Company and Euphonix Europe. 38 41 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, in February 2000, the President of Audio Export purchased 240,000 shares of the Company's common stock from the Company for $300,000 in cash. The sale of the 240,000 shares was at a $360,000 discount from the quoted market price of the Company's common stock on that date. As a result, in total the Company contributed $657,000. The Company's carrying value in the investment exceeds its interest in the underlying net book value of the investee by approximately $273,000 at December 31, 2000. This excess is being amortized over a period of 3 years. The Company's investment and ownership interest in Euphonix Europe represents 30% of the outstanding shares of Euphonix Europe, and was accounted for using the equity method commencing April 1, 2000, the effective date of the joint venture arrangement. The Company's equity in the net loss of the investee was $105,000 for the year ended December 31, 2000. NOTE 4 -- NOTES PAYABLE: Notes payable comprised as follows:
DECEMBER 31, ---------------- 2000 1999 ------ ------ (IN THOUSANDS) ISSUE DATE: July 30, 1999............................................ $2,100 $2,100 February 22, 2000........................................ 1,500 -- April 14, 2000........................................... 800 -- September 7, 2000........................................ 400 -- December 29, 2000........................................ 1,300 -- ------ ------ 6,100 2,100 Accrued interest........................................... 431 66 ------ ------ Notes payable, long-term................................... $6,531 $2,166 ====== ======
In July 1999, the Company executed a promissory note with an existing investor and other parties under which the Company was authorized to draw up to $2,100,000 through October 31, 1999. The note accrues interest at 7.75% per annum with principal and accrued interest due at July 30, 2001. The assets of the Company are pledged as collateral. The note contains a conversion feature to allow the holder to convert the note into common stock of the Company at a rate of $0.75 per share. At the date of issuance of the note, the quoted market price of the Company's common stock was $0.969 per share, resulting in a beneficial conversion feature charge in the amount of $613,000. The beneficial conversion feature charge was recorded as a credit to equity and a charge to interest expense. In March 2001, the Company and the investors agreed to extend the due date of the principal and accrued interest until March 31, 2002. In February 2000, the Company executed promissory notes with existing investors under which the Company borrowed $1,500,000. The notes accrue interest at 10% per annum with principal and accrued interest due at February 22, 2002. The assets of the Company are pledged as collateral. The note contains a conversion feature to allow the holder to convert the note into common stock of the Company at a rate of $2.531 per share. In addition, this note provides that upon conversion, if such conversion occurs, the Company will issue warrants to purchase 1,185,185 shares of common stock at prices ranging from $3 to $5. The warrants, if issued, will be exercisable at any time and from time to time in part or in full on or before February 1, 2003. At the date of issuance of the note, the quoted market price of the Company's common stock was $2.531 per share, resulting in a beneficial conversion feature in the amount of $1,279,000. The beneficial conversion feature charge was recorded as a credit to equity and a charge to interest expense at the time the notes were issued. 39 42 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In April 2000, the Company executed promissory notes with existing investors under which the Company borrowed $800,000. The notes accrue interest at 10% per annum with principal and accrued interest due at January 1, 2001. An amendment to the April 2000 note extended the due date to July 31, 2001. The assets of the Company are pledged as collateral. The notes contain a conversion feature, which is subject to shareholder approval, and if approved, will allow the holder to convert the note into common stock of the Company at a rate of $3.625 per share. The Company expects that this note will be approved by the shareholders, and upon approval the Company will measure and record a beneficial conversion feature charge, if the accounting conversion rate is lower than the fair market value of the Company's common stock on that date. In March 2001, the Company and the investors agreed to extend the due date of the principal and accrued interest until March 31, 2002. In September 2000, the Company executed a promissory note with an existing investor under which the Company borrowed $400,000. The note accrues interest at 8% per annum with principal and accrued interest due at July 31, 2001. The assets of the Company are pledged as collateral. The notes contain a conversion feature, which is subject to shareholder approval, and if approved, will allow the holder to convert the note into common stock of the Company at a rate of $2.3562 per share. In addition this note provides that upon conversion, if such conversion occurs, the Company will issue warrants to purchase 181,988 shares of common stock at a rate of $2.3562 per share. The warrants, if issued, will be exercisable at any time and from time to time in part or in full before September 7, 2005. The Company expects that this note will be approved by the shareholders, and upon approval the Company will measure and record a beneficial conversion feature charge, if the accounting conversion rate is lower than the fair market value of the Company's common stock on that date. In March 2001, the Company and the investors agreed to extend the due date of the principal and accrued interest until March 31, 2002. In December 2000, the Company executed promissory notes with existing investors under which the Company borrowed $1,800,000. The notes accrue interest at 8% per annum with principal and accrued interest due at July 31, 2001. The assets of the Company are pledged as collateral. As of December 31, 2000, the remaining draw down balance of these notes was $500,000. The notes contain a conversion feature, which is subject to shareholder approval, and if approved, will allow the holder to convert the note in common stock of the Company at a rate of $1.26 per share. In addition this note provides that upon conversion, if such conversion occurs, the Company will issue warrants to purchase 1,502,963 shares of common stock at a rate of $1.26 per share. The warrants, if issued, will be exercisable at any time and from time to time in part or in full before December 29, 2005. The Company expects that this note will be approved by the shareholders, and upon approval the Company will measure and record a beneficial conversion feature charge, if the accounting conversion rate is lower than the fair market value of the Company's common stock on that date. In March 2001, the Company and the investors agreed to extend the due date of the principal and accrued interest until March 31, 2002. NOTE 5 -- COMMITMENTS AND CONTINGENCIES: CONTINGENCIES From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In the opinion of management, there are no pending claims of which the outcome is expected to result in a material adverse effect in the financial position or results of operations of the Company. LEASE COMMITMENTS The Company leases facilities for its headquarters in Palo Alto, California, its subsidiary in Woodinville, Washington, and its sales offices in Los Angeles, Nashville, New York and Tokyo. The operating lease 40 43 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) agreement for Palo Alto expires in November 2001, and the other leases expire at various dates through August 2003. All leases contain renewal options. Certain leases contain provisions for rental adjustments and require the Company to pay property taxes, insurance and normal maintenance costs. In September 1998, the Company sub-leased portions of its facilities in Palo Alto and New York. The aggregate future minimum lease payments under operating leases are as follows (in thousands):
NET FACILITIES SUBLEASES COMMITMENTS ---------- --------- ----------- (IN THOUSANDS) 2001............................................ $ 925 $390 $535 2002............................................ 125 -- 125 2003............................................ 76 -- 76 2004............................................ -- -- -- 2005............................................ -- -- -- Thereafter...................................... -- -- -- ------ ---- ---- Total................................. $1,126 $390 $736 ====== ==== ====
Total rent expense was approximately $1,190,000, $967,000 and $744,000 in 2000, 1999 and 1998, respectively. NOTE 6 -- PREFERRED STOCK: The Company is authorized to issue 2,000,000 shares of undesignated preferred stock. Preferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of preferred stock and to fix the number of shares of any series of preferred stock and the designation of any such series without any vote or action by the Company's shareholders. NOTE 7 -- COMMON STOCK: In April 1999, the Company executed a convertible promissory note with certain new and existing investors for $2,000,000, which was due on April 23, 2001 which accrued interest at 7.75% per annum, and which was convertible at the rate of $1.03 per share. In October 1999, the holders of the note converted the $2,000,000 principal amount and $67,000 accrued interest into 1,981,000 shares of common stock. NOTE 8 -- STOCK OPTION PLANS: 1990 STOCK PLAN The 1990 Stock Plan (the "1990 Plan") provides for the grant of incentive stock options, nonstatutory stock options and stock purchase rights to employees of the Company. The Company has authorized 2,042,281 shares of common stock for issuance under the 1990 Plan. At December 31, 2000, the 1990 Stock Plan had expired with 234,004 stock option shares remaining in the available for grant pool. Options issued under the 1990 Plan are exercisable upon vesting, which is generally four to five years. 1995 PERFORMANCE BASED STOCK OPTION PLAN The 1995 Performance Based Stock Option Plan (the "1995 Plan") provides for the grant of incentive stock options and nonstatutory options to employees of the Company. A total of 50,000 shares of common stock has been reserved for issuance under the 1995 Plan. At December 31, 2000, 22,500 stock option shares were available for grant under the Plan. Options granted under the 1995 Plan prior to 1997 vest at the rate of one-third of the shares one year following the vesting commencement date, with one thirty-sixth of the shares 41 44 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) vesting each month thereafter. All options granted under the 1995 Plan during 1997 vested on December 11, 2000. All options granted under the 1995 Plan during 2000 are fully vested and exercisable as of the date of grant. 1995 NEW DIRECTOR OPTION PLAN The 1995 New Director Option Plan (the "Directors' Plan") authorizes the Company to issue nonstatutory stock options to purchase up to 50,000 shares of the Company's common stock at an exercise price equal to the fair market value of the common stock on the grant date. At December 31, 2000, 29,792 stock option shares were available to grant under the Plan. The Directors' Plan provides that each person who is an outside director on the effective date of the Directors' Plan and each outside director who subsequently becomes a member of the Board of Directors shall be automatically granted an option to purchase 5,000 shares. Additionally, each outside director shall be automatically granted an option to purchase 5,000 shares on the date of each annual shareholders' meeting provided he is an outside director as of the date of such meeting and is reelected to the Board of Directors at such meeting. Options under the plan are fully vested and exercisable as of the date of grant. 1997 NONSTATUTORY STOCK OPTION PLAN The 1997 Nonstatutory Stock Plan (the "1997 Plan") authorizes the Company to issue nonstatutory stock options to employees of the Company. A total of 750,000 shares of common stock have been reserved for issuance under the 1997 Plan. At December 31, 2000, 168,211 stock option shares were available to grant under the Plan. Options granted under the 1997 Plan during 1997 vested on December 11, 2000. Options granted under the 1997 Plan during 2000 generally vest over four years. 1999 STOCK PLAN The 1999 Stock Plan (the "1999 Plan") provides for the grant of incentive stock options, nonstatutory stock options and stock purchase rights and common stock equivalents to employees of the Company. The Company has authorized 750,000 shares of common stock for issuance under the 1999 Plan. In April 2000, an amendment to the 1999 Plan increased the shares authorized to 1,750,000. At December 31, 2000, 906,493 stock option shares were available for grant under the Plan. Options issued under the 1999 Plan are exercisable upon vesting, which is generally four years. 2000 NONSTATUTORY STOCK OPTION PLAN The 2000 Nonstatutory Stock Plan (the "2000 Plan") authorizes the Company to issue nonstatutory stock options to the CEO of the Company under an employment agreement dated October 2, 2000. A total of 1,000,000 shares of common stock have been reserved for issuance under the 2000 Plan. At December 31, 2000, there were no shares remaining available to grant under the Plan. Options issued under the 2000 Plan are exercisable upon vesting, which is twenty-four months. 42 45 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of the Company's stock option activity for all of its stock option plans, is as follows (in thousands except per share amounts):
OUTSTANDING OPTIONS ------------------------------ NUMBER OF WEIGHTED SHARES AVAILABLE SHARES AVERAGE FOR GRANT OUTSTANDING PRICE PER SHARE EXERCISE PRICE ---------------- ----------- --------------- -------------- BALANCE AT DECEMBER 31, 1997........ 935 1,166 $0.100 - 5.375 $ 2.77 Granted........................... (654) 654 0.938 - 2.500 1.27 Exercised......................... -- (5) 0.150 - 0.200 0.18 Canceled.......................... 15 (15) 0.150 - 5.375 2.13 ------ ----- BALANCE AT DECEMBER 31, 1998........ 296 1,800 0.100 - 5.375 2.25 Authorized........................ 750 -- -- -- Granted........................... (938) 938 0.001 - 1.250 0.93 Exercised......................... -- (72) 0.001 - 0.200 0.003 Canceled.......................... 108 (108) 0.200 - 5.375 1.88 ------ ----- BALANCE AT DECEMBER 31, 1999........ 216 2,558 0.001 - 5.375 2.77 Authorized........................ 2,000 -- -- -- Granted........................... (1,285) 1,285 0.100 - 4.250 2.15 Exercised......................... -- (134) 0.100 - 3.000 1.02 Canceled.......................... 430 (430) 0.750 - 5.375 2.08 ------ ----- BALANCE AT DECEMBER 31, 2000........ 1,361 3,279 $0.100 - 5.375 $ 2.18 ====== =====
The following table summarizes information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------- --------------------------------- WEIGHTED NUMBER OF AVERAGE NUMBER OF SHARES REMAINING WEIGHTED SHARES RANGE OF OUTSTANDING CONTRACTUAL LIFE AVERAGE OUTSTANDING WEIGHTED AVERAGE EXERCISE PRICE (IN THOUSANDS) (IN YEARS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- ---------------- $0.10 - 0.15 4 2.0 $0.15 4 $0.15 0.16 - 1.25 1,150 8.2 1.01 628 1.01 1.26 - 2.00 567 7.1 1.68 435 1.77 2.01 - 4.00 1,270 9.5 2.20 52 2.94 $4.01 - 5.38 288 5.2 5.32 278 5.34 ----- ----- Total 3,279 8.3 $1.96 1,397 $2.18 ===== =====
Pro forma information regarding net loss and net loss per share is required by FAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method. The fair value for options granted prior to the initial public offering was estimated at the date of grant using the minimum value method. The fair value for options granted subsequent to the initial public offering was estimated at the date of grant using the Black-Scholes option-pricing model. The minimum value method differs from the Black-Scholes option-pricing model because it does not consider the effect of expected volatility. The Company calculated the fair 43 46 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- (IN THOUSANDS) Risk-free rates............................................. 5.88% 6.44% 5.59% Expected lives (in years)................................... 6 6 6 Dividend yield.............................................. 0% 0% 0% Expected volatility......................................... 83% 78% 90%
The weighted-average grant-date fair value of options granted during the years ended December 31, 2000, 1999 and 1998 were $2.15, $0.93 and $0.94, respectively. The effects on pro forma disclosures of applying FAS 123 are not likely to be representative of the effects on pro forma disclosures in future years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For the purposes of FAS 123 pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net loss.............................................. $(8,313) $(6,329) $(5,240) ------- ------- ------- Net loss per share as adjusted, basic and diluted..... $ (0.69) $ (0.74) $ (0.82) ------- ------- ------- Pro forma net loss.................................... $(9,093) $(7,213) $(6,220) ------- ------- ------- Pro forma net loss per share, basic and diluted....... $ (0.76) $ (0.84) $ (0.97) ------- ------- -------
NOTE 9 -- BENEFIT PLANS: DEFINED CONTRIBUTION PLAN The Company has an employee 401(k) salary deferral plan (the "Plan") that allows voluntary contributions by all full-time U.S. employees. Eligible employees may contribute from 1% to 20% of their respective compensation. The Company does not contribute to the Plan. NOTE 10 -- INCOME TAXES: No provision for federal and state income taxes was recorded for the years ended December 31, 2000, 1999 and 1998 as the Company incurred net operating losses during the period. 44 47 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred tax assets (liabilities) consist of the following:
DECEMBER 31, ------------------ 2000 1999 ------- ------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards....................... $ 6,632 $ 4,185 Credit carryforwards................................... 1,144 862 Capitalized research and development................... 518 514 Reserves and other..................................... 713 737 ------- ------- Deferred tax assets............................ 9,007 6,298 Deferred tax liabilities................................. -- -- ------- ------- Gross deferred tax asset................................. 9,007 6,298 Valuation allowance...................................... (9,007) (6,298) ------- ------- Net deferred tax assets.................................. $ -- $ -- ======= =======
The deferred tax assets valuation allowance at December 31, 2000 and 1999 is attributable to federal and state deferred tax assets. Management believes that sufficient uncertainty exists with regard to the realizability of these tax assets such that a full valuation allowance is necessary. These factors include the lack of a significant history of consistent profits and the lack of carryback capacity to realize these assets. Based on this absence of objective evidence, management is unable to assert that it is more likely than not that the Company will generate sufficient taxable income to realize the Company's net deferred tax assets. Reconciliation of the statutory federal income tax to the Company's effective tax:
YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ---- ---- ---- Tax at federal statutory rate............................... (34)% (34)% (34)% State taxes................................................. -- -- (6)% Research and development credits............................ -- -- (10)% Other....................................................... -- -- (4)% Beneficial conversion of note payable....................... 6% 3% -- Non-recognition of tax benefit.............................. 28% 31% 54% --- --- --- Total............................................. -- -- -- === === ===
As of December 31, 2000, the Company had federal net operating loss carryforwards of approximately $18,487,000. The Company also had federal research and development tax credit carryforwards of approximately $637,000. The net operating loss and credit carryforwards will expire at various dates beginning on 2005 through 2019, if not utilized. NOTE 11 -- RELATED PARTY TRANSACTIONS: In February 2000, April 2000, September 2000 and December 2000, the Company issued convertible promissory notes with certain new and existing investors for $1,500,000, $800,000, $400,000 and $1,800,000, respectively (Note 4). In February 2000, in connection with the joint venture with Audio Export, the President of Audio Export purchased 240,000 shares of common stock for $300,000 (Note 3). In December 1999, the Company sold a System 5 digital console and R-1 multitrack recorder for $481,000 to Soundproof Studios, of which a shareholder is the majority owner. 45 48 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In April 1999, the Company issued a convertible promissory note with certain new and existing investors for $2,000,000. As more fully described in Note 7, in October 1999, the note was converted into 1,981,000 shares of common stock. In connection with this transaction, a director who had loaned $400,000, as part of the issuance of the note, converted his portion of the note into 395,741 shares of common stock. Onset Enterprises Associates III L.P. also participated in this convertible promissory note, and received 991,051 shares of common stock upon conversion of its portion of the note. The managing director of Onset Enterprises Associates III L.P. is also a director of the Company. NOTE 12 -- CONCENTRATION OF OTHER RISKS: PRODUCTS The Company has derived substantially all of its revenues to date from sales of its digitally controlled audio mixing console system. The Company expects that its ability to maintain or expand its current levels of revenues and profits, if any, in the future will depend upon, among other things, its success in selling its System 5 digital console and R-1 multitrack recorder, enhancing its System 5 digital system with features including new software and hardware add-ons and developing and marketing new products and features which meet new market demands and changing customer requirements on a timely basis. MARKETS The markets for the Company's products are characterized by rapidly changing technologies, significant price competition and frequent new product introductions. The Company believes that it must continue to gain market share in all markets. If, in the future, there should be a significant downturn in any of the markets, the Company's business could be materially and adversely affected. INVENTORIES The Company makes inventory provisions for potentially excess and obsolete inventory based on backlog and forecasted demand. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. CUSTOMERS The Company markets and sells its products primarily to a broad base of customers comprised of end-users and sales representatives. No one end-user or distributor constituted 10% or more of net revenues in 2000, 1999, and 1998. EXPORT SALES If in the future, there should be a downturn in the music, post production (film and television) or broadcast industries, or in the economic conditions, the Company's business could be materially and adversely affected. With the exception of an increase in Japan sales in 2000, a substantial decline in export sales has occurred in Europe over the last three years and Japan in 1999 and 1998. With the exception of sales to customers through the Japanese subsidiary, sales in all foreign countries are denominated in U.S. dollars. Sales through the Japanese subsidiary are denominated in Yen. MATERIALS Currently, the Company uses many sole or limited source suppliers, certain of which are critical to integrated circuits included in the Company's base system. If there were to be major delays or terminations in supplies of such components, the Company could experience a delay in the shipment of its products, which could have a materially adverse affect on its financial statements. The Company generally purchases these 46 49 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) single or limited source components pursuant to purchase orders and has no guaranteed supply arrangements with such suppliers. NOTE 13 -- SEGMENT DISCLOSURES: The Company operates in a single industry segment, designing, developing, manufacturing and marketing of digitally controlled audio mixing consoles for use in the production of audio content for the music, post production (film and television) and broadcast industries. The Company markets its products in the United States and in foreign countries through its sales personnel, sales representatives and distributors. The Company's geographic information is as follows: REVENUES
YEAR ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) United States......................................... $ 9,520 $ 9,196 $ 8,903 Export: Japan............................................... 2,515 1,594 3,361 Others.............................................. 3,804 3,016 3,350 ------- ------- ------- $15,839 $13,806 $15,614 ------- ------- -------
LONG-LIVED ASSETS
YEAR ENDED DECEMBER 31, ---------------- 2000 1999 ------ ------ (IN THOUSANDS) United States............................................... $1,614 $1,772 Other....................................................... 35 198 ------ ------ $1,649 $1,970 ------ ------
NOTE 14 -- SUBSEQUENT EVENTS: In March 2001, the Company issued convertible promissory notes to existing investors under which the Company borrowed $3,500,000. The notes accrue interest at 10% per annum with principal and accrued interest due March 31, 2002. The notes contain a conversion feature which allows the holder to convert the principal plus interest into common stock of the Company at a rate of $0.75 per share at any time after the shareholders of the Company approve the notes. The Company also issued 350,000 shares of common stock to these investors in return for their commitment to loan $3,500,000 to the Company. In March 2001, the Company and the investors agreed to extend the due date of the principal and accrued interest of the notes executed in July 1999, April 2000, September 2000 and December 2000 until March 31, 2002. To the extent that the Company has obtained, or will obtain in 2001, stockholder approval for the notes, such notes are convertible into common stock of the Company pursuant to the terms of the notes. 47 50 EUPHONIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters ended December 31, 2000. In the opinion of the Company's management, this quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information for the period presented. The results of operations for any quarter are not necessarily indicative of results for the full year or for any future period. The Company's business is not seasonal; therefore year-over-year quarterly comparisons of the Company's results of operations may not be as meaningful as the sequential quarterly comparisons set forth below which tend to reflect the cyclical activity of the business as a whole. Quarterly fluctuations in expenses are related directly to sales activity and volume and may also reflect the timing of operating expenses incurred throughout the year. As discussed in Note 1, the Company changed its accounting method for revenue recognition in the fourth quarter of the year ended December 31, 2000, effective January 1, 2000. Accordingly, the following unaudited quarterly consolidated financial data for the first three quarters of the year ended December 31, 2000 have been restated to reflect the impact of the change in accounting method as if adopted on January 1, 2000.
FIRST QUARTER ENDED SECOND QUARTER ENDED MARCH 31, 2000 JUNE 30, 2000 ---------------------------------- ---------------------------------- AS AS PREVIOUSLY AS PREVIOUSLY AS REPORTED ADJUSTMENT RESTATED REPORTED ADJUSTMENT RESTATED ---------- ---------- -------- ---------- ---------- -------- Revenues..................... $ 2,835 $(1,000) $ 1,835 $ 4,241 $(33) $ 4,208 ------- ------- ------- ------- ---- ------- Gross margin................. 760 (664) 96 1,488 (34) 1,454 ------- ------- ------- ------- ---- ------- Loss before cumulative effect of change in accounting principle.................. (3,198) (664) (3,862) (1,434) (34) (1,468) Cumulative effect of a change in accounting principle.... -- -- -- -- -- -- ------- ------- ------- ------- ---- ------- Net Loss..................... $(3,198) $ (664) $(3,862) $(1,434) $(34) $(1,468) ------- ------- ------- ------- ---- ------- Basic and diluted loss per share: Loss before cumulative effect of a change in accounting principle.................. $ (0.27) $ (0.33) $ (0.12) $ (0.12) Adjustment for effect of a change in accounting principle.................. Basic and diluted loss per share as adjusted.......... $ (0.27) $ (0.33) $ (0.12) $ (0.12) ------- ------- ------- ------- Shares used in computing basic and diluted net loss per share.................. 11,719 11,719 12,021 12,021 ------- ------- ------- ------- FOURTH QUARTER THIRD QUARTER ENDED ENDED SEPTEMBER 30, 2000 DECEMBER 31, ---------------------------------- 2000 TOTAL AS ------------ -------- PREVIOUSLY AS AS AS REPORTED ADJUSTMENT RESTATED REPORTED REPORTED ---------- ---------- -------- ------------ -------- Revenues..................... $ 3,568 $1,026 $ 4,594 $ 5,202 $15,839 ------- ------ ------- ------- ------- Gross margin................. 934 702 1,636 1,790 4,976 ------- ------ ------- ------- ------- Loss before cumulative effect of change in accounting principle.................. (1,614) 702 (912) (1,912) (8,154) Cumulative effect of a change in accounting principle.... -- -- -- -- (159)* ------- ------ ------- ------- ------- Net Loss..................... $(1,614) $ 702 $ (912) $(1,912) $(8,313)* ------- ------ ------- ------- ------- Basic and diluted loss per share: Loss before cumulative effect of a change in accounting principle.................. $ (0.13) $ (0.08) $ (0.16) $ (0.68) Adjustment for effect of a change in accounting principle.................. (0.01) ------- Basic and diluted loss per share as adjusted.......... $ (0.13) $ (0.08) $ (0.16) $ (0.69) ------- ------- ------- ------- Shares used in computing basic and diluted net loss per share.................. 12,158 12,158 12,184 12,021 ------- ------- ------- -------
- --------------- * The cumulative effect arose as a result of deferring $289,000 of revenues and related cost of revenues of $130,000, which was originally recorded in the fourth quarter of 1999. AS PREVIOUSLY REPORTED:
QUARTERS ENDED ----------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 TOTAL --------- -------- ------------- ------------ ------- Revenues.................................... $ 2,159 $ 2,861 $ 3,764 $ 5,022 $13,806 Gross margin................................ 397 1,033 1,581 2,686 5,697 Net loss.................................... (2,584) (1,695) (1,279) (771) (6,329) Basic and diluted loss per share............ $ (0.34) $ (0.21) $ (0.16) $ (0.07) $ (0.74) Shares used in computing basic and diluted net loss per share........................ 7,589 7,956 7,956 10,660 8,541
48 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the Proxy Statement. In addition, please see the section entitled "Management -- Executive Officers" in Part I, Item 1 hereof. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information requested by this Item is incorporated by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information requested by this Item is incorporated by reference to the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 10-K. (a) DOCUMENTS FILED AS PART OF THIS REPORT. 1. FINANCIAL STATEMENTS. The financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K are presented herein at the pages noted and are incorporated herein by reference. Report of Independent Accountants........................... 27 Report of Independent Auditors.............................. 28 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 29 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.......................... 30 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998.............. 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... 32 Notes to Consolidated Financial Statements as of and for the years ended December 31, 2000 and 1999.................... 33
The following financial statements were audited by PricewaterhouseCoopers LLP: - Consolidated Balance Sheets as of December 31, 2000 and 1999 - Consolidated Statements of Operations for each of the years ended December 31, 2000 and December 31, 1999 - Consolidated Statements of Shareholders' Equity for each of the years ended December 31, 2000 and December 31, 1999 - Consolidated Statements of Cash Flows for each of the years ended December 31, 2000 and December 31, 1999 49 52 - Notes to Consolidated Financial Statements as of and for the year ended December 31, 2000 and 1999 The following financial statements were audited by Ernst & Young LLP: - Consolidated Statement of Operations for the year ended December 31, 1998 - Consolidated Statement of Shareholders' Equity for the year ended December 31, 1998 - Consolidated Statement of Cash Flows for the year ended December 31, 1998 - Notes to Consolidated Financial Statements as of and for the year ended December 31, 1998 2. FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. 3. EXHIBITS The exhibits set forth below, and listed on the accompanying index to exhibits, are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------- ----------------------- 3.1(1) Amended and Restated Articles of Incorporation of the Registrant. 3.2(1) Bylaws of the Registrant. 10.1(1) Form of Indemnification Agreement between the Registrant and each of its directors and officers. 10.2(3) 1990 Stock Plan and forms of stock option agreement and restricted stock purchase agreement thereunder. 10.3(1) 1995 Performance Based Stock Option Plan and form of stock option Agreement thereunder. 10.4(1) 1995 New Director Option Plan and form of stock option agreement thereunder. 10.5(4) 1997 Nonstatutory Stock Option Plan and form of stock option agreement thereunder. 10.6(7) 1999 Stock Option Plan and from of agreements thereunder. 10.7 2000 Nonstatutory Stock Option Plan. 10.8 Stock Option Agreement dated October 2, 2000, by and between the Registrant and Steven W. Vining. 10.9 Employment Agreement dated October 2, 2000, by and between the Registrant and Steven W. Vining. 10.10(1) Modification Agreement dated November 6, 1991, among the Registrant and certain shareholders of the Registrant. 10.11(1) Credit Agreement dated September 30, 1994 between the Registrant and Bank of the West, as amended. 10.12(1) Lease Agreement dated December 31, 1990, as amended May 14, 1993, by and between the Registrant and El Camino Center. 10.13(2) Agreement and Plan of Reorganization dated January 15, 1996 by and among the Registrant, Spectral, Incorporated, Euphonix Acquisition Corporation and certain shareholders of Spectral, Incorporated. 10.14(6) Common Stock Purchase Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier and Stephen D. Jackson. 10.15(6) Registration Rights Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier and Stephen D. Jackson. 10.16(5) Secured Promissory Note dated April 23, 1999, by and between the Registrant and Onset Enterprise Associates, Milton M.T. Chang, Dieter Meier, Stephen D. Jackson and Pegasus Capital II, L.P. 10.17(7) Secured Promissory Note dated July 30, 1999, by and between the Registrant and Taurean Investments AG and Pegasus Capital II, L.P.
50 53
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------- ----------------------- 10.18(7) First Amendment dated October 11, 1999 to Common Stock Purchase Agreement dated January 26, 1999, by and between the Registrant and Onset Enterprise Associates, Linda Wei-Lee Chang 1998 Trust, Michael Minhall Chang 1998 Trust, Milton M.T. Chang, Scott Silfvast, Amy Silfvast and Onset Enterprise Associates. 10.19(7) First Amendment dated October 11, 1999 to Registration Rights Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier, Stephen D. Jackson, Dieter Meier, Stephen D. Jackson and Pegasus Capital II, L.P. and purchasers thereunder. 10.20(7) Common Stock Purchase Agreement dated November 9, 1999, by and between the Registrant and Dieter Meier, Onset Enterprise Associates III, LP, Stephen D. Jackson and Walter Bosch. 10.21(7) Registration Rights Agreement dated November 9, 1999, by and between the Registrant and Dieter Meier, Onset Enterprise Associates III, LP, Stephen D. Jackson and Walter Bosch. 10.22 Common Stock Purchase Agreement dated February 18, 2000, by and between the Registrant and Willy Gunther. 10.23 Registration Rights Agreement dated February 18, 2000, by and between the Registrant and Willy Gunther. 10.24 Secured Promissory Note dated February 22, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures. 10.25 Registration Rights Agreement dated February 22, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures. 10.26 Voting Agreement dated February 22, 2000, by and between the Registrant and James Dobbie, Scott Silfvast and Barry Margerum. 10.27 Subordination Agreement dated February 22, 2000, by and between Taurean Investments AG and Pegasus Capital II, LP, on the one hand, and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures, on the other hand. 10.28 Secured Promissory Note dated April 14, 2000, by and between the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 10.29 Registration Rights Agreement dated April 14, 2000, by and between the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 10.30 Subordination Agreement dated April 14, 2000, by and among Taurean Investments AG, Pegasus Capital II, LP, Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures, on the one hand, and Dieter Meier, Walter Bosch and Onset Ventures, on the other hand. 10.31 Common Stock Purchase Agreement dated June 1, 2000, by and between the Registrant and Dieter Meier and Walter Bosch. 10.32 Registration Rights Agreement dated June 1, 2000, by and between the Registrant and Dieter Meier and Walter Bosch. 10.33 Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.34 Form of Registration Rights Agreement to be executed upon conversion of the Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.35 Form of Common Stock Warrant to be executed upon conversion of the Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.36 Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. 10.37 Form of Registration Rights Agreement to be executed upon conversion of the Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P.
51 54
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------- ----------------------- 10.38 Form of Common Stock Warrant to be executed upon conversion of the Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. 10.39 Amendment dated January 12, 2001 to the Secured Promissory Note dated April 14, 2000, by and among the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 23.1 Consent of PricewaterhouseCoopers, LLP, Independent Accountants. 23.2 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney (see page 53).
- --------------- (1) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form SB-2 (File No. 33-994898-LA), effective August 21, 1995. (2) Incorporated by reference to the exhibit filed with the Registrant's current report on Form 8-K filed on February 7, 1996. (3) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on From S-8 (File No. 333-17545), effective December 10, 1996. (4) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-8 (File No. 333-68425), effective December 4, 1998. (5) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K filed on April 26, 1999. (6) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K/A filed on May 10, 1999. (7) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K filed on March 30, 2000. (b) REPORTS ON FORM 8-K The Company filed one report on Form 8-K on October 27, 2000, which was during the last quarter of the period covered by this report. The Company disclosed that effective as of September 29, 2000, James Dobbie resigned as the Company's Chief Executive Officer and resigned from the Board of Directors in order to retire. The Company also disclosed that effective as of October 2, 2000, Euphonix hired Steve Vining as Chief Executive Officer. 52 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto, State of California, on the 28th day of March, 2001. EUPHONIX, INC. By: /s/ STEVEN VINING ------------------------------------ Steven Vining Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Dieter Meier and Steven Vining, and each of them acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Report. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ DIETER MEIER Chairman March 28, 2001 - ------------------------------------------ Dieter Meier /s/ STEVEN W. VINING Chief Executive Officer and Director March 28, 2001 - ------------------------------------------ (Principal Executive and Financial Steven W. Vining Officer) /s/ SCOTT W. SILFVAST Chief Product Officer and Director March 28, 2001 - ------------------------------------------ Scott W. Silfvast /s/ WALTER BOSCH Director March 28, 2001 - ------------------------------------------ Walter Bosch /s/ STEPHEN JACKSON Director March 28, 2001 - ------------------------------------------ Stephen Jackson /s/ ROBERT F. KUHLING Director March 28, 2001 - ------------------------------------------ Robert F. Kuhling /s/ HARRIET N. DIETZ Controller March 28, 2001 - ------------------------------------------ (Principal Accounting Officer) Harriet N. Dietz
53 56 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------- ----------------------- 3.1(1) Amended and Restated Articles of Incorporation of the Registrant. 3.2(1) Bylaws of the Registrant. 10.1(1) Form of Indemnification Agreement between the Registrant and each of its directors and officers. 10.2(3) 1990 Stock Plan and forms of stock option agreement and restricted stock purchase agreement thereunder. 10.3(1) 1995 Performance Based Stock Option Plan and form of stock option Agreement thereunder. 10.4(1) 1995 New Director Option Plan and form of stock option agreement thereunder. 10.5(4) 1997 Nonstatutory Stock Option Plan and form of stock option agreement thereunder. 10.6(7) 1999 Stock Option Plan and from of agreements thereunder. 10.7 2000 Nonstatutory Stock Option Plan. 10.8 Stock Option Agreement dated October 2, 2000, by and between the Registrant and Steven W. Vining. 10.9 Employment Agreement dated October 2, 2000, by and between the Registrant and Steven W. Vining. 10.10(1) Modification Agreement dated November 6, 1991, among the Registrant and certain shareholders of the Registrant. 10.11(1) Credit Agreement dated September 30, 1994 between the Registrant and Bank of the West, as amended. 10.12(1) Lease Agreement dated December 31, 1990, as amended May 14, 1993, by and between the Registrant and El Camino Center. 10.13(2) Agreement and Plan of Reorganization dated January 15, 1996 by and among the Registrant, Spectral, Incorporated, Euphonix Acquisition Corporation and certain shareholders of Spectral, Incorporated. 10.14(6) Common Stock Purchase Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier and Stephen D. Jackson. 10.15(6) Registration Rights Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier and Stephen D. Jackson. 10.16(5) Secured Promissory Note dated April 23, 1999, by and between the Registrant and Onset Enterprise Associates, Milton M.T. Chang, Dieter Meier, Stephen D. Jackson and Pegasus Capital II, L.P. 10.17(7) Secured Promissory Note dated July 30, 1999, by and between the Registrant and Taurean Investments AG and Pegasus Capital II, L.P. 10.18(7) First Amendment dated October 11, 1999 to Common Stock Purchase Agreement dated January 26, 1999, by and between the Registrant and Onset Enterprise Associates, Linda Wei-Lee Chang 1998 Trust, Michael Minhall Chang 1998 Trust, Milton M.T. Chang, Scott Silfvast, Amy Silfvast and Onset Enterprise Associates. 10.19(7) First Amendment dated October 11, 1999 to Registration Rights Agreement dated January 26, 1999, by and between the Registrant and Dieter Meier, Stephen D. Jackson, Dieter Meier, Stephen D. Jackson and Pegasus Capital II, L.P. and purchasers thereunder. 10.20(7) Common Stock Purchase Agreement dated November 9, 1999, by and between the Registrant and Dieter Meier, Onset Enterprise Associates III, LP, Stephen D. Jackson and Walter Bosch. 10.21(7) Registration Rights Agreement dated November 9, 1999, by and between the Registrant and Dieter Meier, Onset Enterprise Associates III, LP, Stephen D. Jackson and Walter Bosch. 10.22 Common Stock Purchase Agreement dated February 18, 2000, by and between the Registrant and Willy Gunther. 10.23 Registration Rights Agreement dated February 18, 2000, by and between the Registrant and Willy Gunther. 10.24 Secured Promissory Note dated February 22, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures.
54 57
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------- ----------------------- 10.25 Registration Rights Agreement dated February 22, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures. 10.26 Voting Agreement dated February 22, 2000, by and between the Registrant and James Dobbie, Scott Silfvast and Barry Margerum. 10.27 Subordination Agreement dated February 22, 2000, by and between Taurean Investments AG and Pegasus Capital II, LP, on the one hand, and Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures, on the other hand. 10.28 Secured Promissory Note dated April 14, 2000, by and between the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 10.29 Registration Rights Agreement dated April 14, 2000, by and between the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 10.30 Subordination Agreement dated April 14, 2000, by and among Taurean Investments AG, Pegasus Capital II, LP, Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang and Onset Ventures, on the one hand, and Dieter Meier, Walter Bosch and Onset Ventures, on the other hand. 10.31 Common Stock Purchase Agreement dated June 1, 2000, by and between the Registrant and Dieter Meier and Walter Bosch. 10.32 Registration Rights Agreement dated June 1, 2000, by and between the Registrant and Dieter Meier and Walter Bosch. 10.33 Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.34 Form of Registration Rights Agreement to be executed upon conversion of the Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.35 Form of Common Stock Warrant to be executed upon conversion of the Secured Promissory Note dated September 7, 2000, by and between the Registrant and Walter Bosch. 10.36 Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. 10.37 Form of Registration Rights Agreement to be executed upon conversion of the Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. 10.38 Form of Common Stock Warrant to be executed upon conversion of the Secured Promissory Note dated December 29, 2000, by and between the Registrant and Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. 10.39 Amendment dated January 12, 2001 to the Secured Promissory Note dated April 14, 2000, by and among the Registrant and Dieter Meier, Walter Bosch and Onset Ventures. 23.1 Consent of PricewaterhouseCoopers, LLP, Independent Accountants. 23.2 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney (see page 53).
- --------------- (1) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form SB-2 (File No. 33-994898-LA), effective August 21, 1995. (2) Incorporated by reference to the exhibit filed with the Registrant's current report on Form 8-K filed on February 7, 1996. (3) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on From S-8 (File No. 333-17545), effective December 10, 1996. (4) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-8 (File No. 333-68425), effective December 4, 1998. 55 58 (5) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K filed on April 26, 1999. (6) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K/A filed on May 10, 1999. (7) Incorporated by reference to the exhibit filed with the Registrant's annual report on Form 10-K filed on March 30, 2000. 56 EX-10.7 2 f70624ex10-7.txt EXHIBIT 10.7 1 EXHIBIT 10.7 EUPHONIX, INC. 2000 NONSTATUTORY STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees, Directors and Consultants, and - to promote the success of the Company's business. Options granted under the Plan will be Nonstatutory Stock Options. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Euphonix, Inc., a California corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. 2 (k) "Employee" means any person, including Officers, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. (o) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (q) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (r) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. -2- 3 (s) "Optioned Stock" means the Common Stock subject to an Option. (t) "Optionee" means the holder of an outstanding Option granted under the Plan. (u) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (v) "Plan" means this 2000 Nonstatutory Stock Option Plan. (w) "Service Provider" means an Employee including an Officer, Consultant or Director. (x) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (y) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is One Million (1,000,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). 4. Administration of the Plan. (a) Administration. The Plan shall be administered by (i) the Board or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Service Providers to whom Options may be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; -3- 4 (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to institute an Option Exchange Program; (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (x) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (xi) to modify or amend each Option (subject to Section 14(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xiii) to determine the terms and restrictions applicable to Options; (xiv) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xv) to make all other determinations deemed necessary or advisable for administering the Plan. -4- 5 (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 5. Eligibility. Options may be granted to Service Providers. 6. Limitation. Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. 7. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; -5- 6 (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (viii) any combination of the foregoing methods of payment. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement, to the extent the Option is vested on the date of -6- 7 termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Non-Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made -7- 8 by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock, immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. -8- 9 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -9- EX-10.8 3 f70624ex10-8.txt EXHIBIT 10.8 1 EXHIBIT 10.8 EUPHONIX, INC. 2000 NONSTATUTORY STOCK OPTION PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT Steven W. Vining 17053 Palisades Circle Pacific Palisades, CA 90272-2156 You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number 100200-0 Date of Grant October 2, 2000 Vesting Commencement Date October 2, 2000 Exercise Price per Share $2.0625 Total Number of Shares Granted 1,000,000 Total Exercise Price $2,062,500 Type of Option: Nonstatutory Stock Option Term/Expiration Date: October 2, 2010 Vesting Schedule: ---------------- Subject to the Optionee continuing to be a Service Provider on such dates, this Option shall vest and become exercisable in accordance with the following schedule: (i) 250,000 Shares shall vest on January 2, 2001; (ii) 35,714 Shares shall vest on the first day of each month thereafter, beginning on February 1, 2001, and 6 shares on October 1, 2002, until all Shares are vested; and (iii) in addition to the foregoing, if the closing price of the Company's common stock (the "Closing Price"), as reported on the Nasdaq National Market or Nasdaq 2 SmallCap Market, equals the price set forth as follows for at least 15 business days during any period of 30 business days, any unvested options shall vest as follows: (a) if the Closing Price is $6.00, then an additional 100,000 shares shall vest, (b) if the Closing Price is $8.00, then an additional 100,000 shares shall vest, and (c) if the Closing Price is $10.00, then an additional 100,000 shares shall vest. Termination Period: This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one (1) year following such termination. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. 1. AGREEMENT (a) Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. (b) Exercise of Option. (i) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (ii) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Secretary. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. -2- 3 (c) Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash; (ii) check; (iii) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (iv) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, AND (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. (d) Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. (e) Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. (f) Tax Consequences. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercising the Option. The Optionee may incur regular federal income tax liability upon exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Disposition of Shares. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. -3- 4 (g) Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. (h) NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE EUPHONIX, INC. - ------------------------------ ------------------------------------ Signature By - ------------------------------ ------------------------------------ Print Name Title - ------------------------------ Residence Address - ------------------------------ -4- 5 EXHIBIT A EUPHONIX, INC. 2000 NONSTATUTORY STOCK OPTION PLAN EXERCISE NOTICE Euphonix, Inc. 220 Portage Avenue Palo Alto, CA 94306 Attention: Secretary 1. Exercise of Option. Effective as of today, Steve Vining, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Euphonix, Inc. (the "Company") under and pursuant to the 2000 Nonstatutory Stock Option Plan (the "Plan") and the Stock Option Agreement dated, October 2, 2000 (the "Option Agreement"). The purchase price for the Shares shall be $2.0625 per Share, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 12 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with 6 the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER EUPHONIX, INC. - ------------------------------- ------------------------------------- Signature By - ------------------------------- ------------------------------------- Print Name Title ------------------------------------- Date Received Address: Address: 220 Portage Avenue --------------------------- Palo Alto, CA 94306 --------------------------- --------------------------- -2- EX-10.9 4 f70624ex10-9.txt EXHIBIT 10.9 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as this 2nd day of October 2000, by and between EUPHONIX, INC., a California corporation (the "Company"), having its principal place of business located at 220 Portage Avenue, Palo Alto, CA 94306, and STEVE VINING ("Vining"), an individual residing at 17053 Palisades Circle, Pacific Palisades, California 90272. W I T N E S S E T H: WHEREAS, the Company is a leading supplier of computer controlled professional audio production systems (the "Existing Business"); WHEREAS, the Company desires to expand its Existing Business by developing a Internet delivery format for music and other content that is intended to be played in so-called "true CD/DVD-A quality" (the "New Business"); WHEREAS, the parties acknowledge that Vining has experience in or related to tile business of tile Company and associated services and that Vining's abilities and services are unique and essential to the prospects of the Company; and WHEREAS, in light of the foregoing, the Company desires to employ Vining as its Chief Executive Officer and Vining desires to accept such employment. NOW, THEREFORE, in consideration of the mutual covenants and representations herein contained and the initial benefits derived herefrom, the parties hereto, intending to be legally bound, covenant and agree as follows: 1. Employment of Vining; Duties and Status. (a) Position and Reporting. The Company hereby engages Vining as a full-time executive employee to hold the office of Chief Executive Officer of the Company for the period (the "Employment Period") specified in Section 3(a), reporting only to the Company's Board of Directors, and Vining accepts such employment, oil the terms and conditions set forth in this Agreement, (b) Employment. Throughout the Employment Period, Vining shall perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Company's Board of Directors, provided such duties are consistent with the role of a Chief Executive Officer. Vining agrees to diligently and professionally develop the Company's Existing Business and New Business (collectively, tile "Company Business"), its processes, systems, and intellectual property. Vining shall devote a substantial portion of his working time, attention and energies to the Company Business and shall not during the Employment Period be engaged (whether or not during normal business hours) in any other business or professional activity, whether or riot such activity is pursued for gain, profit or other pecuniary advantage, that substantially conflicts with, or materially interferes with the performance of his duties hereunder. Notwithstanding 2 anything to the contrary, Vining shall be entitled to (i) serve on the board of directors of no more than 4 corporations provided that such corporations are not materially engaged in and do not become materially engaged in any material aspect of the Company Business, (ii) engage in such civic and charitable activities that do not materially interfere with the performance of his duties set forth hereunder, (iii) own, operate, and participate in the business and activities of Norwegian Palms Incorporated ("Nor Palms"), and (iv) accept such additional office or offices to which he may be appointed by the Company, provided that the performance of the duties of such office or offices shall generally be consistent with the scope of the duties provided for in Section 1(a) hereof. (c) Proprietary Rights Agreement. Vining agrees to execute the Employee Proprietary Information and Inventions Agreement (the "Proprietary Rights Agreement"), attached hereto as Exhibit A, and to comply with the provisions thereof. (d) New Business. The Company agrees to diligently and actively pursue the. New Business and activities associated therewith, In this regard, the Company covenants and agrees to use best efforts to obtain capital for use in the Now Business. (e) Key Officers. The parties acknowledge and agree that Vining shall be the most senior officer and employee within the Company and that all employees of the Company (including, without limitation, the Company's President, Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer, and Chief Technical Officer) shall report to Vining. Vining shall have the reasonable discretion, which shall be exercised in the Company's best interest and be subject to the advice and consultation of the Company's Board of Directors, to hire and terminate such employees. 2. Compensation and General Benefits. As compensation for his services to the Company, Vining shall, during the Employment Period, be compensated as follows: (a) Salary. The Company shall pay to Vining a salary (the "Salary") in the amount set forth below. The Salary shall be payable in periodic equal installments not less frequently than semi-monthly, less such sums as may be required to be deducted or withheld under applicable provisions of federal, state and local law. At the sole discretion of the Board of Directors, the Company may pay Vining an annual bonus. (i) For the period October 2, 2000 through October 1, 2001: $175,000; and (ii) For the period October 2, 2001 through October 1, 2002: $200,000, (b) Nor Palms. Additionally, the Company agrees to retain Nor Palms to provided consulting services to the Company, pursuant to the terms and conditions of that certain Consulting Agreement, of even date herewith, a copy of which is attached hereto as Exhibit B (the "Consulting Agreement"). As set forth in the Consulting Agreement, the Company shall pay to Nor Palms an annual consulting fee (the "Consulting Fee") equal to $75,000 (or pro-rata portion thereof). The term of the Consulting Agreement shall at all times equal the term of the Employment Period. -2- 3 (c) Stock Options. Throughout the Employment Period and to the extent determined .by the Board of Directors in its discretion to be commensurate with Vining's level of responsibility within the Company, Vining shall be entitled to participate in any stock option plan that may be adopted by the Company in its discretion and in which any of the Company's executive employees participate; provided, however, the Company agrees to promptly implement a stock option plan to reward Vining and other key officers of the Company for achieving annual targets with respect to the Company Business and with respect to its Common Stock- (as defined below), as such targets are reasonably adopted by the Board of' Directors from time to time. In addition to the foregoing, Vining shall be entitled, upon the execution of this Agreement, to receive options (the "Vining Options") to acquire 1,000,000 shares of the Company's common stock, par value $0.001 per share (the "Common Stock"). The Vining Options shall provide for an exercise price per share of Common Stock equal to the closing price of such Common Stock, as reported on NASDAQ on September 26, 2003, Subject to applicable law, at Vining's request, (be Company shall use best efforts to qualify the Vining Options as Incentive Stock Options under applicable 'sections of the Internal Revenue Code and regulations promulgated thereunder. The Vining Options shall be issued pursuant to that certain Stock Option Agreement, substantially in the form attached hereto as Exhibit C (the "Vining Option Agreement"). As set forth in the Vining Option Agreement, the Vining Options shall vest and be exercisable into Common Stock, assuming the Employment Period has not otherwise been earlier terminated, as follows: (i) 250,000 on January 2, 2001; (ii) 35,714 on the 1st day or each calendar month during the Employment Period, beginning February 1, 2001; and (iii) 6 on October 1, 2002. (iv) Notwithstanding the foregoing, if the closing price of Common Stock, as reported on the NASDAQ (the "Closing Price"), for at least 15 business days during any 30 business days, equals the price set forth below, any un-vested Vining Options (in addition to the vesting schedule otherwise set forth herein) shall vest and be exercisable into Common Stock, assuming the Employment Period has not otherwise been earlier terminated, as follows: (1) If the Closing Price is $6.00, the additional number of Common Stock to vest is 100,000; and (2) If the Closing Price is $8.00, the additional number of Common Stock to vest is 100,000; and (3) If the Closing Price is $10.00, the additional number of Common Stock to vest is 100,000. (d) Other Benefits. Throughout the Employment Period and to the extent determined by the Board of Directors in its discretion to be commensurate with Vining's level of responsibility within the Company, Vining shall be entitled to participate in such pension, profit sharing, bonus or incentive compensation, incentive, group and individual disability, group and -3- 4 individual life, survivor income, sickness, accident, dental, medical and health benefits and other plans of the Company or additional benefit programs, which may be established by the Company for its executives or other employees, as and to the extent any such benefit programs, plans and arrangements are or may from time to time be in effect, as determined by the Company in its discretion and pursuant to the terms hereof and as and to the extent that Vining is eligible to participate in such plans under the terms or such plans. The Board of Directors may cause the Company to purchase a life insurance policy (or policies) on the life of Vining, the death benefit being payable to any beneficiary (or beneficiaries) as designated by Vining. (e) Expenses. The Company shall reimburse Vining from time to time for all reasonable and customary business expenses incurred by him in the performance of his duties hereunder, provided that Vining shall submit vouchers and other supporting data to substantiate the amount of such expenses in accordance with Company policy from time to time in effect. (f) Car Allowance and COBRA. The Company shall pay to Vining a monthly car allowance in the amount of $1,400.00 per month. Until the later to occur of tile date that is eight (8) months following the date hereof or the date in which Vining is entitled to medical, dental, and hospital coverage by the Company, Company shall pay to Vining the amount of $685.00 each month, which reflects the COBRA premium otherwise due to maintain such coverage under Vining's former employment. (g) Vacation. Throughout the Employment Period, Vining shall be entitled to annual vacation, holidays, leave of absence, and leave for illness or temporary disability in accordance with the policies of the Company in effect from time to time for its executive officers, but no less than three (3) weeks of paid vacation and ten (10), holidays each calendar year. Vacation leave and leave of absence, if taken by Vining, shall be taken at such times as are reasonably acceptable to the Company; provided, however, the parties acknowledge and agree that Vining shall be permitted to take ten (10) business days of vacation during the period of October 2, 2000, and December 31, 2000, on such days as Vining reasonably determines, Any leave on account of illness or temporary disability which is short of Total Disability (as defined in Section 3(d)(ii) hereof) shall not constitute a breach by Vining of his agreements hereunder even though leave on account of a Total Disability may be deemed to result in a termination of the Employment Period under the applicable provisions of this Agreement. 3. Employment Period. (a) Duration. The Employment Period shall commence on the date or this Agreement and shall continue until the earlier of (i) the close of business on the day immediately preceding the second (2nd) anniversary of the date, of this Agreement, or the expiration of any extension of this Agreement as provided in Section 3(b) hereof, or (ii) termination of this Agreement by the Company for "cause" (as defined in Section 3(d)(i) hereon, or (iii) termination of this Agreement by the Company for any reason other than cause, or (iv) Vining's resignation for "good reason" (as defined in Section 3(d)(iii), or (v) Vining's resignation without "good reason," or (vi) the death or Total Disability of Vining. -4- 5 (b) Extension of Employment Period. This Agreement may only be extended by mutual written agreement of both parties hereto. (c) Payments Upon Termination. (i) WITHOUT CAUSE OR FOR GOOD REASON. Except as otherwise provided herein, if Vining's employment is terminated by (x) the Company for any reason other than "cause" (as defined in Section 3(d)(i) hereof), or (y) by Vining for "good reason" (as defined in Section 3(d)(iii) hereof), at any time during the Employment Period or any extension therefor, the Company shall pay to, or provide for, as the case may be, Vining, for the remainder of the Employment Period, including any extension thereof, in a lump-sum within ten (10) days of the date of such termination, all of the following: (1) all compensation, bonus, car allowance, expense reimbursement, and options described in Section 2 (including, without limitation, the Consulting Fee payable to Nor Palms) of this Agreement which Vining and Nor Palms would have been entitled had Vining continued to be employed by the Company throughout the full Employment Period; and (2) to the extent applicable, the sickness and health insurance programs to which he would have been entitled under this Agreement if he had remained in the employ of the Company for such period; (3) provided, however, if such termination occurs prior to January 2, 2001, the amounts payable pursuant to Section 1(c)(i)(1) and (2), shall be recalculated and paid as if the Employment Period was otherwise set to expire as of October 1, 2001. (ii) FOR CAUSE OR DEATH/DISABILITY. If Vining's employment is terminated (A) by the Company for "cause" or (B) upon the death or due to the Total Disability (as defined in Section 3(d)(ii) hereof) of Vining, then the Company shall have no further liability to Vining, except (x) for the Salary, Consulting Fee, car allowance, and. reimbursement of expenses, which had accrued through the date of termination, which amounts shall be paid by Company within ten (10) days of such termination, (y) if Vining's employment with the Company is terminated due to Vining's death, then, as compensation for Vining's services, Vining's estate and Nor Palms (as the case may be) shall receive, in the same amounts and at the same time, the Salary, Consulting Fee, car allowance, reimbursement of expenses, and options Vining would have received had he not died, for the six months following the death of Vining, and (z) for such other benefits as may be required to be provided by the Company under the provisions of applicable law. (iii) CHANGE IN CONTROL. If Vining's employment with the Company is terminated by the Company without cause within two (2) years following of a Change in Control (as defined below) or Vining resigns with good reason within two (2) years following a Change in Control, then the Company shall pay to Vining the amounts otherwise payable to Vining by the Company pursuant to the provisions of Sections 3(c)(i), which amount shall be paid in its entirety no later than ten (10) days after such employment termination or resignation. -5- 6 (iv) RESIGNATION. If Vining's employment with the Company is voluntarily terminated by Vining without good reason, Vining shall be entitled to receive, in a lump-sum within ten (10) days of the date of such termination, all of the following: (1) all compensation, bonus, car allowance, expense reimbursement, and options described in Section 2 (including, without limitation, the Consulting Fee payable to Nor Palms) of this Agreement to which Vining and Nor Palms would have been entitled had Vining continued to be employed by the Company throughout the full Employment Period; and (2) to the extent applicable, (the sickness and health insurance programs to which lie would have been entitled under this Agreement if he, had remained in the employ of the Company for such period; (3) provided, however, the amounts payable pursuant to Section 3,(c)(iv)(1) and (2), shall bc recalculated and paid, as if the Employment Period was otherwise set to expire the earlier or (x) the date that is three (3) months following such date of voluntary resignation, or (y) the otherwise then-existing expiration or the Employment Period. (v) In the event than any payments or provisions for the payment of salary, benefits, perquisites and rights to Vining described in this Section 3(c) shall, together with any other payment received by Vining, be considered to be an "excess parachute payment" under Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), this Agreement shall be construed so that the amount received by Vining that is described as a "parachute payment" under Section 280G(b)(2) of the Code shall equal the greater of (i) the amounts otherwise payable under this Agreement (determined, solely for purposes of comparison to clause (ii), hereof, by netting out any excise tax that may be due under Section 4999 of the Code) or (ii) the maximum amount (fiat could be paid to Vining so that no such amount, along with all other "parachute payments" made to Vining by the Company, will be deemed to constitute an "excess parachute payment" as defined under Code Section 280G(b)(1). (d) Definitions. When used in this Agreement, the words "cause," "Total Disability," "good reason," and "Change in Control" shall have the respective meanings set forth below: (i) The term "cause" means: (A) Vining's intentional failure to perform his employment duties hereunder after reasonable notice to Vining by tile Company's Board of Directors specifying such failure and providing Vining with a reasonable time (which shall not be less than 30 days) to cure such failure given (he context of the circumstances, as determined by the Company's Board of Directors in the exercise of its reasonable discretion; (B) Vining's conviction, or a plea of nolo contendere, of a felony or any crime involving moral turpitude that is related to the business or property of the Company; (C) the commission of an act, or failure to act, in connection with Vining's duties hereunder, which involves the gross misconduct or gross negligence, or (D) repeated acts of alcoholism, drug dependency, or habitual absenteeism, which interferes with the performance of Vining's duties hereunder. -6- 7 (ii) To the extent permitted by applicable law, the term "Total Disability" means total disability as defined in the Company's group and individual disability plans, if any. If the Company does not have in existence such plans, then total Disability shall mean: (1) The inability to perform the duties required hereunder for a continuous period of six (6) months during the Employment Period due to "mental incompetence" or "physical disability" as hereinafter defined. Vining shall be considered to be mentally incompetent and/or physically disabled: (A) if he is under a legal decree of incompetency (the date of such decree being deemed the date on which such mental incompetence occurred for purposes of this Section 3(d)), or (B) because of a "Medical Determination of Mental and/or Physical Disability." A Medical Determination of Mental and/or Physical Disability shall mean the written determination by: (x) the physician regularly attending Vining, and (y) a physician selected by the Company, that because of a medically determinable mental and/or physical disability Vining is unable to perform each of the essential functions of Vining, and such mental and/or physical disability is determined or reasonably expected to last six (6) months or longer after the date of determination, based on medically available information. If the two physicians do not agree, they shall jointly choose a third consulting physician and the written opinion of the majority of these three (3) physicians shall be conclusive as to such mental and/or physical disability and shall be binding on the parties. The date of any written opinion which is conclusive as to the mental and/or physical disability shall be deemed the date on which such mental and/or physical disability commenced, for purposes of this Section 3(d), if the written opinion concludes that Vining is mentally and/or physically disabled. In conjunction with determining mental and/or physical disability for purposes of this Agreement, Vining consents to any such examinations which are relevant to a determination of whether he is mentally and/or physically disabled, and which is required by any two (2) of the aforesaid physicians, and to furnish such medical information as may be reasonably requested, and to waive any applicable physician/patient privilege that may arise because of such examination. All physicians selected hereunder shall be Board-certified in the specialty most closely related to the nature of the mental and/or physical disability alleged to exist. (2) For purposes of determining whether Vining is mentally incompetent or physically disabled for the continuous six (6) month period specified in this Section 3(d), such disability shall be deemed to continue from the date of any legal decree of incompetency, or written opinion which is conclusive as to the mental and/or physical disability, through the date the legal decree expires or is otherwise revoked or removed, or the date on, which the mental and/or physical disability has ceased, as the case may be, as set forth in a written opinion prepared by the physicians described in this Section 3(d) pursuant to the procedures provided herein. (iii) The term "good reason," and its use within the context of "resignation for good reason," means any material breach by the Company of this Agreement, after thirty (30) days written notice and chance to cure therein, including (without limitation) (1) the failure to make any payment or the grant of any stock option described herein; (2) any change in Vining's reporting official or any adverse change in Vining's title, function, duties, or responsibilities; or (3) any material change in the Company's Business (including the failure to pursue the New Business). (iv) The term "Change in Control" shall mean any of the following: -7- 8 (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing a majority of the capital stock or the Company, entitled to vote generally for the election of directors of the Company; or (2) a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect on the date of this Agreement; or (3) there shall be consummated: (i) any consolidation or merger or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock, of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or a substantial portion, of the assets of the Company; or (4) the stockholders of the Company approve a plan or proposal for the complete or partial liquidation, dissolution or divisive reorganization of the Company. (e) Disparaging Remarks. Throughout the Employment Period, Vining covenants to not make any disparaging remarks concerning the Company, its operations, or its employees, officers or directors to any persons either publicly or in private whether or not such disparaging, remarks may be found to adversely affect the Company, its employees, officers, or directors. (f) Relocation: Location of Performances. (i) Vining's services will be performed primarily in the City of Palo Alto California, and Vining shall not be required to change his current place of residence (as listed on page 1 of this Agreement) for the purpose of serving the Company, without his consent. The parties acknowledge, however, that Vining may be required to travel in connection with the performance or his duties hereunder. Any violation of this Section 3(f)(i) shall be deemed a material breach or this Agreement entitling Vining to terminate this Agreement for good reason. (ii) If Vining consents to a relocation, the Company shall pay all the costs and expenses of Vining and his family connected with such relocation, including reasonable moving and travel expenses and reasonable temporary dwelling costs (for a period not to exceed 180 days), provided proper receipts are provided for such expenses and that they in total do not exceed seventy-five thousand dollars ($75,000.00). Additionally, the Company shall assist Vining in the sale or his personal residence, including the payment of all real estate fees, commissions, and state, county, city, or local taxes incurred upon the sale of real estate. 4. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if (i) it is in writing (ii) to Vining, is sent by registered or certified -8- 9 mail to Vining at the last address he has filed in writing with the Company, and (iii) to the Company, is sent to the Company's principal place of business and addressed to the Chairman of the Board of Directors. 5. Binding Agreement; Assignment. This Agreement shall be effective as of the date hereof and shall be binding upon and inure to the benefit of, the parties and, their respective heirs, successors, assigns, and. personal representatives, as, the case may be. Vining may not assign any rights or duties under this Agreement. As used herein, the successors of the Company shall include, but not be limited to, any successor by way of merger, consolidation, sale of all or substantially all of the assets, or similar reorganization or change in control. 6. Entire Agreement. This Agreement, the Vining Option Plan, the Consulting Agreement, and the Proprietary Rights Agreement constitute the entire understanding of Vining and the Company with respect to the subject matter hereof and supersede any and all prior understandings written or oral. This Agreement may not be changed, modified or discharged orally, but only by an instrument in writing signed by the parties. 7. Enforceability. This Agreement has been duly authorized, executed and delivered and constitutes the valid and binding obligations of the parties hereto, enforceable in accordance with its terms. The undertakings herein shall not be construed as any limitation upon the remedies Company might, in the absence of this Agreement, have at law or in equity for any wrongs of Vining. 8. Choice of Law; Jurisdiction; Venue. This Agreement has been negotiated and shall be consummated in the State of California and shall be governed by and construed in accordance with the laws of the State of California, without regard to its principles of conflicts of law. 9. Severability. If any one or more of the terms or provisions or this Agreement shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part, or in any respect or in the event that any one or more of the provisions of this Agreement operated or would prospectively operate to invalidate this Agreement, then and in either of those events, such provision or provisions only shall be deemed null and void and shall not affect any other provision of this Agreement and the remaining provisions of this Agreement shall remain operative and in full force and effect and shall in no way be affected, prejudiced or disturbed thereby. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one Agreement. Signatures transmitted by facsimile or other electronic means shall be deemed an original. 11. Amendments and Waivers. This Agreement may, to the maximum extent permitted by applicable law, be amended by the parties, which amendment shall be set forth in an instrument executed by all of the parties, Any term, provision or condition of this Agreement (other than as prohibited by applicable law) may be waived in writing at any time by the party which is entitled to the benefits thereof. A waiver by the Company or Vining of a breach or any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. -9- 10 12. Survival. All obligations of the parties to this Agreement to be performed hereunder after the date of termination of this Agreement shall survive on and after such date until fully performed. [Continued on the next page.] -10- 11 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date first above written. COMPANY: EUPHONIX, INC. By: ---------------------------------- Name: Dieter Meier Title: Chairman of the Board VINING: ------------------------------------- Steve Vining EX-10.22 5 f70624ex10-22.txt EXHIBIT 10.22 1 EXHIBIT 10.22 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 COMMON STOCK PURCHASE AGREEMENT FEBRUARY 18, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK........................ 1 1.1 AUTHORIZATION ................................................ 1 1.2 PURCHASE AND SALE OF SHARES................................... 1 SECTION 2 CLOSING DATE; DELIVERY........................................ 1 2.1 CLOSING....................................................... 1 2.2 DELIVERY...................................................... 1 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 1 3.1 ORGANIZATION AND STANDING..................................... 2 3.2 CORPORATE POWER............................................... 2 3.3 CAPITALIZATION................................................ 2 3.4 AUTHORIZATION................................................. 3 3.5 FINANCIAL STATEMENTS.......................................... 3 3.6 NO MATERIAL ADVERSE CHANGE.................................... 3 3.7 NO UNDISCLOSED LIABILITIES.................................... 3 3.8 TITLE TO ASSETS............................................... 3 3.9 ACTIONS PENDING............................................... 4 3.10 COMPLIANCE WITH LAW........................................... 4 3.11 CERTAIN FEES.................................................. 4 3.12 DISCLOSURE.................................................... 4 3.13 MATERIAL AGREEMENTS........................................... 4 3.14 EMPLOYEES..................................................... 4 3.15 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. ...................... 4 SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............... 5 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT.................. 5 4.2 INVESTMENT.................................................... 5 4.3 RULE 144...................................................... 5 4.4 ACCESS TO DATA................................................ 5 4.5 AUTHORIZATION................................................. 6 4.6 BROKERS OR FINDERS............................................ 6 4.7 TAX LIABILITY................................................. 6 4.8 RECENT TRANSFERS.............................................. 6
-i- 3 SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE................ 6 5.1 REPRESENTATIONS AND WARRANTIES CORRECT........................ 6 5.2 COVENANTS..................................................... 6 5.3 BLUE SKY...................................................... 6 5.4 RIGHTS AGREEMENT.............................................. 7 5.5 COMPLIANCE WITH LAW........................................... 7 SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE.................. 7 6.1 REPRESENTATIONS............................................... 7 6.2 COVENANTS..................................................... 7 6.3 BLUE SKY...................................................... 7 6.4 RIGHTS AGREEMENT.............................................. 7 6.5 COMPLIANCE WITH LAW........................................... 7 SECTION 7 MISCELLANEOUS................................................. 7 7.1 GOVERNING LAW................................................. 7 7.2 SURVIVAL...................................................... 7 7.3 SUCCESSORS AND ASSIGNS........................................ 8 7.4 ENTIRE AGREEMENT; AMENDMENT................................... 8 7.5 NOTICES, ETC.................................................. 8 7.6 DELAYS OR OMISSIONS........................................... 8 7.7 CALIFORNIA CORPORATE SECURITIES LAW........................... 9 7.8 COUNTERPARTS.................................................. 9 7.9 SEVERABILITY.................................................. 9 7.10 TITLES AND SUBTITLES.......................................... 9 7.11 EXPENSES...................................................... 9 7.12 ATTORNEY'S FEES............................................... 9
-ii- 4 EXHIBITS A Schedule of Purchasers B Registration Rights Agreement -iii- 5 EUPHONIX, INC. COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of February l8, 2000 by and among Euphonix, Inc. a California corporation (the "Company"), and Willy Gunther, Rabmatt 33e, CH-6317 Oberwil b.Zug, Switzerland, an individual (the "Purchaser"). SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK 1.1 AUTHORIZATION. The Company has authorized the salt of up to a number of shares of Common Stock of the Company (the "Shares"), which shall have an aggregate value equal to $300,000, based upon a cash price per share equal to $1.25 subject to the satisfaction or waiver of the conditions set forth in Sections 5 and 6 below, 1.2 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions of this Agreement, Purchaser agrees to purchase and the Company agrees to sell and issue to Purchaser 240,000 Shares set forth opposite its name on Exhibit A. The Company's agreement with Purchaser is a separate agreement, and the sale of the Shares to Purchaser is a separate sale. SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING. The purchase and sale of the Shares hereunder shall take place at one closing (" the Closing") on February 18, 2000, (the "Closing Date"). The Closing shall be held at the offices of the Company, at 9:00 a.m. local time, on the Closing Date, or at such other time and place upon which the Company and the Purchaser shall agree. 2.2 DELIVERY. At the Closing, the Company will deliver to Purchaser a certificate registered in Purchaser's name representing the number of Shares that Purchaser is purchasing for payment of the purchase price therefor as set forth in Section 1.2 above, by check payable to the Company or by wire transfer per the Company's instructions. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in writing in the disclosure letter supplied by the Company to the Purchaser (the "Disclosure Letter") the Company represents and warrants to the Purchaser as of the date of this Agreement as follows: 6 3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate Power and authority to own and operate its properties and assets, and to carry on its business. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the Company's business. 3.2 CORPORATE POWER. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement and that certain Registration Rights Agreement substantially in the form attached hereto as Exhibit B (the "Rights Agreement"), to sell and issue the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the Rights Agreement (together the "Agreements"). 3.3 CAPITALIZATION. The authorized capital stock of the Company and the shares thereof issued and outstanding as of the date hereof are set forth in the Disclosure Letter. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized. Except as set forth in this Agreement and the Rights Agreement and as set forth in the Company's most recent Form 10-K, including the accompanying financial statements, or in the Company's most recent Form 10-Q, filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") in other public filings made by the Company with the Commission pursuant to the Exchange Act (collectively, the "Commission Filings"), or the Disclosure Letter, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and the Rights Agreement and as set forth in the Commission Filings, or the Disclosure Letter, there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except for registration rights contained in agreements entered into by the Company in order to sell restricted securities as provided in the Commission Filings or the Disclosure Letter, the Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the Commission Filings or in the Disclosure Letter, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a material adverse effect on the Company's financial condition or operating results. 3.4 AUTHORIZATION. All corporate action on the part of the Company and its directors necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Shares, and the performance of all of the Company's obligations under the Agreements has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and -2- 7 binding obligations of the Company, enforceable in accordance with their terms, subject to laws general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, except that the indemnification provisions of Section 1.9 of the Rights Agreement may further be limited by principles of public policy. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, will be fully paid and nonassessable, and will be free of any liens or encumbrances, other than any liens or encumbrances created by the Purchaser; provided, however, that the Shares are subject to restrictions on transfer under state and/or federal securities laws as set forth herein and in the Rights Agreement. 3.5 FINANCIAL STATEMENTS. The financial statements of the Company included in the Commission Filings comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statement or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statement), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments)). 3.6 NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, the date through which the most recent quarterly report of the Company on Form 10-Q has been prepared and filed with the Commission, the Company has not experienced or suffered any event or condition which has materially affected the business operations, assets or financial condition of the Company. 3.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Commission Filings or the Disclosure Letter, the Company has no liabilities, obligations, claims or losses that would be required to be disclosed on a balance sheet of the Company (including the notes thereto), other than those incurred in the ordinary course of the Company's business since September 30, 1999 and which, individually or in the aggregate, do not or would not have a material adverse effect on the Company's financial condition or operating results. 3.8 TITLE TO ASSETS. The Company has good and marketable title to all of its property and assets, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the Commission Filings or the Disclosure Letter or such that could not reasonably be expected to cause a material adverse effect on the Company's financial condition or operating results. 3.9 ACTIONS PENDING. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company, which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the Commission Filings or the Disclosure Letter, there is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective -3- 8 properties or assets and which, if adversely determined, is reasonably likely to result in a material adverse effect on the Company's financial condition or operating results. 3.10 COMPLIANCE WITH LAW. To the knowledge of the Company, the business of the Company has been and is presently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as set forth in the Commission Filings or the Disclosure Letter, or such that do not cause a material adverse effect. The Company has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individual or in the aggregate, could not reasonably be expected to have a material adverse effect on the Company's financial condition or operating results. 3.11 CERTAIN FEES. No brokers, finders or financial advisory fees or commissions will be payable by the Company with respect to the transactions contemplated by this Agreement. 3.12 DISCLOSURE. To the best of the Company's knowledge, neither this Agreement nor any other documents furnished to the Purchaser by or on behalf of the Company in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. 3.13 MATERIAL AGREEMENTS. Except as set forth in the Commission Filings or the Disclosure Letter, the Company is not a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement or applicable form (collectively, "Material Agreements") if the Company were registering securities under the Securities Act of 1933, as amended (the "Securities Act"). The Company has in all material respects performed all the obligations required to be performed by it under the foregoing agreements, has received no notice of default and, to the best of the Company's knowledge, is not in default under any Material Agreement now in effect, the result of which could reasonably be expected to cause a material adverse effect on the Company's financial condition or operating results. 3.14 EMPLOYEES. Except as set forth in the Commission Filings or the Disclosure Letter or as otherwise disclosed by the Company to the Purchaser, the Company has no collective bargaining arrangements or agreements covering any of its employees, 3.15 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right to use, free and clear of all liens, charges, claims and restrictions, all intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to the business of the Company, as presently conducted. To the best of the Company's knowledge, the Company is not infringing upon or otherwise acting adversely to the right or claimed right of any other person under or with respect to the foregoing. -4- 9 SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER Purchaser hereby represents and warrants to the Company with respect to the purchase of Shares as follows: 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. Purchaser (or its principals or advisors) has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and Purchaser is in a position to lose the entire amount of such investment. 4.2 INVESTMENT. Purchaser is acquiring the Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Shares to be purchased hereby have not been, and will not be, registered under the Securities Act (except as provided in Section 3 of the Rights Agreement) by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide of nature the investment intent and the accuracy of the Purchaser's representations as expressed herein. Purchaser is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month Period not exceeding specified limitations. Purchaser understands that the certificates evidencing the Shares will be imprinted with a legend that prohibits the transfer of such securities unless they are registered or such registration is not required. 4.4 ACCESS TO DATA. Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with its management. Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.5 AUTHORIZATION. The Agreements, when executed and delivered by the Purchasers, will constitute valid and legally binding obligations of Purchaser, enforceable in accordance with -5- 10 their terms, except as the indemnification provisions of Section 1.9 of the Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.6 BROKERS OR FINDERS. The Purchaser has not engaged any brokers, finders or agents, and the Company has not, and will not, incur, directly or indirectly, as a result of any action taken by Purchasers, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. In the event that the preceding sentence is in any way inaccurate, Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability) for which the Company, or any of their officers, directors, employees or representatives, is responsible. 4.7 TAX LIABILITY. Purchaser has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents other than the representations and warranties set forth herein. Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements. 4.8 RECENT TRANSFERS. The Purchaser has not purchased, sold or transferred any security of the Company within the sixty days immediately proceeding the date of this Agreement. SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE The Purchaser's obligations to purchase the Shares are, unless waived by the Purchaser, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the order and sale of the Shares. -6- 11 5.4 RIGHTS AGREEMENT. The Company and the Purchaser shall have executed and delivered the Rights Agreement. 5.5 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Shares and the consummation of the transactions contemplated hereby. SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE The Company's obligation to sell and issue the Shares is, unless waived by the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations and warranties made by the Purchaser in Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares. 6.4 RIGHTS AGREEMENT. The Company and the Purchaser shall have executed and delivered the Rights Agreement. 6.5 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Shares and the consummation of the transactions contemplated hereby. SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California, without regard to its choice of law rules. 7.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby. -7- 12 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of the Purchaser to purchase the Shares shall not be assignable without the prior written consent of the Company. 7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and holders of a majority of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to Purchaser, at Purchaser's address, as shown below, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchaser. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United Stales mail, addressed and mailed as aforesaid. 7.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF -8- 13 THE CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALES IS SO EXEMPT. 7.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.9 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 7.11 EXPENSES. The Company and the Purchaser shall each bear their own fees, costs and expenses incurred on their behalf with respect to the Agreements and the transactions contemplated hereby and any amendments or waiver thereto. 7.12 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. -9- 14 The foregoing Agreement is hereby executed as of the date first above written. EUPHONIX, INC. a California corporation By: ----------------------------------------- Barry Margerum, Chief Executive Officer PURCHASER -------------------------------------------- Willy Gunther, an individual [SIGNATURE PAGE TO 2/00 PURCHASE AGREEMENT] 15 EXHIBIT A --------- SHARES
INVESTOR AMOUNT SHARES -------- ------ ------ Willy Gunther $300,000 240,000
EX-10.23 6 f70624ex10-23.txt EXHIBIT 10.23 1 EXHIBIT 10.23 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT FEBRUARY 18, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS...................... 2 1.1 Restrictions on Transferability............................... 2 1.2 Certain Definitions........................................... 2 1.3 Restrictive Legend............................................ 4 1.4 Restrictions on Transfer; Notice of Proposed Transfers........ 5 1.5 Requested Registration........................................ 6 1.6 Company Registration.......................................... 8 1.7 Expenses of Registration...................................... 9 1.8 Registration Procedures....................................... 9 1.9 Indemnification............................................... 11 1.10 Information by Holder......................................... 11 1.11 Rule 144 Reporting............................................ 11 1.12 Transfer of Registration Rights............................... 12 1.13 Termination of Registration Rights............................ 12 SECTION 2 MISCELLANEOUS................................................. 12 2.1 Governing Law................................................. 12 2.2 Survival...................................................... 12 2.3 Successors and Assigns........................................ 12 2.4 Entire Agreement; Amendment................................... 12 2.5 Notices, etc.................................................. 13 2.6 Delays or Omissions........................................... 13 2.7 Counterparts.................................................. 13 2.8 Severability.................................................. 13 2.9 Titles and Subtitles.......................................... 13 2.10 Attorney's Fees............................................... 13
-i- 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of February 18, 2000 between Euphonix, Inc., a California corporation (the "Company") and the Purchaser of the Company's Common Stock (the "Common Purchaser") pursuant to the Company's Common Stock Purchase Agreement dated February 18, 2000 (the "Common Stock Agreement"). The Common Purchaser agrees to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Common Stock purchased pursuant to the Common Stock Agreement shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Common Purchaser will cause any proposed purchaser, assignee, transferee, or pledge of any such shares held by the Common Purchaser to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first purchase and sale of Common Stock pursuant to the Common Stock Agreement. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Common Purchaser holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section I have been transferred in accordance with Section 1.12 hereof. -2- 4 "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. "Registrable Securities" means (i) the Common Stock issued pursuant to the Common Stock Agreement and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as mended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. -3- 5 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Common Stock Agreement and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion -4- 6 shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other stale securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to elect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately -5- 7 following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "Modification Agreement"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines that a further -6- 8 limitation is required, the Company shall so advise all Holders of Registrable Securities under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement)to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. -7- 9 Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation or shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 -8- 10 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, -9- 11 prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 or the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this subsection (b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at -10- 12 such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report or the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) -11- 13 such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted fat stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws or the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Common Purchaser and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Common Stock Agreement and the other documents delivered pursuant hereto on the Closing Date constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities. 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Common Purchaser, at such Common Purchaser's address, as shown on the stock records of the Company, or at such other address as such Common Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last -12- 14 holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page or this Agreement and addressed to the attention of the President and Chief Executive Officer, or at such other address as the Company shall have furnished to the Common Purchaser. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or of thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. -13- 15 The foregoing agreement is hereby executed as of the date first above written. EUPHONIX, INC. -------------------------------------------- By: Barry L. Margerum Title: Chief Executive Officer and President COMMON PURCHASER -------------------------------------------- By: Willy Gunther Title: President [SIGNATURE PAGE TO 2/00 REGISTRATION RIGHTS AGREEMENT] EX-10.24 7 f70624ex10-24.txt EXHIBIT 10.24 1 EXHIBIT 10.24 THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE, TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. SECURED PROMISSORY NOTE One Million Five Hundred Thousand Dollars ($1,500,000.00) February 22, 2000 FOR VALUE RECEIVED, the undersigned, Euphonix, Inc., a California corporation ("Borrower"), hereby promises to pay to Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang, each an individual, and Onset Ventures, a Delaware corporation (individually an "Investor" and collectively, the "Investors" or "Lender"), or registered assigns, the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) (the "Maximum Principal Amount") or so much of the Maximum Principal Amount as may from time to time have been advanced by each Investor and be outstanding, together with accrued interest, as provided herein, with the Maximum Principal Amount hereof (or lesser amount, to the extent that less than the full amount of the Maximum Principal Amount is advanced and outstanding) allocable among the Investors as follows:
Pro Rata Name of Investor Maximum Principal Amount Share - ----------------------------- ------------------------------ -------------- Dieter Meier $ 500,000.00 33.33% Walter Bosch $ 300,000.00 20.00% Stephen D. Jackson $ 100,000.00 6.67% Milton Chang $ 200,000.00 13.33% Onset Ventures $ 400,000.00 26.67% -------------- ------ Total $ 1,500,000.00 100.00%
A. Principal. 1. Advances. From the date hereof until 5:00 p.m. Pacific Standard Time on February __, 2001, Borrower may from time to time request advances from Lender (individually an "Advance" and collectively the "Advances") by giving written notice to the Investors in accordance with the terms hereof, which notice shall indicate the amount of the Advance requested; provided, however, that no advance shall be in the aggregate less than $500,000. Subject to the satisfaction or 2 waiver of the conditions set forth in Section A.3 below, and provided that the requested Advance would not cause an Event of Default (as defined in Section E below) to occur, Lender shall make the Advance to Borrower within three (3) business days of receipt of Borrower's notice for each Advance. Lender shall not be obligated to make an Advance to the extent that such Advance, when aggregated with all prior Advances, would exceed the then-existing Maximum Principal Amount. 2. Commitments. Each Investor shall advance to Borrower its Pro Rata Share of each Advance based on its proportionate share of the Maximum Principal Amount set forth above besides its name. Each Investor shall be severally but not jointly liable to make its Pro Rata Share of the Advances hereunder. Failure by any Investor to fund its Pro Rata Share of any Advance shall not relieve any other Investor from its obligation to fund its Pro Rata Share thereof. 3. Conditions to Advances. Borrower's right to request, and Lender's obligation to make, each Advance shall be subject, in each case, to the satisfaction of the following conditions, any or all of which may be waived by Lender, in its sole and exclusive discretion, to the extent permitted by law: (a) The representations and warranties contained in Section D.2 and D.3 shall be true and correct in all material respects on and as of the date of such request for an Advance and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. (b) There shall be no law, order, rule or regulation of any governmental authority in effect which has the effect of prohibiting, making unlawful or hindering any of the transactions contemplated by this Note. (c) There shall be no outstanding Event of Default and no condition which, with notice or passage of time or both would constitute an Event of Default. (d) The Board of Directors of Borrower shall have approved this Note and the transactions evidence by this Note, including without limiting the conversion feature of this Note. (e) Certain shareholders of Borrower shall have signed and delivered to Lender a written agreement in a form acceptable to Lender evidencing their agreement to vote their shares of common stock of Borrower in favor of the approval of the convertibility of this Note as set forth below. 4. Use of Proceeds. The proceeds of Advances shall be used for general corporate purposes, including for working capital. The proceeds of Advances shall not be used for payments or distributions to shareholders, directors, officers or affiliates of the Borrower. Notwithstanding the foregoing, such proceeds may be used for payment of salaries and accrued bonuses of officers and employees of the Borrower. B. Interest. Interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of ten percent (10.00%), net of any deductions or withholding taxes. Interest payable hereunder shall be calculated on the basis of a three hundred sixty (360) day year for actual days elapsed. Interest shall be due and payable (or converted as set forth in Section C below) upon -2- 3 payment or conversion of the principal sum of this Note pursuant to Section C below. Notwithstanding the foregoing to the contrary, during any period for which an Event of Default shall have occurred and be continuing, interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of fourteen percent (14.00%), net of any deductions or withholding taxes. C. Payment or Conversion. 1. Scheduled Payment. Subject to other provisions of this Note, the outstanding principal sum of this Note, together with the accrued interest thereon, shall be due and payable on February 22, 2002. 2. No Prepayment. Borrower shall not have the right at any time to time to prepay, in whole or in part, the outstanding principal sum of this Note and/or any accrued interest thereon. 3. Form of Payment. Unless converted pursuant to the terms set forth below, the outstanding principal sum and accrued interest thereon are to be paid in lawful money of the United States of America in federal or other immediately available funds. 4. Immediate Payment. Notwithstanding anything herein to the contrary, in the event that all necessary shareholder, regulatory and other approvals or consents for the convertibility of this Note as set forth below are not obtained by June 30, 2000, (i) the outstanding principal sum from all Advances as of the date thereof and all future Advances from the date thereof and (ii) accrued interest thereon, shall be repaid in full upon demand by the Investors representing two-thirds (2/3) of the then outstanding principal sum of this Note; provided, however, no such demand may be made until January 1, 2001; and provided, further, that the Investors must provide at least one (1) month prior written notice to the Borrower prior to such demand. To the extent the approvals or consents contemplated herein are obtained after June 30, 2000, this Note shall not be subject to repayment upon demand as set forth herein but rather in accordance with the scheduled payment as set forth in Section C.1 above. In addition, such demand may not be made if shareholder approval for the convertibility of this Note is not obtained as a result of the Investors failing to vote or consent for such convertibility. 5. Conversion. (a) Subject to obtaining all necessary shareholders, regulatory and other approvals or consents and further subject to Section C.5 (c) hereof, all or part of the principal sum of this Note, together with the accrued interest thereon (including any principal amounts which have not been advanced under this Note), shall be convertible at the option of the Lender into shares of common stock of the Borrower (the "Common Stock"). The number of shares of Common Stock to be issued upon such conversion(s) shall be equal to the quotient obtained by dividing (i) such part (or all) of the principal sum of this Note (including any principal amounts which have not been advanced under this Note) plus accrued interest thereon by (ii) the stock price of the Common Stock as traded on the Nasdaq Stock Market on the day of execution of this Note which is $2 17/32 per share. In the event that Investors (or either of them) exercise this conversion right and the full amount of principal under -3- 4 this Note has not been advanced, then as part of such conversion, such Investor(s) shall pay to Borrower such Investor's unadvanced portion of the principal amount of this Note. (b) No fractional share of Common Stock will be issued upon such conversion(s) of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled, the Borrower will pay to the Lender in cash the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into such fractional share. At its expense, the Borrower, will as soon as practicable thereafter, issue and deliver to each Investor, at its principal office, or other address notified by each Investor to the Borrower from time to time, a certificate or certificates for the number of shares (representing its pro rata portion) to which the Investor is entitled upon such conversion(s). Upon such conversion(s) of this Note, the Borrower will be forever released from all of its obligations and liabilities under this Note, to the extent of the conversion. Such conversions may be exercised individually by each Investor but notwithstanding anything herein to the contrary, each such conversion must be for the full amount of the outstanding principal and accrued interest thereon payable to the Investor exercising its rights under Section 5 hereunder at the time of such exercise. (c) Notwithstanding anything herein to the contrary, Section C.5(a) of this Note shall not apply and this Note shall not be convertible into shares of Common Stock as contemplated herein (i) until such time as the Borrower has obtained shareholder approval of the conversion feature of this Note as and to the extent required by the rules of the National Association of Securities Dealers; and (ii) upon the occurrence of the following: the consummation of any transaction or series of transactions (collectively, the "Transaction"), including without limitation, the sale, transfer or disposition of all or substantially all of the Borrower's assets or the merger of the Borrower with or into, or consolidation with, any other corporate entity, whereby the holders of the Borrower's voting securities prior to the Transaction do not hold more than 50% of the voting securities of the surviving entity following the consummation of the Transaction. Notice of any such Transaction shall be provided to the Investors fourteen (14) calendar days prior to the consummation of any such Transaction and, notwithstanding anything to the contrary contained elsewhere in this Note, Investors may exercise their rights of conversion during such 14-day period. D. Security Interest. 1. Grant of Security Interest. Upon the first Advance hereunder, Borrower grants to Lender a security interest in the Collateral, as defined herein, to secure the payment of all of the outstanding indebtedness hereunder (the "Secured Obligations") including, without limitation, principal, accrued interest, other advances made under this Note and any attorneys' fees to which Lender is entitled under this Note. The amounts payable under this Note and the security interest granted hereunder shall be senior in right to payment and lien priority to the rights and security interest granted to the holders of the Secured Promissory Note dated July 30, 1999 in the original principal amount of $2,100,000 (the "July 30, 1999 Note"), subject to the consent of such holders as provided in Section G below. 2. Representations and Warranties Regarding Collateral. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: -4- 5 (a) Borrower is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of any and all Liens other than the Lien and security interest granted to Lender hereunder and Permitted Liens. (b) The lien against the Collateral granted hereunder is and shall be a first-priority lien against the collateral and each portion thereof, subject to Permitted Liens. (c) Borrower shall not create or assume or permit to exist any such Lien on or against any of the Collateral except as created or permitted by this Note and Permitted Liens, and Borrower shall promptly notify Lender of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be reasonably necessary to remove or discharge, any such Lien. (d) Borrower shall take all commercially reasonable actions necessary to protect and preserve the Collateral which is used in its business in good condition and repair, subject to ordinary wear and tear, and to preserve its value and usefulness. (e) No part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part. (f) No claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. (g) The Collateral consists of all assets which are required for the conduct and operation of the business of Borrower as of the date of this Note. (h) The Intellectual Property Collateral includes all of the technology, know-how and proprietary information which are required for the conduct and operation of the business of borrower as of the date of this Note. 3. General Representations and Warranties. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: (a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Borrower has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Material Adverse Effect. The term "Material Adverse Effect", as used in this Note, means any change in or effect (or any development that is reasonably likely to result in any change or effect) on the business, -5- 6 business prospects, properties, assets, operations, financial condition or results of operations of Borrower that is materially adverse to Borrower taken as a whole. (b) AUTHORITY RELATIVE TO THIS NOTE. This Note has been duly and validly authorized, executed and delivered by Borrower and constitutes a valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except for the approval of Shareholders contemplate under Section C, none of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will (i) conflict with or violate the certificate of incorporation or by-laws of Borrower, (ii) conflict with or violate any material statute, ordinance, rule, regulation, order, judgment or decree applicable to Borrower, or by which Borrower or its properties or assets may be bound, or (iii) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit, or the creation of any lien on any of the property or assets of Borrower pursuant to any material agreement, a copy of which would be required to be filed as an exhibit to the Company's Form 10-K or Form 10-Q filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (d) CONSENTS. None of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will require any consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any government or subdivision thereof, or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational (a "Governmental Entity"), except for Consents the failure of which to obtain or make would not have a Material Adverse Effect or adversely affect the ability of Borrower to consummate the transactions contemplated hereby; provided that the convertibility feature of this Note as set forth in Section C which requires shareholder approval pursuant to the Nasdaq Stock Market's shareholder approval provisions is obtained. (e) MATERIAL ADVERSE CHANGE. Since the date of the latest financial statements filed by Borrower with the Commission prior to the date of this Note, there has not been any event, occurrence or development that has resulted or, to the Company's knowledge, is reasonably likely to result in a Material Adverse Effect. 4. Perfection of Security Interest. Borrower agrees to take all actions required or requested by Lender and reasonably necessary to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder, including, but not limited to, execution and filing of financing statements and the filing of notices of security interests with the United States Patent and Trademark Office. -6- 7 E. Events of Default. 1. Definition of Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) Borrower's failure to perform, keep or observe any obligation under this Note or any of the covenants contained in this Note which failure is not cured within 30 days from the notice of the occurrence thereof delivered by Lender to Borrower; or (b) 60 days' lapse following the institution of proceedings against Borrower, or Borrower's filing of a petition or answer or consent seeking reorganization or release, under the federal Bankruptcy Code, or any other applicable federal or state law relating to creditor rights and remedies, or Borrower's consent to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Borrower or of any substantial part of its property, or Borrower's making of an assignment for the benefit of creditors, or the taking of corporate action in furtherance of such action. (c) Any representation or warranty of the Borrower made in this Note proves untrue in any material respect as of the date of the issuance or making thereof. (d) The occurrence of any default under the July 30, 1999 Note which is not remedied within any applicable grace period provided therein. 2. Rights and Remedies on Event of Default. (a) During the continuance of an Event of Default, Lender shall have the right, itself or through any of its agents, with notice to Borrower (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), declare all obligations evidenced by this Note immediately due and payable, cease advancing money or extending credit to or for the benefit of Borrower under this Note, and to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, Lender shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Lender, in its reasonable discretion, may deem advisable, and it shall have the right to purchase at any such sale. Borrower agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to Lender's reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which Lender shall account to Borrower for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Lender is legally entitled, Borrower shall be liable for the deficiency, together with interest thereon, and the reasonable fees of any attorneys Lender employs to collect such deficiency; provided, however that the foregoing shall not be deemed to require -7- 8 Lender to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency or other amount directly from Borrower. (b) Borrower appoints Lender, and any officer, employee or agent of Lender, with full power of substitution, as Borrower's true and lawful attorney-in-fact, effective as of the date hereof, with power, in its own name or in the name of Borrower, during the continuance of an Event of Default, to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into Lender's possession, to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; to notify persons and entities obligated with respect to the Collateral to make payments directly to Lender; and, generally, to do, at Lender's option and at Borrower's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve and realize upon the Collateral and Lender's security interest therein to effect the intent of this Note, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (c) All of Lender's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (d) The rights of Lender under this Note with respect to any Collateral and the enforcement of the security interests and associated rights hereunder may be exercised jointly by Investors or singly by any Investor representing two-thirds (2/3) of the then outstanding principal sum of this Note. (e) Upon the occurrence of an Event of Default, either Investor may bring suit against Borrower to collect amounts due such Investor under this Note. (f) Either Investor may bring suit against Borrower to enforce the provisions of this Note. F. Restrictions on Transfer and Compliance with Securities Act. 1. Certificates. Certificates representing any of the shares of Common Stock acquired pursuant to the provisions of this Note shall have endorsed thereon the following legends, as appropriate. (a) Such shares of Common Stock will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if necessary) under applicable state securities laws and consequently will have the following legend: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, -8- 9 TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." (b) Any legend required to be placed thereon by any applicable state securities laws. (c) Each Investor, by acceptance hereof, agrees that this Note and the shares of Common Stock to be issued upon conversion pursuant to the terms hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Note or any shares of Common Stock to be issued upon conversion pursuant to the terms hereof except under circumstances which will not result in a violation of the Securities Act or of applicable state securities laws. (d) Each Investor, by acceptance hereof, represents that it is (i) an accredited investor within the meaning of Rule 501 under the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note; (ii) aware of the Company's business affairs and financial condition; and (iii) aware that the Note has not been registered under the Securities Act of 1933, as amended, in reliance upon a specific exemption therefrom. (e) Subject to the preceding, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to Borrower. Thereupon, a new Note for like principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of the Note. G. Covenants. 1. Registration Rights. Upon receipt of the necessary approvals for the convertibility feature of this Note set forth in Section C.5 above, the Borrower hereby covenants to enter into a registration rights agreement substantially similar to the Registration Rights Agreement dated January 26, 1999 with Dieter Meier and Stephen D. Jackson, with each of the Investors to provide for the registration of the shares of Common Stock into which the Note is then convertible. 2. Subordination. Borrower shall use commercially reasonable efforts to obtain the consent of the holders of the July 30, 1999 Note to the subordination of the right to payment under and the security interest granted pursuant to such promissory note as described in Section D.1 above. Failure to obtain such consent by June 30, 2000 shall constitute an Event of Default hereunder. Notwithstanding anything to the contrary contained elsewhere in this Note, Lender shall not be -9- 10 required to make any advances under this Note unless and until such consent is obtained and delivered to Lender. 3. Warrants. In the event any Investor shall elect to convert all or a portion of its Pro Rata Share of this Note into Common Stock in accordance with Section 5 above, the Borrower shall issue to each Investor warrants to purchase shares of common stock, in form and substance reasonably satisfactory to the Borrower and such Investor, containing the terms set forth on Exhibit B hereto. 4. Board Seats. To the extent there are any vacancies on Borrower's board of directors, Borrower shall use commercially reasonable efforts to cause its board of directors to appoint two (2) persons nominated by a majority of the Lenders (the "Nominees") to its board of directors prior to March 1, 2000, provided that each of the Nominees possesses the necessary qualifications and background to serve on the board of the Company. Further, Borrower shall use commercially reasonable efforts to cause its board of directors to nominate each of the Nominees to serve on the board at the next shareholder election where such vote is to be taken. H. Prior Advance Note. The parties acknowledge that as of the date of this Note, the loan in the amount of $323,190.49 previously made by Deiter Meier shall be deemed an Advance under this Note. [Each subsequent Advance hereunder shall be made only by Stephen D. Jackson, Walter Bosch, Milton Chang and Onset Ventures until such time as the pro rata share of each Investor in the aggregate outstanding Advances equals the Pro Rata Shares set forth on the cover of this Note.] I. Other Provisions. 1. Definitions. As used herein, the following terms shall have the following meanings: "Collateral" means the property described on Exhibit A attached hereto. "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. "Intellectual Property Collateral" means: (a) Copyrights, Trademarks and Patents; (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; -10- 11 (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and (g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations in part of the same. "Permitted Liens" means: (i) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising out of judgments or awards against Borrower with respect to which Borrower at the time shall currently be prosecuting an appeal or proceedings for review; (ii) Liens for taxes not yet subject to penalties for nonpayment and Liens for taxes the payment of which is being contested in good faith and by appropriate proceedings and for which, to the extent required by generally accepted accounting principles then in effect, proper and adequate book reserves relating thereto are established by Borrower; (iii) purchase money security interests and liens in connection with capital leases incurred in the ordinary course of business (to the extent such liens are only on the leased property) or existing on after acquired property at the time of its acquisition by the Borrower; (iv) liens existing on property as of the date of this Note; (v) liens securing the performance of bids, trade contracts, leases, surety bonds and the like; (vi) leases and sublicenses granted to others in the ordinary course of business; (vii) liens consisting of rights of set-off or bankers liens of a customary nature; (viii) liens in connection with the establishment of receivable lines of credit with commercial banks or other institutional lenders; (ix) liens consisting of agreements to refrain from giving or creating Liens (other than the Lien and security interest granted to Lender hereunder) in connection with joint venture agreements, strategic alliances and the like; and (x) liens granted in all of the Company's assets pursuant to the secured Promissory Note dated July 30, 1999. -11- 12 "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. "UCC" means the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 2. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state and federal courts located in the City and County of San Francisco, State of California or, at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. Borrower waives any right it may have to assert the doctrine of forum non conveniens or to object to such venue, and consents to any court ordered relief Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be promptly served and shall confer personal jurisdiction if served by registered or certified mail to Borrower. The choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum, or the taking of any action under this Note to enforce the same, in any appropriate jurisdiction. 3. Notices. Any notice or communication required or desired to be served, given or delivered hereunder shall be in the form and manner specified below, and shall be addressed to the party to be notified as follows: If to Investors: Dieter Meier ----------------------------------- ----------------------------------- ----------------------------------- Walter Bosch ----------------------------------- ----------------------------------- ----------------------------------- Stephen D. Jackson ----------------------------------- ----------------------------------- ----------------------------------- Milton Chang ----------------------------------- ----------------------------------- ----------------------------------- -12- 13 Onset Ventures ----------------------------------- ----------------------------------- ----------------------------------- With a copy to: ----------------------------------- ----------------------------------- ----------------------------------- and to: ----------------------------------- ----------------------------------- ----------------------------------- If to Borrower: Euphonix, Inc. 220 Portage Avenue Palo Alto, California 94306 Attention: Barry Margerum Fax: (650) 846-1131 With a copy to: Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attn: John Roos, Esq. Fax: (650) 493-6811 or to such other address as each party designates to the other by notice in the manner herein prescribed. Notice shall be deemed given hereunder if (i) delivered personally or otherwise actually received, (ii) sent by overnight delivery service, (iii) mailed by first-class United States mail, postage prepaid, registered or certified, with return receipt requested, or (iv) sent via telecopy machine with a duplicate signed copy sent on the same day as provided in clause (ii) above. Notice mailed as provided in clause (iii) above shall be effective upon the expiration of three (3) business days after its deposit in the United States mail, and notice telecopied as provided in clause (iv) above shall be effective upon receipt of such telecopy if the duplicate signed copy is sent under clause (iv) above. Notice given in any other manner described in this section shall be effective upon receipt by the addressee thereof, provided , however, that if any notice is tendered to an addressee and delivery thereof is refused by such addressee, such notice shall be effective upon such tender unless expressly set forth in such notice. -13- 14 4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or delinquent payment from Borrower hereunder, or Lender's failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Borrower hereunder, or any right of Lender hereunder, and shall not affect in any way the right to require full performance at any time thereafter. Except as otherwise expressly provided herein, Borrower waives presentment, diligence, demand of payment, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. In any action on this Note, Lender need not produce or file the original of this Note, but need only file a photocopy of this Note certified by Lender be a true and correct copy of this Note in all material respects. 5. Severability. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision is prohibited by or invalid under applicable law, it shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of the provision or the remaining provisions of this Note. 6. Amendment Provisions. Except for increases in the Maximum Principal Amount of this Note as provided herein, this Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Borrower and Lender. 7. Binding Effect. This Note shall be binding upon, and shall inure to the benefit of, Borrower and the holder hereof and their respective successors and assigns; provided , however, that Borrower's rights and obligations shall not be assigned or delegated without Lender's prior written consent, given in its sole discretion, and any purported assignment or delegation without such consent shall be void ab initio. 8. Time of Essence. Time is of the essence of each and every provision of this Note. 9. Headings. Section headings used in this Note have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Note. 10. No Usury. This Note is subject to the express condition that at no time shall the Borrower be obligated or required to pay interest hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate which the Borrower is permitted by law to contract or agree to pay. If, by the terms of this Note, the Borrower is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of this Note. 11. Attorneys' Fees. Should any litigation, enforcement or collection action be commenced between any of the parties to this Note under or in connection with this Note, the prevailing party in such litigation, enforcement or collection action shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for its attorneys' fees in such litigation, enforcement or collection action which shall be determined by the court in such litigation, -14- 15 enforcement or collection action or in a separate action brought for that purpose. The provisions of this Section shall survive the entry of any judgement or award and shall continue to apply with respect to any action to collect or recover any such judgment or award. -15- 16 IN WITNESS WHEREOF, the Borrower and each of the Investors has caused this Note to be duly executed on the date first written above. EUPHONIX, INC. By: ----------------------------------------- Name: Barry Margerum Title: Chief Executive Officer "INVESTORS": -------------------------------------------- Dieter Meier -------------------------------------------- Walter Bosch -------------------------------------------- Stephen D. Jackson -------------------------------------------- Milton Chang Onset Ventures -------------------------------------------- By: Title: 17 EXHIBIT "A" COLLATERAL DESCRIPTION ATTACHMENT TO SECURED PROMISSORY NOTE All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to: (1) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all investment property, including securities and securities entitlements; (2) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Lender (herein referred to as "Lender" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright; (3) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory); (4) all guarantees and other security therefor; (5) all trademarks, service marks, trade names and service names and the goodwill associated therewith including, without limitation, the following: Reel Feel(TM) Clear Displays(TM) Track Panner(TM) SnapShot Recall(TM) DSC(TM) (Digital Studio Controller) Hyper-Surround(TM) Total Automation(TM) Mixview(TM) (6) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (including, without limitation, United States Patents Nos. 5524060, 5402501, 5399820 and 5677959 and applications for United States patents for (i) Computer-Mirrored Panel Input Devices, (ii) Multiple Driver Rotary Control for Audio Processors or Other Uses, (iii) Functional Panel for Audio 18 Mixer, and (iv) Cont. and Amendment of "Computer-Mirrored Panel Input Devices"), (b) licenses pertaining to any patent whether Debtor is licensor or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); (7) all rights in and to (i) the on-air mixing consoles of the Series CS3000B, (ii) mixer hardware software designs, (iii) Real Time(TM) software design, and (iv) analog and digital audio hardware design expertise; and (8) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing. Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term "Collateral" shall not include, any contractual, license or lease rights or interests in which Borrower is the grantee, licensee or lessee thereunder to the extent that Borrower, whether by law or by the terms of such contract, license or lease, is not permitted to assign or grant a security in interest in its rights thereunder without the consent of the other party thereto. -2- 19 EXHIBIT "B" WARRANTS (1) Warrant Shares. The Warrants shall give Investors the right to purchase any part or all of the Warrant Shares. The number of Warrant Shares shall be determined by multiplying: (a) 200% and (b) the number of shares of Common Stock of the Borrower acquired by Investors upon exercise of conversion rights under the Note. For Example, if Investors exercise conversion rights under the Note and, as a result of such exercise, acquire 1,500,000 shares of the Common Stock of Borrower, then the number of Warrant Shares shall be 3,000,000 shares of Common Stock of Borrower (i.e., 1,500,000 shares times 200%). (2) Exercise Price. The Warrants shall entitle Investors to purchase the Warrant Shares at the following prices: (a) up to 1/3rd of the Warrant Shares may be purchased at $3.00 per share; (b) up to 1/3rd of the Warrant Shares may be purchased at $4.00 per share; and (c) up to 1/3rd of the Warrant Shares may be purchases at $5.00 per share. (3) Term. The Warrants may be exercised at any time and from time to time, in part or in full, on or before February 1, 2003. EX-10.25 8 f70624ex10-25.txt EXHIBIT 10.25 1 EXHIBIT 10.25 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT FEBRUARY 22, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights..........................................................1 1.1 Restrictions on Transferability...................................................1 1.2 Certain Definitions...............................................................1 1.3 Restrictive Legend................................................................3 1.4 Restrictions on Transfer; Notice of Proposed Transfers............................3 1.5 Requested Registration............................................................4 1.6 Company Registration..............................................................6 1.7 Expenses of Registration..........................................................7 1.8 Registration Procedures...........................................................8 1.9 Indemnification...................................................................8 1.10 Information by Holder............................................................10 1.11 Rule 144 Reporting...............................................................10 1.12 Transfer of Registration Rights..................................................10 1.13 Standoff Agreement...............................................................11 1.14 Termination of Registration Rights...............................................11 1.15 [Intentionally Deleted]..........................................................11 1.16 Standstill Agreement.............................................................11 SECTION 2 Miscellaneous....................................................................11 2.1 Governing Law....................................................................11 2.2 Survival.........................................................................11 2.3 Successors and Assigns...........................................................11 2.4 Entire Agreement; Amendment......................................................11 2.5 Notices, etc.....................................................................12 2.6 Delays or Omissions..............................................................12 2.7 Counterparts.....................................................................12 2.8 Severability.....................................................................12 2.9 Titles and Subtitles.............................................................13 2.10 Attorney's Fees..................................................................13
-i- 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of February 22, 2000 between Euphonix, Inc., a California corporation (the "Company") and the Investors (the "Investors") pursuant to the Secured Promissory Note dated February 22, 2000 (the "Note") between the Company and the Investors. The Investors agree to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Common Stock issued upon conversion of the Note shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Investors will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Investors to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first conversion of the Note into Common Stock pursuant to the Note. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Investor holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.12 hereof. 4 "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. "Registrable Securities" means (i) the Common Stock issued pursuant to the Note and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. -2- 5 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Note and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion -3- 6 shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company -4- 7 (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "Modification Agreement"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines that a further limitation is required, the Company shall so advise all Holders of Registrable Securities -5- 8 under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the -6- 9 managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). -7- 10 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by -8- 11 the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this subsection (b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an -9- 12 Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted for stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to -10- 13 any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 STANDOFF AGREEMENT. In connection with any public offering of the Company's securities, the Holder agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the underwriters; provided that the officers and directors of the Company who own stock of the Company also agree to such restrictions. 1.14 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. 1.15 [INTENTIONALLY DELETED.] 1.16 STANDSTILL AGREEMENT. No Investor shall acquire, directly or indirectly, or cause or permit any affiliate of such Investor to acquire, directly or indirectly (through market purchases or otherwise), record or beneficial ownership of any Voting Securities of the Company representing, which taken together with all securities owned by such persons or entities, in excess of a percentage greater than twenty-five percent (25%) of the Total Voting Power of the Company without the prior written consent of the Company's Board of Directors. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Investors and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement -11- 14 between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities, except that new Investors that become party to the Note may be added to this Agreement by joinder signed only by the Company and such Investor. 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Investor, at such Investor's address, as shown on the stock records of the Company, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the President and Chief Executive Officer, or at such other address as the Company shall have furnished to the Investors. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. -12- 15 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. -13- 16 The foregoing agreement is hereby executed as of the date first above written. EUPHONIX, INC. --------------------------------------------- By: Barry L. Margerum Title:Chief Executive Officer and President INVESTORS: --------------------------------------------- Dieter Meier --------------------------------------------- Walter Bosch --------------------------------------------- Stephen D. Jackson --------------------------------------------- Milton Chang Onset Ventures --------------------------------------------- By: Title: -14- EX-10.26 9 f70624ex10-26.txt EXHIBIT 10.26 1 EXHIBIT 10.26 EUPHONIX, INC. VOTING AGREEMENT THIS VOTING AGREEMENT (the "Agreement") is made as of this 22 day of February 2000 by and among EUPHONIX, INC., a California corporation (the "Company") and the stockholders of the Company listed on Schedule I hereto (the "Stockholders"). RECITALS A. Concurrently with the execution and delivery of this Agreement, the Company is entering into a Secured Promissory Note (the "Note") with Dieter Meier, Walter Bosch, Stephen D. Jackson and Milton Chang, each an individual, and Onset Ventures, a Delaware corporation (collectively, the "Investors"); B. The Note provides for convertibility of the Note into shares of Common Stock of the Company and warrant shares of Common Stock of the Company subject to obtaining necessary approvals, including stockholder approval. C. The Note provides that if the necessary approvals are not obtained by June 30, 2000, the outstanding principal amount under the Note and the accrued interest thereon must be repaid in full upon demand (rather than in February 2002) by Note investors representing two-thirds of the then-outstanding principal amount of the Note; provided that such demand may not be made until January 1, 2001. D. In connection with the Company's seeking stockholder approval pursuant to the terms of the Note, the parties desire to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth, the parties agree as follows: AGREEMENT 1. Shares Subject to Agreement. Each Stockholder agrees to hold all of its shares of Company capital stock, whether now owned or hereafter acquired (the "Voting Shares"), subject to, and to vote the Voting Shares in accordance with, the provisions of this Agreement. 2. Agreement to Vote in Favor of Conversion of the Note. At the special meeting of the Company's stockholders called, or in connection with any other action (including the execution of written consents) taken, for the purpose of approving the convertibility of the Note into shares of 2 Common Stock of the Company pursuant to the terms of the Note, each Stockholder agrees to vote all of its Voting Shares in favor of the conversion of the Note into shares of Common Stock of the Company in accordance with the terms of the Note. 3. Successors in Interest. (a) The provisions of this Agreement shall be binding upon the successors in interest to any of the Voting Shares. The Company shall not permit the transfer of any of the Voting Shares on its books or issue a new certificate representing any of the Voting Shares unless and until the person to whom such security is to be transferred shall have executed a written agreement pursuant to which such person shall become a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were a Stockholder. (b) Each certificate representing any of the Voting Shares shall be marked by the Company with a legend reading substantially as follows: "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER) AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON HOLDING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT." 4. Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Agreement shall be in writing and shall be effective upon personal delivery or upon deposit in the U. S. mail, registered or certified, with postage prepaid and properly addressed to the party to be notified. Mailed notices shall be addressed and sent to the Company at the principal offices of the Company and to the Stockholders at their respective addresses set forth on Schedule I hereto. 5. Severability. If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement and the balance of this Agreement shall be enforceable in accordance with its terms. 6. Applicable Law. This Agreement shall be governed in all respects by the laws of the State of California without regard to choice of laws or conflict of laws provisions thereof. 7. Counterparts. This Agreement may be executed in any number of counterparts and signature pages may be delivered by facsimile, each of which may be executed by less than all parties, each of which shall be enforceable against the parties actually executing such counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. -2- 3 8. Entire Agreement; Amendment. This Agreement constitutes the full and entire understanding and agreement between the parties regarding the subject matter hereof, and no provision hereof may be waived or amended except by written instrument signed by the party to be charged. 9. Specific Performance. Without limiting the rights of each party hereto to pursue all other legal and equitable rights available to such party for any other party's failure to perform its obligations under this Agreement, each such party acknowledges and agrees that the remedy at law for any failure to perform obligations hereunder would be inadequate and all such parties shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. -3- 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EUPHONIX, INC. By: ----------------------------------- Barry Margerum Chief Executive Officer SIGNATURE PAGE TO VOTING AGREEMENT 5 SCHEDULE I STOCKHOLDERS: ------------------------------ Jim Dobbie ------------------------------ Scott Silfvast ------------------------------ Barry Margerum SIGNATURE PAGE TO VOTING AGREEMENT EX-10.27 10 f70624ex10-27.txt EXHIBIT 10.27 1 EXHIBIT 10.27 SUBORDINATION AGREEMENT This Subordination Agreement (this "Agreement") dated February 22, 2000, is entered into by and between Taurean Investments AG and Pegasus Capital II, L.P. (collectively, the "Creditors"), on the one hand, and Dieter Meier, Walter Bosch, Stephen D. Jackson, Milton Chang and Onset Ventures (collectively, the "Investors"), on the other hand. RECITALS A. Euphonix, Inc., a California corporation (the "Borrower") has requested that the Investors extend credit to the Borrower as evidenced by a Secured Promissory Note dated February 22, 2000 (the "February 22 Note"), secured by the assets and property of Borrower. B. The Creditors extended credit to the Borrower pursuant to a Secured Promissory Note dated July 30, 1999 (the "July 30 Note"). C. To induce Investors to extend credit to the Borrower pursuant to the February 22 Note, the Creditors agree to subordinate, under the terms and conditions set forth herein, (i) all of the Borrower's indebtedness and obligations to the Creditors, existing now or hereafter (the "Subordinated Debt") to all of the Borrower's indebtedness and obligations to Investors under the February 22 Note, in an amount not to exceed $1,500,000 plus accrued interest thereon, exclusive of costs of collection (the "Senior Debt"); and (ii) all of the Creditors' security interests, to all of Investors' security interests in the Borrower's property. THE PARTIES AGREE AS FOLLOWS: 1. The Creditors subordinate to the Investors any security interest or lien that they have in any property of the Borrower. Despite attachment or perfection dates of the Creditors' security interest and the Investors' security interest, the Investors' security interest in the Collateral, as defined in the February 22 Note, is prior to the Creditors' security interest. 2. All Subordinated Debt payments are subordinated to all Senior Debt, including interest accruing after any bankruptcy, reorganization or similar proceeding and all obligations under the February 22 Note (the "Senior Debt"). Notwithstanding the foregoing, the Creditors may (i) receive regularly scheduled payments of interest that constitute Subordinated Debt, pursuant to the terms of the July 30 Note, provided that no Event of Default (as defined in the February 22 Note) has occurred and is continuing or would result from such payment and (ii) convert any Subordinated Debt into equity securities of the Borrower under the terms and conditions set forth in the July 30 Note. 3. Without the written consent of the Investors, such consent to be granted in the Investors' sole discretion, the Creditors will not: 2 (a) demand or receive from the Borrower (and the Borrower will not pay), except as provided in Section 2, above, any part of the Subordinated Debt, by payment, prepayment, or otherwise, (b) exercise any remedy against the Collateral, or (c) accelerate the Subordinated Debt, or begin to or participate in any action against the Borrower, until all the Senior Debt is paid. 4. The Creditors must deliver to the Investors in the form received (except for endorsement or assignment by the Creditors) any payment, distribution, security or proceeds it receives on the Subordinated Debt other than according to this Agreement. 5. This Agreement shall remain in full force and effect, despite the Borrower's insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law, and the Investors' claims against the Borrower and the Borrower's estate will be fully paid, to the extent arising from sums subordinated hereunder, before any payment is made to the Creditors. 6. Until the Senior Debt is paid, the Creditors irrevocably appoint the Investors as their attorney-in-fact, with power of attorney with power of substitution, in the Creditors' names or in Investors' name, for the Investors' use and benefit, with 5 business days notice to the Creditors, to do the following in any bankruptcy, insolvency or similar proceeding involving the Borrower: (a) File any claims for the Subordinated Debt for the Creditors if the Creditors do not do so at least 30 days before the time to file claims expires, and (b) Accept or reject any plan of reorganization or arrangement for the Creditors and vote the Creditors' claims in respect of the Subordinated Debt in any way it chooses. 7. The Creditors will immediately put a legend on the Subordinated Debt instruments that the instruments are subject to this Agreement. No amendment of the Subordinated Debt documents will modify this Agreement in any way that terminates or impairs the subordination of the Subordinated Debt or the subordination of the security interest or lien that the Investors have in Borrower's property. For example, instruments may not be amended to (i) increase the interest rate of the Subordinated Debt, or (ii) accelerate payment of principal or interest or any other portion of the Subordinated Debt. 8. This Agreement shall remain in full force and effect so long as the Borrower owes any portion of the Senior Debt to the Investors. If, after full payment of the Senior Debt, the Investors must disgorge any payments made on the Senior Debt, this Agreement and the relative rights and priorities provided in it, will be reinstated as to all disgorged payments as though the payments had not been made, and the Creditors will immediately pay the Investors all payments received under the Subordinated Debt to the extent the payments would have been prohibited under this Agreement. At any time without notice to the Creditors, the Investors may take 2 3 actions it considers appropriate on the Senior Debt such as terminating advances, increasing the principal, extending the time of payment, increasing interest rates, renewing, compromising or otherwise amending any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against the Borrower or any other person. No action or inaction will impair or otherwise affect the Investors' rights under this Agreement. The Creditors waive any benefits of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433. 9. This Agreement binds the Creditors, their successors or assigns, and benefits Investors' successors or assigns. This Agreement is for the Investors' benefit and not for the benefit of the Borrower or any other party. If the Borrower is refinancing any of the Senior Debt with a new lender, upon the Investors' request of Creditors, the Creditors will enter into a new subordination agreement with the new lender on substantially the terms of this Agreement. 10. This Agreement may be executed in two or more counterparts, each of which is an original and all of which together constitute one instrument. 11. California law governs this agreement without giving effect to conflicts of laws principles. The Creditors and the Investors submit to the exclusive jurisdiction of the courts in Santa Clara County, California. THE CREDITORS AND THE INVESTORS EACH WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION FROM THIS AGREEMENT. 12. This Agreement represents is the entire agreement about this subject matter, and supersedes prior negotiations or agreements. The Creditors are not relying on any representations by the Investors or the Borrower in entering into this Agreement. The Creditors will keep themselves informed of the Borrower's financial and other conditions. This Agreement may be amended only by written instrument signed by the Creditors and Investors. 13. If there is an action to enforce the rights of a party under this Agreement, the party prevailing will be entitled, in addition to other relief, all reasonable costs and expenses, including reasonable attorneys' fees, incurred in the action. 3 4 "CREDITORS" "INVESTORS" TAUREAN INVESTMENTS AG ----------------------------- Dieter Meier ----------------------------- By: Walter Bosch ------------------------------ Title: ------------------------------ ----------------------------- Stephen D. Jackson ----------------------------- PEGASUS CAPITAL II, L.P. Milton Chang By: ------------------------------ ----------------------------- Onset Ventures Title: ------------------------------ ----------------------------- By: Title: The Borrower approves the terms of this Agreement. The "Borrower" EUPHONIX, INC. By: ---------------------- Barry Margerum Title: Chief Executive Officer
4 EX-10.28 11 f70624ex10-28.txt EXHIBIT 10.28 1 EXHIBIT 10.28 THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE, TRANSFER OR ASSIGNMENT 1s MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. SECURED PROMISSORY NOTE Eight Hundred Thousand Dollars ($800,000.00) April 14, 2000 FOR VALUE RECEIVED, the undersigned, Euphonix, Inc., a California corporation ("Borrower"), hereby promises to pay to Dieter Meier and Walter Bosch, each an individual, and Onset Ventures, a Delaware corporation (individually an "Investor" and collectively, the "Investors" or "Lender"), or registered assigns, the principal sum Eight Hundred Thousand Dollars ($800,000) (the "Maximum Principal Amount") or so much of the Maximum Principal Amount as may from time to time have been advanced by each Investor and be outstanding, together with accrued interest, as provided herein, with the Maximum Principal Amount hereof (or lesser amount, to the extent that less than the full amount of the Maximum Principal Amount is advanced and outstanding) allocable among the Investors as follows:
NAME OF INVESTOR MAXIMUM PRINCIPAL AMOUNT PRO RATA SHARE ---------------- ------------------------ -------------- Dieter Meier $200,000.00 25% Walter Bosch $200,000.00 25% Onset Ventures $400,000.00 50% ----------- --- Total $800,000.00 100.00%
A. Principal. 1. Advances. From the date hereof until 5:00 p.m. Pacific Standard Time on June 30, 2000, Borrower may from time to time request advances from Lender (individually an "Advance" and collectively the "Advances") by giving written notice to the Investors in accordance with the terms hereof, which notice shall indicate the amount of the Advance requested; provided, however, that no advance shall be in the aggregate less than $800,000. Subject to the satisfaction or waiver of the conditions set forth in Section A.3 below, and provided that the requested Advance would not 2 cause an Event of Default (as defined in Section E below) to occur, Lender shall make the Advance to Borrower within three (3) business days of receipt of Borrower's notice for each Advance. Lender shall not be obligated to make an Advance to the extent that such Advance, when aggregated with all prior Advances, would exceed the then-existing Maximum Principal Amount. 2. Commitments. Each Investor shall advance to Borrower its Pro Rata Share of each Advance based on its proportionate share of the Maximum Principal Amount set forth above besides its name. Each Investor shall be severally but not jointly liable to make its Pro Rata Share of the Advances hereunder. Failure by any Investor to fund its Pro Rata Share of any Advance shall not relieve any other Investor from its obligation to fund its Pro Rata Share thereof. 3. Conditions to Advances. Borrower's right to request, and Lender's obligation to make, each Advance shall be subject, in each case, to the satisfaction of the following conditions, any or all of which may be waived by Lender, in its sole and exclusive discretion, to the extent permitted by law: (a) The representations and warranties contained in Section D.2 and D.3 shall be true and correct in all material respects on and as of the date of such request for an Advance and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. (b) There shall be no law, order, rule or regulation of any governmental authority in effect which has the effect of prohibiting, making unlawful or hindering any of the transactions contemplated by this Note. (c) There shall be no outstanding Event of Default and no condition which, with notice or passage of time or both would constitute an Event of Default. (d) The Board of Directors of Borrower shall have approved this Note and the transactions evidence by this Note, including without limiting the conversion feature of this Note. (e) Certain shareholders of Borrower shall have signed and delivered to Lender a written agreement in a form acceptable to Lender evidencing their agreement to vote their shares of common stock of Borrower in favor of the approval of the convertibility of this Note as set forth below. 4. Use of Proceeds. The proceeds of Advances shall be used for general corporate purposes, including for working capital. The proceeds of Advances shall not be used for payments or distributions to shareholders, directors, officers or affiliates of the Borrower, Notwithstanding the foregoing, such proceeds may be used for payment of salaries and accrued bonuses of officers and employees of the Borrower. B. Interest. Interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of ten percent (10.00%), net of any deductions or withholding taxes. Interest payable hereunder shall be calculated on the basis of a three hundred sixty (360) day year for actual days elapsed. Interest shall be due and payable (or converted as set forth in Section C below) upon payment or conversion of the principal sum of this Note pursuant to Section C below. -2- 3 Notwithstanding the foregoing to the contrary, during any period for which an Event of Default shall have occurred and be continuing, interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of fourteen percent (14.00%), net of any deductions or withholding taxes. C. Payment or Conversion. 1. Scheduled Payment. Subject to other provisions of this Note, the outstanding principal sum of this Note, together with the accrued interest thereon, shall be due and payable on January 1, 2001. 2. No Prepayment. Borrower shall not have the right at any time to time to prepay, in whole or in part, the outstanding principal sum of this Note and/or any accrued interest thereon. 3. Form of Payment. Unless converted pursuant to the terms set forth below, the outstanding principal sum and accrued interest thereon are to be paid in lawful money of the United States of America in federal or other immediately available funds. 4. Immediate Payment. Notwithstanding anything herein to the contrary, in the event that any necessary shareholder, regulatory and other approvals or consents for the convertibility of this Note as set forth below are necessary but not obtained by June 30, 2000, (i) the outstanding principal sum from all Advances as of the date thereof and all future Advances from the date thereof and (ii) accrued interest thereon, shall be repaid in full upon demand by the Investors representing two-thirds (2/3) of the then outstanding principal sum of this Note; provided, however, no such demand may be made until January 1, 2001; and provided, further, that the Investors must provide at least one (1) month prior written notice to the Borrower prior to such demand. To the extent the approvals or consents contemplated herein are obtained after June 30, 2000, this Note shall not be subject to repayment upon demand as set forth herein but rather in accordance with the scheduled payment as set forth in Section C.1 above. In addition, such demand may not be made (x) if shareholder approval for the convertibility of this Note is not obtained as a result of the Investors failing to vote or consent for such convertibility, or (y) if shareholder approval for the convertibility of this note would not be required so long as the Borrower obtain shareholder approval with respect to other security issuances by the borrower, but shareholder approval with respect to such other issuances not be obtained as a result of the investors failing to vote or consent with respect to such other issuances. 5. Conversion. (a) Subject to obtaining any necessary shareholders, regulatory and other approvals or consents and further subject to Section C.5 (c) hereof, all or part of the principal sum of this Note, together with the accrued interest thereon (including any principal amounts which have not been advanced under this Note), shall be convertible at the option of the Lender into shares of common stock of the Borrower (the "Common Stock"). The number of shares of Common Stock to be issued upon such conversion(s) shall be equal to the quotient obtained by dividing (i) such part (or all) of the principal sum of this Note (including any principal amounts which have not been advanced under this Note) plus accrued interest thereon by (ii) the stock price of the Common Stock -3- 4 as traded on the Nasdaq Stock Market on the day of execution of this Note which is $3 5/8 per share. In the event that Investors (or either of them) exercise this conversion right and the full amount of principal under this Note has not been advanced, then as part of such conversion, such Investor(s) shall pay to Borrower such Investor's unadvanced portion of the principal amount of this Note. (b) No fractional share of Common Stock will be issued upon such conversion(s) of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled, the Borrower will pay to the Lender in cash the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into such fractional share. At its expense, the Borrower, will as soon as practicable thereafter, issue and deliver to each Investor, at its principal office, or other address notified by each Investor to the Borrower from time to time, a certificate or certificates for the number of shares (representing its pro rata portion) to which the Investor is entitled upon such conversion(s). Upon such conversion(s) of this Note, the Borrower will be forever released from all of its obligations and liabilities under this Note, to the extent of the conversion. Such conversions may be exercised individually by each Investor but notwithstanding anything herein to the contrary, each such conversion must be for the full amount of the outstanding principal and accrued interest thereon payable to the Investor exercising its rights under Section 5 hereunder at the time of such exercise. (c) Notwithstanding anything herein to the contrary, Section C.5(a) of this Note shall not apply and this Note shall not be convertible into shares of Common Stock as contemplated herein (i) until such time as the Borrower has obtained shareholder approval of the conversion feature of this Note as and to the extent required by the rules of the National Association of Securities Dealers; and (ii) upon the occurrence of the following: the consummation of any transaction or series of transactions (collectively, the "Transaction"), including without limitation, the sale, transfer or disposition of all or substantially all of the Borrower's assets or the merger of the Borrower with or into, or consolidation with, any other corporate entity, whereby the holders of the Borrower's voting securities prior to the Transaction do not hold more than 50% of the voting securities of the surviving entity following the consummation of the Transaction. Notice of any such Transaction shall be provided to the Investors fourteen (14) calendar days prior to the consummation of any such Transaction and, notwithstanding anything to the contrary contained elsewhere in this Note, Investors may exercise their rights of conversion during such 14-day period. D. Security Interest. 1. Grant of Security Interest. Upon the first Advance hereunder, Borrower grants to Lender a security interest in the Collateral, as defined herein, to secure the payment of all of the outstanding indebtedness hereunder (the "Secured Obligations") including, without limitation, principal, accrued interest, other advances made under this Note and any attorneys' fees to which Lender is entitled under this Note. The amounts payable under this Note and the security interest granted hereunder shall be senior in right to payment and lien priority to the rights and security interest granted to the holders of the Secured Promissory Note dated February 22, 2000 in the original principal amount of $1,500,000 (the "February 22, 2000 Note"), subject to the consent of such holders as provided in Section G below. -4- 5 2. Representations and Warranties Regarding Collateral. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: (a) Borrower is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of any and all Liens other than the Lien and security interest granted to Lender hereunder and Permitted Liens. (b) The lien against the Collateral granted hereunder is and shall be a first-priority lien against the collateral and each portion thereof, subject to Permitted Liens. (c) Borrower shall not create or assume or permit to exist any such Lien on or against any of the Collateral except as created or permitted by this Note and Permitted Liens, and Borrower shall promptly notify Lender of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be reasonably necessary to remove or discharge, any such Lien. (d) Borrower shall take all commercially reasonable actions necessary to protect and preserve the Collateral which is used in its business in good condition and repair, subject to ordinary wear and tear, and to preserve its value and usefulness. (e) No part of the Intellectual Property Collateral has been judged invalid or unenforceable; in whole or in part. (f) No claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. (g) The Collateral consists of all assets which are required for the conduct and operation of the business of Borrower as of the date of this Note. (h) The Intellectual Property Collateral includes all of the technology, know-how and proprietary information which are required for the conduct and operation of the business of borrower as of the date of this Note. 3. General Representations and Warranties. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: (a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Borrower has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Material Adverse Effect. -5- 6 The term "Material Adverse Effect", as used in this Note, means any change in or effect (or any development that is reasonably likely to result in any change or effect) on the business, business prospects, properties, assets, operations, financial condition or results of operations of Borrower that is materially adverse to Borrower taken as a whole. (b) AUTHORITY RELATIVE TO THIS NOTE. This Note has been duly and validly authorized, executed and delivered by Borrower and constitutes a valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except for the approval of Shareholders contemplate under Section C, none of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will (i) conflict with or violate the certificate of incorporation or by-laws of Borrower, (ii) conflict with or violate any material statute, ordinance, rule, regulation, order, judgment or decree applicable to Borrower, or by which Borrower or its properties or assets may be bound, or (iii) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit, or the creation of any lien on any of the property or assets of Borrower pursuant to any material agreement, a copy of which would be required to be filed as an exhibit to the Company's Form 10-K or Form 10-Q filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (d) CONSENTS. None of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will require any consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any government or subdivision thereof, or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational (a "Governmental Entity"), except for Consents the failure of which to obtain or make would not have a Material Adverse Effect or adversely affect the ability of Borrower to consummate the transactions contemplated hereby; provided that the convertibility feature of this Note as set forth in Section C which requires shareholder approval pursuant to the Nasdaq Stock Market's shareholder approval provisions is obtained. (e) MATERIAL ADVERSE CHANGE. Since the date of the latest financial statements filed by Borrower with the Commission prior to the date of this Note, there has not been any event, occurrence or development that has resulted or, to the Company's knowledge, is reasonably likely to result in a Material Adverse Effect. 4. Perfection of Security Interest. Borrower agrees to take all actions required or requested by Lender and reasonably necessary to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder, including, but not limited to, execution and -6- 7 filing of financing statements and the filing of notices of security interests with the United States Patent and Trademark Office. E. Events of Default. 1. Definition of Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) Borrower's failure to perform, keep or observe any obligation under this Note or any of the covenants contained in this Note which failure is not cured within 30 days from the. notice of the occurrence thereof delivered by Lender to Borrower; or (b) 60 days' lapse following the institution of proceedings against Borrower, or Borrower's filing of a petition or answer or consent seeking reorganization or release, under the federal Bankruptcy Code, or any other applicable federal or state law relating to creditor rights and remedies, or Borrower's consent to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Borrower or of any substantial part of its property, or Borrower's making of an assignment for the benefit of creditors, or the taking of corporate action in furtherance of such action. (c) Any representation or warranty of the Borrower made in this Note proves untrue in any material respect as of the date of the issuance or making thereof. (d) The occurrence of any default under the July 30, 1999 Note which is not remedied within any applicable grace period provided therein. 2. Rights and Remedies on Event of Default. (a) During the continuance of an Event of Default, Lender shall have the right, itself or through any of its agents, with notice to Borrower (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), declare all obligations evidenced by this Note immediately due and payable, cease advancing money or extending credit to or for the benefit of Borrower under this Note, and to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, Lender shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Lender, in its reasonable discretion, may deem advisable, and it shall have the right to purchase at any such sale. Borrower agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to Lender's reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which Lender shall account to Borrower for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Lender is legally entitled, Borrower shall be liable for the -7- 8 deficiency, together with interest thereon, and the reasonable fees of any attorneys Lender employs to collect such deficiency; provided, however that the foregoing shall not be deemed to require Lender to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency or other amount directly from Borrower. (b) Borrower appoints Lender, and any officer, employee or agent of Lender, with full power of substitution, as Borrower's true and lawful attorney-in-fact, effective as of the date hereof, with power, in its own name or in the name of Borrower, during the continuance of an Event of Default, to endorse any notes, checks, drafts, money orders, or ether instruments of payment in respect of the Collateral that may come into Lender's possession, to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; to notify persons and entities obligated with respect to the Collateral to make payments directly to Lender; and, generally, to do, at Lender's option and at Borrower's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve and realize upon the Collateral and Lender's security interest therein to effect the intent of this Note, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (c) All of Lender's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (d) The rights of Lender under this Note with respect to any Collateral and the enforcement of the security interests and associated rights hereunder may be exercised jointly by Investors or singly by any Investor representing two-thirds (2/3) of the then outstanding principal sum of this Note. (e) Upon the occurrence of an Event of Default, either Investor may bring suit against Borrower to collect amounts due such Investor under this Note. (f) Either Investor may bring suit against Borrower to enforce the provisions of this Note. F. Restrictions on Transfer and Compliance with Securities Act. 1. Certificates. Certificates representing any of the shares of Common Stock acquired pursuant to the provisions of this Note shall have endorsed thereon the following legends, as appropriate. (a) Such shares of Common Stock will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if necessary) under applicable state securities laws and consequently will have the following legend: -8- 9 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE 1s AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." (b) Any legend required to be placed thereon by any applicable state securities laws. (c) Each Investor, by acceptance hereof, agrees that this Note and the shares of Common Stock to be issued upon conversion pursuant to the terms hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Note or any shares of Common Stock to be issued upon conversion pursuant to the terms hereof except under circumstances which will not result in a violation of the Securities Act or of applicable state securities laws. (d) Each Investor, by acceptance hereof, represents that it is (i) an accredited investor within the meaning of Rule 501 under the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note; (ii) aware of the Company's business affairs and financial condition; and (iii) aware that the Note has not been registered under the Securities Act of 1933, as amended, in reliance upon a specific exemption therefrom. (e) Subject to the preceding, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to Borrower. Thereupon, a new Note for like principal amount and interest will be issued to, and registered in the name of, the transferee, Interest and principal are payable only to the registered holder of the Note. G. Covenants. 1. Subordination. Borrower shall use commercially reasonable efforts to obtain the consent of the holders of the February 22, 2000 Note and the July 30, 1999 Note to the subordination of the right to payment under and the security interest granted pursuant to such promissory note as described in Section D.1 above. Failure to obtain such consent by June 30, 2000 shall constitute an Event of Default hereunder. Notwithstanding anything to the contrary contained elsewhere in this Note, Lender shall not be required to make any advances under this Note unless and until such consent is obtained and delivered to Lender. -9- 10 H. Other Provisions. 1. Definitions. As used herein, the following terms shall have the following meanings: "Collateral" means the property described on Exhibit A attached hereto. "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. "Intellectual Property Collateral" means: (a) Copyrights, Trademarks and Patents; (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) All amendments, renewals and e; 11 "Permitted Liens" means: (i) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising out of judgments or awards against Borrower with respect to which Borrower at the time shall currently be prosecuting an appeal or proceedings for review; (ii) Liens for taxes not yet subject to penalties for nonpayment and Liens for taxes the payment of which is being contested in good faith and by appropriate proceedings and for which, to the extent required by generally accepted accounting principles then in effect, proper and adequate book reserves relating thereto are established by Borrower; (iii) purchase money security interests and liens in connection with capital leases incurred in the ordinary course of business (to the extent such liens are only on the leased property) or existing on after acquired property at the time of its acquisition by the Borrower; (iv) liens existing on property as of the date of this Note; (v) liens securing the performance of bids, trade contracts, leases, surety bonds and the like; (vi) leases and sublicenses granted to others in the ordinary course of business; (vii) liens consisting of rights of set-off or bankers liens of a customary nature; (viii) liens in connection with the establishment of receivable lines of credit with commercial banks or other institutional lenders; (ix) liens consisting of agreements to refrain from giving or creating Liens (other than the Lien and security interest granted to Lender hereunder) in connection with joint venture agreements, strategic alliances and the like; and (x) liens granted in all of the Company's assets pursuant to the secured Promissory Note dated July 30, 1999. "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. "UCC" means the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 2. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state and federal courts located in the City and County of San Francisco, State of California or, at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. Borrower waives any right it may have to assert the doctrine of forum non conveniens or to object to such venue, and consents to any court ordered relief Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be promptly served and shall confer personal jurisdiction if served by registered or certified mail to Borrower. The choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum, or the taking of any action under this Note to enforce the same, in any appropriate jurisdiction. 3. Notices. Any notice or communication required or desired to be served, given or delivered hereunder shall be in the form and manner specified below, and shall be addressed to the party to be notified as follows: -11- 12 If to Investors: Dieter Meier ------------------------------------ ------------------------------------ ------------------------------------ Walter Bosch ------------------------------------ ------------------------------------ ------------------------------------ Onset Ventures ------------------------------------ ------------------------------------ ------------------------------------ With a copy to: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ and to: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ If to Borrower: Euphonix, Inc. 220 Portage Avenue Palo Alto, California 94306 Attn: Barry Margerum Fax: (650) 846-l131 With a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-l050 Attn: John Roos, Esq. Fax: (650) 493-6811 -12- 13 or to such other address as each party designates to the other by notice in the manner herein prescribed. Notice shall be deemed given hereunder if (i) delivered personally or otherwise actually received, (ii) sent by overnight delivery service, (iii) mailed by first-class United States mail, postage prepaid, registered or certified, with return receipt requested, or (iv) sent via telecopy machine with a duplicate signed copy sent on the same day as provided in clause (ii) above. Notice mailed as provided in clause (iii) above shall be effective upon the expiration of three (3) business days after its deposit in the United States mail, and notice telecopied as provided in clause (iv) above shall be effective upon receipt of such telecopy if the duplicate signed copy is sent under clause (iv) above. Notice given in any other manner described in this section shall be effective upon receipt by the addressee thereof, provided, however, that if any notice is tendered to an addressee and delivery thereof is refused by such addressee, such notice shall be effective upon such tender unless expressly set forth in such notice. 4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or delinquent payment from Borrower hereunder, or Lender's failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Borrower hereunder, or any right of Lender hereunder, and shall not affect in any way the right to require full performance at any time thereafter. Except as otherwise expressly provided herein, Borrower waives presentment, diligence, demand of payment, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. In any action on this Note, Lender need not produce or file the original of this Note, but need only file a photocopy of this Note certified by Lender be a true and correct copy of this Note in all material respects. 5. Severability. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision is prohibited by or invalid under applicable law, it shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of the provision or the remaining provisions of this Note. 6. Amendment Provisions. Except for increases in the Maximum Principal Amount of this Note as provided herein, this Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Borrower and Lender. 7. Binding Effect. This Note shall be binding upon, and shall inure to the benefit of, Borrower and the holder hereof and their respective successors and assigns; provided , however, that Borrower's rights and obligations shall not be assigned or delegated without Lender's prior written consent, given in its sole discretion, and any purported assignment or delegation without such consent shall be void ab initio. 8. Time of Essence. Time is of the essence of each and every provision of this Note. 9. Headings. Section headings used in this Note have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Note. 10. No Usury. This Note is subject to the express condition that at no time shall the Borrower be obligated or required to pay interest hereunder at a rate which could subject Lender to -13- 14 either civil or criminal liability as a result of being in excess of the maximum rate which the Borrower is permitted by law to contract or agree to pay. If, by the terms of this Note, the Borrower is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of this Note. 11. Attorneys' Fees. Should any litigation, enforcement or collection action be commenced between any of the parties to this Note under or in connection with this Note, the prevailing party in such litigation, enforcement or collection action shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for its attorneys' fees in such litigation, enforcement or collection action which shall be determined by the court in such litigation, enforcement or collection action or in a separate action brought for that purpose. The provisions of this Section shah survive the entry of any judgement or award and shall continue to apply with respect to any action to collect or recover any such judgment or award. -14- 15 IN WITNESS WHEREOF, the Borrower and each of the Investors has caused this Note to be duly executed on the date first written above. EUPHONIX, INC. By: --------------------------- Name: Barry Margerum Title: Chief Executive Officer "INVESTORS" ------------------------------------ Dieter Meier ------------------------------------ Walter Bosch Onset Ventures ------------------------------------ By: Title: General Partner 16 EXHIBIT "A" COLLATERAL DESCRIPTION ATTACHMENT TO SECURED PROMISSORY NOTE All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to: (1) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all investment property, including securities and securities entitlements; (2) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Lender (herein referred to as "Lender" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright; (3) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory); (4) all guarantees and other security therefor; (5) all trademarks, service marks, trade names and service names and the goodwill associated therewith including, without limitation, the following: Reel Feel(TM) Clear Displays(TM) Track Panner(TM) Snapshot Recall(TM) DSC(TM) (Digital Studio Controller) Hyper-Surround(TM) Total Automation(TM) Mixview(TM) (6) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (including, without limitation, United States Patents Nos. 5524060, 5402501, 5399820 and 5677959 17 and applications for United States patents for (i) Computer-Mirrored Panel Input Devices, (ii) Multiple Driver Rotary Control for Audio Processors or Other Uses, (iii) Functional Panel for Audio Mixer, and (iv) Cont. and Amendment of "Computer-Mirrored Panel Input Devices"), (b) licenses pertaining to any patent whether Debtor is licenser or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); (7) all rights in and to (i) the on-air mixing consoles of the Series CS3000B, (ii) mixer hardware software designs, (iii) Real Time(TM) software design, and (iv) analog and digital audio hardware design expertise; and (8) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing. Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term "Collateral" shall not include, any contractual, license or lease rights or interests in which Borrower is the grantee, licensee or lessee thereunder to the extent that Borrower, whether by law or by the terms of such contract, license or lease, is not permitted to assign or grant a security in interest in its rights thereunder without the consent of the other party thereto. -2- EX-10.29 12 f70624ex10-29.txt EXHIBIT 10.29 1 EXHIBIT 10.29 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT APRIL 14, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights........................... 1 1.1 Restrictions on Transferability............................... 1 1.2 Certain Definitions........................................... 1 1.3 Restrictive Legend............................................ 3 1.4 Restrictions on Transfer; Notice of Proposed Transfers........ 4 1.5 Requested Registration........................................ 5 1.6 Company Registration.......................................... 7 1.7 Expenses of Registration...................................... 7 1.8 Registration Procedures....................................... 8 1.9 Indemnification............................................... 10 1.10 Information by Holder......................................... 10 1.11 Rule 144 Reporting............................................ 10 1.12 Transfer of Registration Rights............................... 10 1.13 Standoff Agreement. .......................................... 11 1.14 Termination of Registration Rights............................ 11 1.15 [Intentionally Deleted.]...................................... 11 1.16 Standstill Agreement.......................................... 11 SECTION 2 Miscellaneous................................................. 11 2.1 Governing Law................................................. 11 2.2 Survival...................................................... 11 2.3 Successors and Assigns........................................ 11 2.4 Entire Agreement; Amendment................................... 11 2.5 Notices, etc. ................................................ 12 2.6 Delays or Omissions........................................... 12 2.7 Counterparts.................................................. 12 2.8 Severability.................................................. 12 2.9 Titles and Subtitles.......................................... 12 2.10 Attorney's Fees............................................... 12
-i- 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of April 14, 2000 between Euphonix, Inc., a California corporation (the "Company") and the Investors (the "Investors") pursuant to the Secured Promissory Note dated April 14, 2000 (the "Note") between the. Company and the Investors. The Investors agree to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Common Stock issued upon conversion of the Note shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Investors will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Investors to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first conversion of the Note into Common Stock pursuant to the Note. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Investor holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.12 hereof. "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. 4 "Registrable Securities" means (i) the Common Stock issued pursuant to the Note and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register, " "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Note and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with -2- 5 a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, -3- 6 the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; -4- 7 (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "Modification Agreement"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines that a further limitation is required, the Company shall so advise all Holders of Registrable Securities under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the -5- 8 registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such -6- 9 registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter, Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain -7- 10 effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case -8- 11 to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission)is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this subsection (b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has -9- 12 been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted for stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 STANDOFF AGREEMENT. In connection with any public offering of the Company's securities, the Holder agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, -10- 13 as the case may be, for such period of time (not to exceed one hundred eighty (180 days)) from the effective date of such registration as may be requested by the underwriters; provided that the officers and directors of the Company who own stock of the Company also agree to such restrictions. 1.14 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. 1.15 [INTENTIONALLY DELETED.] 1.16 STANDSTILL AGREEMENT. No Investor shall acquire, directly or indirectly, or cause or permit any affiliate of such Investor to acquire, directly or indirectly (through market purchases or otherwise), record or beneficial ownership of any Voting Securities of the Company representing, which taken together with all securities owned by such persons or entities, in excess of a percentage greater than twenty-five percent (25%) of the Total Voting Power of the Company without the prior written consent of the Company's Board of Directors. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Investors and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities, except that new Investors that become party to the Note may be added to this Agreement by joinder signed only by the Company and such Investor. -11- 14 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Investor, at such Investor's address, as shown on the stock records of the Company, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the President and Chief Executive Officer, or at such other address as the Company shall have furnished to the Investors. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. -12- 15 The foregoing agreement is hereby executed as of the date first above written. EUPHONIX, INC. --------------------------------------------- By: Barry Margerum Title: Chief Executive Officer and President INVESTORS: --------------------------------------------- Dieter Meier --------------------------------------------- Walter Bosch Onset Ventures --------------------------------------------- By: Title: EX-10.30 13 f70624ex10-30.txt EXHIBIT 10.30 1 EXHIBIT 10.30 SUBORDINATION AGREEMENT This Subordination Agreement (this "Agreement") dated April 14, 2000, is entered into by and between and Taurean Investments AG, Pegasus Capital II, L. P., Dieter Meier, Walter Bosch, Stephen D. Jackson, Milton Chang and Onset Ventures (collectively, the "Creditors"), on the one hand, and Dieter Meier, Walter Bosch and Onset Ventures (collectively, the "Investors"), on the other hand. RECITALS A. Euphonix, Inc., a California corporation (the "Borrower") has requested that the Investors extend credit to the Borrower as evidenced by a Secured Promissory Note dated April 14, 2000 (the "April 14 Note"), secured by the assets and property of Borrower. B. The Creditors extended credit to the Borrower pursuant to a Secured Promissory Note dated July 30, 1999 (the "July 30 Note"), and a Secured Promissory Note dated February 22, 2000 (the "February 22 Note"). C. To induce Investors to extend credit to the Borrower pursuant to the April 14 Note, the Creditors agree to subordinate, under the terms and conditions set forth herein, (i) all of the Borrower's indebtedness and obligations to the Creditors, existing now or hereafter (the "Subordinated Debt") to all of the Borrower's indebtedness and obligations to Investors under the April 14 Note, in an amount not to exceed $800,000 plus accrued interest thereon, exclusive of costs of collection (the "Senior Debt"); and (ii) all of the Creditors' security interests, to all of Investors' security interests in the Borrower's property. THE PARTIES AGREE AS FOLLOWS: 1. The Creditors subordinate to the Investors any security interest or lien that they have in any property of the Borrower. Despite attachment or perfection dates of the Creditors' security. interest and the Investors' security interest, the Investors' security interest in the Collateral, as defined in the April 14 Note, is prior to the Creditors' security interest. 2. All Subordinated Debt payments are subordinated to all Senior Debt, including interest accruing after any bankruptcy, reorganization or similar proceeding and all obligations under the April 14 Note (the "Senior Debt"). Notwithstanding the foregoing, the Creditors may (i) receive regularly scheduled payments of interest that constitute Subordinated Debt, pursuant to the terms of the July 30 Note and the February 22 Note, provided that no Event of Default (as defined in the April 14 Note) has occurred and is continuing or would result from such payment and (ii) convert any Subordinated Debt into equity securities of the Borrower under the terms and conditions set forth in the July 30 Note and the February 22 Note. 3. Without the written consent of the Investors, such consent to be granted in the Investors' sole discretion, the Creditors will not: 2 (a) demand or receive from the Borrower (and the Borrower will not pay), except as provided in Section 2, above, any part of the Subordinated Debt, by payment, prepayment, or otherwise, (b) exercise any remedy against the Collateral, or (c) accelerate the Subordinated Debt, or begin to or participate in any action against the Borrower, until all the Senior Debt is paid. 4. The Creditors must deliver to the Investors in the form received (except for endorsement or assignment by the Creditors) any payment, distribution, security or proceeds it receives on the Subordinated Debt other than according to this Agreement. 5. This Agreement shall remain in full force and effect, despite the Borrower's insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law, and the Investors' claims against the Borrower and the Borrower's estate will be fully paid, to the extent arising from sums subordinated hereunder, before any payment is made to the Creditors. 6. Until the Senior Debt is paid, the Creditors irrevocably appoint the Investors as their attorney-in-fact, with power of attorney with power of substitution, in the Creditors' names or in Investors' name, for the Investors' use and benefit, with 5 business days notice to the Creditors, to do the following in any bankruptcy, insolvency or similar proceeding involving the Borrower: (a) File any claims for the Subordinated Debt for the Creditors if the Creditors do not do so at least 30 days before the time to file claims expires, and (b) Accept or reject any plan of reorganization or arrangement for the Creditors and vote the Creditors' claims in respect of the Subordinated Debt in any way it chooses. 7. The Creditors will immediately put a legend on the Subordinated Debt instruments that the instruments are subject to this Agreement. No amendment of the Subordinated Debt documents will modify this Agreement in any way that terminates or impairs the subordination of the Subordinated Debt or the subordination of the security interest or lien that the Investors have in Borrower's property. For example, instruments may not be amended to (i) increase the interest rate of the Subordinated Debt, or (ii) accelerate payment of principal or interest or any other portion of the Subordinated Debt. 8. This Agreement shall remain in full force and effect so long as the Borrower owes any portion of the Senior Debt to the Investors. If, after full payment of the Senior Debt, the investors must disgorge any payments made on the Senior Debt, this Agreement and the relative rights and priorities provided in it, will be reinstated as to all disgorged payments as though the payments had not been made, and the Creditors will immediately pay the Investors all payments received under the Subordinated Debt to the extent the payments would have been prohibited under this Agreement. At any time without notice to the Creditors, the Investors may take actions it considers appropriate on the Senior Debt such as terminating advances, increasing the principal, -2- 3 extending the time of payment, increasing interest rates, renewing, compromising or otherwise amending any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against the Borrower or any other person. No action or inaction will impair or otherwise affect the Investors' rights under this Agreement. The Creditors waive any benefits of California Civil Code Sections 2809,2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433. 9. This Agreement binds the Creditors, their successors or assigns, and benefits Investors' successors or assigns. This Agreement is for the Investors' benefit and not for the benefit of the Borrower or any other party. If the Borrower is refinancing any of the Senior Debt with a new lender, upon the Investors' request of Creditors, the Creditors will enter into a new subordination agreement with the new lender on substantially the terms of this Agreement. 10. This Agreement may be executed in two or more counterparts, each of which is an original and all of which together constitute one instrument. 11. California law governs this agreement without giving effect to conflicts of law principles. The Creditors and the Investors submit to the exclusive jurisdiction of the courts in Santa Clara County, California. THE CREDITORS AND THE INVESTORS EACH WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION FROM THIS AGREEMENT. 12. This Agreement represents is the entire agreement about this subject matter, and supersedes prior negotiations or agreements. The Creditors are not relying on any representations by the Investors or the Borrower in entering into this Agreement. The Creditors will keep themselves informed of the Borrower's financial and other conditions. This Agreement may be amended only by written instrument signed by the Creditors and Investors. 13. If there is an action to enforce the rights of a party under this Agreement, the party prevailing will be entitled, in addition to other relief, all reasonable costs and expenses, including reasonable attorneys' fees, incurred in the action. -3- 4 "CREDITORS" "INVESTORS" -------------------------------- --------------------------------- Dieter Meier Dieter Meier -------------------------------- --------------------------------- Walter Bosch Walter Bosch -------------------------------- Stephen D. Jackson Onset Ventures -------------------------------- --------------------------------- Milton Chang By: Title: -------------------------------- Pegasus Capital II, L.P. -------------------------------- Taurean Investments AG Onset Ventures -------------------------------- By: Title: The Borrower approves the terms of this Agreement. The "Borrower" EUPHONIX, INC. By: ------------------------ Barry Margerum Title: Chief Executive Officer EX-10.31 14 f70624ex10-31.txt EXHIBIT 10.31 1 EXHIBIT 10.31 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 COMMON STOCK PURCHASE AGREEMENT JUNE 1, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE SECTION 1 Authorization and Sale of Common Stock..........................................1 1.1 Authorization...................................................................1 1.2 Purchase and Sale of Shares.....................................................1 SECTION 2 Closing Date; Delivery..........................................................1 2.1 Closing.........................................................................1 2.2 Delivery........................................................................1 SECTION 3 Representations and Warranties of the Company...................................2 3.1 Organization and Standing.......................................................2 3.2 Corporate Power.................................................................2 3.3 Capitalization..................................................................2 3.4 Authorization...................................................................3 3.5 Financial Statements............................................................3 3.6 No Material Adverse Change......................................................3 3.7 No Undisclosed Liabilities......................................................3 3.8 Title to Assets.................................................................4 3.9 Actions Pending.................................................................4 3.10 Compliance with Law.............................................................4 3.11 Certain Fees....................................................................4 3.12 Disclosure......................................................................4 3.13 Material Agreements.............................................................4 3.14 Employees.......................................................................5 3.15 Intellectual Property, Trademarks, etc..........................................5 SECTION 4 Representations and Warranties of the Purchasers................................5 4.1 Experience; Speculative Nature of Investment....................................5 4.2 Investment......................................................................5 4.3 Rule 144........................................................................5 4.4 Access to Data..................................................................6 4.5 Authorization...................................................................6 4.6 Brokers or Finders..............................................................6 4.7 Tax Liability...................................................................6 4.8 Recent Transfers................................................................6 SECTION 5 Conditions to Purchasers' Obligations to Close..................................6 5.1 Representations and Warranties Correct..........................................7 5.2 Covenants.......................................................................7 5.3 Blue Sky........................................................................7 5.4 Rights Agreement................................................................7
i 3
5.5 Compliance with Law.............................................................7 SECTION 6 Conditions to Company's Obligations to Close....................................7 6.1 Representations.................................................................7 6.2 Covenants.......................................................................7 6.3 Blue Sky........................................................................7 6.4 Rights Agreement................................................................7 6.5 Compliance with Law.............................................................7 SECTION 7 Miscellaneous...................................................................8 7.1 Governing Law...................................................................8 7.2 Survival........................................................................8 7.3 Successors and Assigns..........................................................8 7.4 Entire Agreement; Amendment.....................................................8 7.5 Notices, etc....................................................................8 7.6 Delays or Omissions.............................................................8 7.7 California Corporate Securities Law.............................................9 7.8 Counterparts....................................................................9 7.9 Severability....................................................................9 7.10 Titles and Subtitles............................................................9 7.11 Expenses........................................................................9 7.12 Limitation on Liability.........................................................9 7.13 Attorney's Fees.................................................................9
ii 4 EUPHONIX, INC. COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made as of June 1, 2000 by and among Euphonix, Inc., a California corporation (the "COMPANY"), and the individuals on the Schedule of Purchasers attached as Exhibit A hereto (the "PURCHASERS"). SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK 1.1 AUTHORIZATION. The Company has authorized the sale of up to a number of shares of Common Stock of the Company (the "Shares"), which shall have an aggregate market value equal to $3.38, based upon a cash price per share equal to ninety percent (90%) of the average closing bid price per share for the ten (10) days immediately preceding the Closing Date (as defined below), subject to the satisfaction or waiver of the conditions set forth in Sections 5 and 6 below. 1.2 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase and the Company agrees to sell and issue to each Purchaser the number of Shares set forth opposite its name on Exhibit A. The Company's agreement with each Purchaser is a separate agreement, and the sale of the Shares to each Purchaser is a separate sale. SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING. The purchase and sale of the Shares hereunder shall take place at one closing (the "Closing") on June 1, 2000, (the "Closing Date"). The Closing shall be held at the offices of the Company, at 9:00 a.m. local time , on the Closing Date, or at such other time and place upon which the Company and the Purchaser shall agree. 2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser a certificate registered in each Purchaser's name representing the number of Shares that each Purchaser is purchasing for payment of the purchase price therefor as set forth in Section 1.2 above, by check payable to the Company or by wire transfer per the Company's instructions. 5 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in writing in the disclosure letter supplied by the Company to the Purchaser (the "DISCLOSURE LETTER") the Company represents and warrants to the Purchasers as of the date of this Agreement as follows: 3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the Company's business. 3.2 CORPORATE POWER. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement and that certain Registration Rights Agreement substantially in the form attached hereto as Exhibit B (the "Rights Agreement"), to sell and issue the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the Rights Agreement (together the "Agreements"). 3.3 CAPITALIZATION. The authorized capital stock of the Company and the shares thereof issued and outstanding as of the date hereof are set forth in the Disclosure Letter. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized. Except as set forth in this Agreement and the Rights Agreement and as set forth in the Company's most recent Form 10-K, including the accompanying financial statements, or in the Company's most recent Form 10-Q, filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") in other public filings made by the Company with the Commission pursuant to the Exchange Act (collectively, the "Commission Filings"), or the Disclosure Letter, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and the Rights Agreement and as set forth in the Commission Filings, or the Disclosure Letter, there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except for registration rights contained in agreements entered into by the Company in order to sell restricted securities as provided in the Commission Filings or the Disclosure Letter, the Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the Commission Filings or in the Disclosure Letter, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all -2- 6 applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a material adverse effect on the Company's financial condition or operating results. 3.4 AUTHORIZATION. All corporate action on the part of the Company and its directors necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Shares, and the performance of all of the Company's obligations under the Agreements has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, except that the indemnification provisions of Section 1.9 of the Rights Agreement may further be limited by principles of public policy. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, will be fully paid and nonassessable, and will be free of any liens or encumbrances, other than any liens or encumbrances created by the Purchaser; provided, however, that the Shares are subject to restrictions on transfer under state and/or federal securities laws as set forth herein and in the Rights Agreement. 3.5 FINANCIAL STATEMENTS. The financial statements of the Company included in the Commission Filings comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). 3.6 NO MATERIAL ADVERSE CHANGE. Since March 31, 2000, the date through which the most recent quarterly report of the Company on Form 10-Q has been prepared and filed with the Commission, the Company has not experienced or suffered any event or condition which has materially affected the business operations, assets or financial condition of the Company. 3.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Commission Filings or the Disclosure Letter, the Company has no liabilities, obligations, claims or losses that would be required to be disclosed on a balance sheet of the Company (including the notes thereto), other than those incurred in the ordinary course of the Company's business since March 31, 2000 and which, individually or in the aggregate, do not or would not have a material adverse effect on the Company's financial condition or operating results. -3- 7 3.8 TITLE TO ASSETS. The Company has good and marketable title to all of its property and assets, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the Commission Filings or the Disclosure Letter or such that could not reasonably be expected to cause a material adverse effect on the Company's financial condition or operating results. 3.9 ACTIONS PENDING. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company, which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the Commission Filings or the Disclosure Letter, there is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective properties or assets and which, if adversely determined, is reasonably likely to result in a material adverse effect on the Company's financial condition or operating results. 3.10 COMPLIANCE WITH LAW. To the knowledge of the Company, the business of the Company has been and is presently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as set forth in the Commission Filings or the Disclosure Letter, or such that do not cause a material adverse effect. The Company has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individual or in the aggregate, could not reasonably be expected to have a material adverse effect on the Company's financial condition or operating results. 3.11 CERTAIN FEES. No brokers, finders or financial advisory fees or commissions will be payable by the Company with respect to the transactions contemplated by this Agreement. 3.12 DISCLOSURE. To the best of the Company's knowledge, neither this Agreement nor any other documents furnished to the Purchaser by or on behalf of the Company in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. 3.13 MATERIAL AGREEMENTS. Except as set forth in the Commission Filings or the Disclosure Letter, the Company is not a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement or applicable form (collectively, "Material Agreements") if the Company were registering securities under the Securities Act of 1933, as amended (the "Securities Act"). The Company has in all material respects performed all the obligations required to be performed by it under the foregoing agreements, has received no notice of default and, to the best of the Company's knowledge, is not in default under any Material Agreement now in effect, the result of which could reasonably be expected to cause a material adverse effect on the Company's financial condition or operating results. -4- 8 3.14 EMPLOYEES. Except as set forth in the Commission Filings or the Disclosure Letter or as otherwise disclosed by the Company to the Purchaser, the Company has no collective bargaining arrangements or agreements covering any of its employees. 3.15 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right to use, free and clear of all liens, charges, claims and restrictions, all intellectual property, patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to the business of the Company as presently conducted. To the best of the Company's knowledge, the Company is not infringing upon or otherwise acting adversely to the right or claimed right of any other person under or with respect to the foregoing. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby represents and warrants to the Company, as to himself only and not with respect to any other Purchaser, with respect to the purchase of Shares as follows: 4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. Each Purchaser (or its principals or advisors) has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Each Purchaser acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and each Purchaser is in a position to lose the entire amount of such investment. 4.2 INVESTMENT. Each Purchaser is acquiring the Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Each Purchaser understands that the Shares to be purchased hereby have not been, and will not be, registered under the Securities Act (except as provided in Section 3 of the Rights Agreement) by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchasers' representations as expressed herein. Each Purchaser is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. Each Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Each Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified -5- 9 limitations. Each Purchaser understands that the certificates evidencing the Shares will be imprinted with a legend that prohibits the transfer of such securities unless they are registered or such registration is not required. 4.4 ACCESS TO DATA. Each Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with its management. Each Purchaser has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. Each Purchaser understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.5 AUTHORIZATION. The Agreements, when executed and delivered by the Purchasers, will constitute valid and legally binding obligations of each Purchaser, enforceable in accordance with their terms, except as the indemnification provisions of Section 1.9 of the Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.6 BROKERS OR FINDERS. The Purchasers have not engaged any brokers, finders or agents, and the Company has not, and will not, incur, directly or indirectly, as a result of any action taken by Purchasers, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreements. In the event that the preceding sentence is in any way inaccurate, each Purchaser agrees to indemnify and hold harmless the Company and each other Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability) for which the Company, any other Purchaser, or any of their officers, directors, employees or representatives, is responsible. 4.7 TAX LIABILITY. Each Purchaser has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, each Purchaser relies solely on such advisors and not on any statements or representations of the Company or any of its agents other than the representations and warranties set forth herein. Each Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Agreements. 4.8 RECENT TRANSFERS. The Purchasers have not purchased, sold or transferred any security of the Company within the sixty days immediately preceding the date of this Agreement. SECTION 5 CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE The Purchasers' obligations to purchase the Shares are, unless waived by the Purchasers, subject to the fulfillment of the following conditions: -6- 10 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares. 5.4 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 5.5 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Shares and the consummation of the transactions contemplated hereby. SECTION 6 CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE The Company's obligation to sell and issue the Shares is, unless waived by the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements and conditions contained in the Agreements to be performed by Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares. 6.4 RIGHTS AGREEMENT. The Company and the Purchasers shall have executed and delivered the Rights Agreement. 6.5 COMPLIANCE WITH LAW. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the sale and issuance of the Shares and the consummation of the transactions contemplated hereby. -7- 11 SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California, without regard to its choice of law rules. 7.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of the Purchasers to purchase the Shares shall not be assignable without the prior written consent of the Company. 7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and holders of a majority of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to Purchasers, at each Purchaser's address, as shown below, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchaser. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 7.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any -8- 12 waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.9 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 7.11 EXPENSES. The Company and the Purchaser shall each bear their own fees, costs and expenses incurred on their behalf with respect to the Agreements and the transactions contemplated hereby and any amendments or waiver thereto; provided, however, the Company shall pay the attorney's fee of one (1) counsel to the Purchasers not to exceed $5000 in the aggregate. 7.12 LIMITATION ON LIABILITY. Notwithstanding anything in this Agreement to the contrary, no Purchaser shall have any liability for any misrepresentation, breaches of representations or warranties or breaches of covenants made by any other Purchaser under or in connection with this Agreement. 7.13 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. [Signature Page Follows] -9- 13 The foregoing Agreement is hereby executed as of the date first above written. EUPHONIX, INC. a California corporation ----------------------------------------------- By: James Dobbie Title: Chief Executive Officer and President COMMON PURCHASERS ----------------------------------------------- By: Dieter Meier ----------------------------------------------- By: Walter Bosch [SIGNATURE PAGE TO 6/1/00 COMMON STOCK PURCHASE AGREEMENT] 14 EXHIBITS A Schedule of Purchasers B Registration Rights Agreement iii 15 EXHIBIT A SCHEDULE OF PURCHASERS
NAME NUMBER OF SHARES PURCHASE PRICE ---- ---------------- -------------- Dieter Meier 59,171 $200,000 Walter Bosch 88,757 $300,000
EX-10.32 15 f70624ex10-32.txt EXHIBIT 10.32 1 EXHIBIT 10.32 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT JUNE 1, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights.............................................1 1.1 Restrictions on Transferability.................................................1 1.2 Certain Definitions.............................................................1 1.3 Restrictive Legend..............................................................3 1.4 Restrictions on Transfer; Notice of Proposed Transfers..........................3 1.5 Requested Registration..........................................................4 1.6 Company Registration............................................................6 1.7 Expenses of Registration........................................................7 1.8 Registration Procedures.........................................................8 1.9 Indemnification.................................................................8 1.10 Information by Holder..........................................................10 1.11 Rule 144 Reporting.............................................................10 1.12 Transfer of Registration Rights................................................10 1.13 Termination of Registration Rights.............................................11 SECTION 2 Miscellaneous..................................................................11 2.1 Governing Law..................................................................11 2.2 Survival.......................................................................11 2.3 Successors and Assigns.........................................................11 2.4 Entire Agreement; Amendment....................................................11 2.5 Notices, etc. .................................................................11 2.6 Delays or Omissions............................................................12 2.7 Counterparts...................................................................12 2.8 Severability...................................................................12 2.9 Titles and Subtitles...........................................................12 2.10 Attorney's Fees................................................................12
i 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made as of June 1, 2000 between Euphonix, Inc., a California corporation (the "COMPANY") and the Purchasers of the Company's Common Stock (the "COMMON PURCHASERS") pursuant to the Company's Common Stock Purchase Agreement dated June 1, 2000 (the "COMMON STOCK AGREEMENT"). The Common Purchasers agree to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Common Stock purchased pursuant to the Common Stock Agreement shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Common Purchasers will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Common Purchasers to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first purchase and sale of Common Stock pursuant to the Common Stock Agreement. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Common Purchaser holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.12 hereof. 4 "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. "Registrable Securities" means (i) the Common Stock issued pursuant to the Common Stock Agreement and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. -2- 5 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Common Stock Agreement and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's -3- 6 expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately -4- 7 following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "MODIFICATION AGREEMENT"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines -5- 8 that a further limitation is required, the Company shall so advise all Holders of Registrable Securities under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. -6- 9 Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 -7- 10 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to -8- 11 any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this subsection (b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "INDEMNIFIED Party") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party -9- 12 may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such -10- 13 assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted for stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Common Purchasers and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Common Stock Agreement and the other documents delivered pursuant hereto on the Closing Date constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities. 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Common Purchaser, at such Common Purchaser's address, as shown on the stock records of the Company, or at such other address as such Common Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and -11- 14 addressed to the attention of the President and Chief Executive Officer, or at such other address as the Company shall have furnished to the Common Purchasers. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. [Signature Page Follows] -12- 15 The foregoing Agreement is hereby executed as of the date first above written. EUPHONIX, INC. a California corporation ------------------------------------------ By: James Dobbie Title: Chief Executive Officer and President COMMON PURCHASERS ------------------------------------------ By: Dieter Meier ------------------------------------------ By: Walter Bosch [SIGNATURE PAGE TO 6/1/00 REGISTRATION RIGHTS AGREEMENT] EX-10.33 16 f70624ex10-33.txt EXHIBIT 10.33 1 EXHIBIT 10.33 THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE, TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. SECURED PROMISSORY NOTE Four Hundred Thousand Dollars ($400,000.00) September 7, 2000 A. Principal and Interest. For value received, the undersigned, Euphonix, Inc., a California corporation ("Borrower"), hereby promises to pay to Walter Bosch ("Lender"), or his registered assigns, the principal sum of Four Hundred Thousand Dollars ($400,000). Interest shall accrue with respect to the outstanding principal hereunder at the per annum rate of eight percent (8.00%), net of any deductions or withholding taxes. Interest payable hereunder shall be calculated on the basis of a three hundred sixty (360) day year for actual days elapsed. Interest shall be due and payable (or converted as set forth in Section B below) upon payment or conversion of the principal sum of this Note pursuant to Section B below. Notwithstanding the foregoing to the contrary, during any period for which an Event of Default shall have occurred and be continuing, interest shall accrue with respect to the outstanding principal amount hereunder at the per annum rate of fourteen percent (14.00%), net of any deductions or withholding taxes. B. Payment or Conversion. 1. Scheduled Payment. Subject to other provisions of this Note, the outstanding principal sum of this Note, together with the accrued interest thereon, shall be due and payable on July 31, 2001. 2. No Prepayment. Borrower shall not have the right at any time to time to prepay, in whole or in part, the outstanding principal sum of this Note and/or any accrued interest thereon. 3. Form of Payment. Unless converted pursuant to the terms set forth below, the outstanding principal sum and accrued interest thereon are to be paid in lawful money of the United States of America in federal or other immediately available funds. 4. Immediate Payment. Notwithstanding anything herein to the contrary, in the event that all necessary shareholder, regulatory and other approvals or consents for the convertibility of this Note as set forth below are not obtained by July 31, 2001, the outstanding principal amount and 2 accrued interest thereon, shall be repaid in full upon demand by the Lender; provided, however, that the Lender must provide at least one (1) month prior written notice to the Borrower prior to such demand. In addition, such demand may not be made (x) if shareholder approval for the convertibility of this Note is not obtained as a result of the Lender failing to vote or consent for such convertibility, or (y) if shareholder approval for the convertibility of this Note would not be required so long as the Borrower obtain shareholder approval with respect to such other security issuances by the Borrower, but shareholder approval with respect to such other issuances not be obtained as a result of the investors failing to vote or consent with respect to such other issuances. 5. Conversion. (a) Subject to obtaining all necessary shareholders, regulatory and other approvals or consents and further subject to Section B.5(c) hereof, all or part of the principal sum of this Note, together with the accrued interest thereon, shall be convertible at the option of the Lender into shares of common stock of the Borrower (the "Common Stock"). The number of shares of Common Stock to be issued upon such conversion(s) shall be equal to the quotient obtained by dividing (i) such part (or all) of the principal sum of this Note plus accrued interest thereon by (ii) the average closing bid price for the Common Stock for the ten trading days immediately preceding the day of execution of this Note, which is $2.3562 per share (the "Purchase Price"). (b) No fractional share of Common Stock will be issued upon such conversion(s) of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled, the Borrower will pay to the Lender in cash the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into such fractional share. At its expense, the Borrower, will as soon as practicable thereafter, issue and deliver to the Lender, at its principal office, or other address notified by the Lender to the Borrower from time to time, a certificate or certificates for the number of shares (representing its pro rata portion) to which the Lender is entitled upon such conversion(s). Upon such conversion(s) of this Note, the Borrower will be forever released from all of its obligations and liabilities under this Note, to the extent of the conversion. Such conversions may be exercised individually by the Lender but notwithstanding anything herein to the contrary, each such conversion must be for the full amount of the outstanding principal and accrued interest thereon payable to the Lender exercising its rights under Section B.5 hereunder at the time of such exercise. (c) Notwithstanding anything herein to the contrary, Section B.5(a) of this Note shall not apply and this Note shall not be convertible into shares of Common Stock as contemplated herein (i) until such time as the Borrower has obtained shareholder approval of the conversion feature of this Note as and to the extent required by the rules of the National Association of Securities Dealers; and (ii) upon the occurrence of the following: the consummation of any transaction or series of transactions (collectively, the "Transaction"), including without limitation, the sale, transfer or disposition of all or substantially all of the Borrower's assets or the merger of the Borrower with or into, or consolidation with, any other corporate entity, whereby the holders of the Borrower's voting securities prior to the Transaction do not hold more than 50% of the voting securities of the surviving entity following the consummation of the Transaction. Notice of any such Transaction shall be provided to the Lender fourteen (14) calendar days prior to the consummation -2- 3 of any such Transaction and, notwithstanding anything to the contrary contained elsewhere in this Note, Lender may exercise his rights of conversion during such 14-day period. C. Security Interest. 1. Grant of Security Interest. Borrower grants to Lender a security interest in the Collateral, as defined herein, to secure the payment of all of the outstanding indebtedness hereunder (the "Secured Obligations") including, without limitation, principal and accrued interest and any attorneys' fees to which Lender is entitled under this Note. 2. Representations and Warranties Regarding Collateral. On the date of this Note, Borrower does and shall represent and warrant to Lender, that as of such date: (a) Borrower is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of any and all Liens other than the Lien and security interest granted to Lender hereunder and Permitted Liens. (b) The lien against the Collateral granted hereunder is and shall be a first-priority lien against the collateral and each portion thereof, subject to Permitted Liens. (c) Borrower shall not create or assume or permit to exist any such Lien on or against any of the Collateral except as created or permitted by this Note and Permitted Liens, and Borrower shall promptly notify Lender of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be reasonably necessary to remove or discharge, any such Lien. (d) Borrower shall take all commercially reasonable actions necessary to protect and preserve the Collateral which is used in its business in good condition and repair, subject to ordinary wear and tear, and to preserve its value and usefulness. (e) No part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part. (f) No claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. (g) The Collateral consists of all assets which are required for the conduct and operation of the business of Borrower as of the date of this Note. (h) The Intellectual Property Collateral includes all of the technology, know-how and proprietary information which are required for the conduct and operation of the business of borrower as of the date of this Note. 3. General Representations and Warranties. On the date of this Note, Borrower does and shall represent and warrant to Lender, that as of such date: -3- 4 (a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Borrower has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Material Adverse Effect. The term "Material Adverse Effect," as used in this Note, means any change in or effect (or any development that is reasonably likely to result in any change or effect) on the business, business prospects, properties, assets, operations, financial condition or results of operations of Borrower that is materially adverse to Borrower taken as a whole. (b) AUTHORITY RELATIVE TO THIS NOTE. This Note has been duly and validly authorized, executed and delivered by Borrower and constitutes a valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. (c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except for the approval of Shareholders contemplated under Section B, none of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will (i) conflict with or violate the certificate of incorporation or by-laws of Borrower, (ii) conflict with or violate any material statute, ordinance, rule, regulation, order, judgment or decree applicable to Borrower, or by which Borrower or its properties or assets may be bound, or (iii) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit, or the creation of any lien on any of the property or assets of Borrower pursuant to any material agreement, a copy of which would be required to be filed as an exhibit to the Company's Form 10-K or Form 10-Q filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (d) CONSENTS. None of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will require any consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any government or subdivision thereof, or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational (a "Governmental Entity"), except for Consents the failure of which to obtain or make would not have a Material Adverse Effect or adversely affect the ability of Borrower to consummate the transactions contemplated hereby; provided, that the convertibility feature of this Note as set forth in Section B, which requires shareholder approval pursuant to the Nasdaq Stock Market's shareholder approval provisions, is obtained. -4- 5 (e) MATERIAL ADVERSE CHANGE. Since the date of the latest financial statements filed by Borrower with the Commission prior to the date of this Note, there has not been any event, occurrence or development that has resulted or, to the Company's knowledge, is reasonably likely to result in a Material Adverse Effect. 4. Perfection of Security Interest. Borrower agrees to take all actions required or requested by Lender and reasonably necessary to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder, including, but not limited to, execution and filing of financing statements and the filing of notices of security interests with the United States Patent and Trademark Office. D. Events of Default. 1. Definition of Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) Borrower's failure to perform, keep or observe any obligation under this Note or any of the covenants contained in this Note which failure is not cured within 30 days from the notice of the occurrence thereof delivered by Lender to Borrower. (b) The lapse of 60 days following the institution of proceedings against Borrower, or Borrower's filing of a petition or answer or consent seeking reorganization or release, under the federal Bankruptcy Code, or any other applicable federal or state law relating to creditor rights and remedies, or Borrower's consent to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Borrower or of any substantial part of its property, or Borrower's making of an assignment for the benefit of creditors, or the taking of corporate action in furtherance of such action. (c) Any representation or warranty of the Borrower made in this Note proves untrue in any material respect as of the date of the issuance or making thereof. 2. Rights and Remedies on Event of Default. (a) During the continuance of an Event of Default, Lender shall have the right, itself or through any of its agents, with notice to Borrower (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), declare all obligations evidenced by this Note immediately due and payable, cease advancing money or extending credit to or for the benefit of Borrower under this Note, and to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, Lender shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Lender, in its reasonable discretion, may deem advisable, and it shall have the right to purchase at any such sale. Borrower agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of -5- 6 any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to Lender's reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which Lender shall account to Borrower for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Lender is legally entitled, Borrower shall be liable for the deficiency, together with interest thereon, and the reasonable fees of any attorneys Lender employs to collect such deficiency; provided, however that the foregoing shall not be deemed to require Lender to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency or other amount directly from Borrower. (b) Borrower appoints Lender, and any officer, employee or agent of Lender, with full power of substitution, as Borrower's true and lawful attorney-in-fact, effective as of the date hereof, with power, in its own name or in the name of Borrower, during the continuance of an Event of Default, to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into Lender's possession, to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; to notify persons and entities obligated with respect to the Collateral to make payments directly to Lender; and, generally, to do, at Lender's option and at Borrower's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve and realize upon the Collateral and Lender's security interest therein to effect the intent of this Note, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (c) All of Lender's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (d) Upon the occurrence of an Event of Default, the Lender may bring suit against Borrower to collect amounts due the Lender under this Note. E. Restrictions on Transfer and Compliance with Securities Act. 1. Certificates. Certificates representing any of the shares of Common Stock acquired pursuant to the provisions of this Note shall have endorsed thereon the following legends, as appropriate. (a) Such shares of Common Stock will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if necessary) under applicable state securities laws and consequently will have the following legend: -6- 7 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." (b) Any legend required to be placed thereon by any applicable state securities laws. 2. The Lender, by acceptance hereof, agrees that this Note and the shares of Common Stock to be issued upon conversion pursuant to the terms hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Note or any shares of Common Stock to be issued upon conversion pursuant to the terms hereof except under circumstances which will not result in a violation of the Securities Act or of applicable state securities laws. 3. The Lender, by acceptance hereof, represents that the Lender is (i) an accredited investor within the meaning of Rule 501 under the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note; (ii) aware of the Company's business affairs and financial condition; and (iii) aware that the Note has not been registered under the Securities Act of 1933, as amended, in reliance upon a specific exemption therefrom. 4. Subject to the preceding, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to Borrower. Thereupon, a new Note for like principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of the Note. F. Covenants. 1. Registration Rights. Upon receipt of the necessary approvals for the convertibility feature of this Note set forth in Section B.5 above, the Borrower hereby covenants to enter into a registration rights agreement with the Lender to provide for the registration of the shares of Common Stock into which the Note is then convertible, in the form set forth on Exhibit B hereto. 2. Warrants. In the event the Lender shall elect to convert all or a portion of its Pro Rata Share of this Note into Common Stock in accordance with Section C.5 above, the Borrower shall -7- 8 issue to the Lender warrants to purchase shares of common stock, in the form set forth on Exhibit C hereto. G. Other Provisions. 1. Definitions. As used herein, the following terms shall have the following meanings: "Collateral" means the property described on Exhibit A attached hereto. "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. "Intellectual Property Collateral" means: (a) Copyrights, Trademarks and Patents; (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and (g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. -8- 9 "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations in part of the same. "Permitted Liens" means: (i) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising out of judgments or awards against Borrower with respect to which Borrower at the time shall currently be prosecuting an appeal or proceedings for review; (ii) Liens for taxes not yet subject to penalties for nonpayment and Liens for taxes the payment of which is being contested in good faith and by appropriate proceedings and for which, to the extent required by generally accepted accounting principles then in effect, proper and adequate book reserves relating thereto are established by Borrower; (iii) purchase money security interests and liens in connection with capital leases incurred in the ordinary course of business (to the extent such liens are only on the leased property) or existing on after acquired property at the time of its acquisition by the Borrower; (iv) Liens existing on property as of the date of this Note; (v) Liens securing the performance of bids, trade contracts, leases, surety bonds and the like; (vi) leases and sublicenses granted to others in the ordinary course of business; (vii) Liens consisting of rights of set-off or bankers liens of a customary nature; (viii) Liens in connection with the establishment of receivable lines of credit with commercial banks or other institutional lenders; (ix) Liens consisting of agreements to refrain from giving or creating Liens (other than the Lien and security interest granted to Lender hereunder) in connection with joint venture agreements, strategic alliances and the like; (x) Liens granted in all of the Company's assets pursuant to the secured Promissory Note dated July 30, 1999; (xi) Liens granted in all of the Company's assets pursuant to the secured Promissory Note dated February 22, 2000; (xii) Liens granted in all of the Company's assets pursuant to the secured Promissory Note dated April 14, 2000, as amended; and (xiii) Liens granted in all of the Company's assets pursuant to the Secured Promissory Note dated December 29, 2000. "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. "UCC" means the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 2. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state courts located in the County of Santa Clara, State of California, in the United States District Court for the Northern District of California, or at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. 3. Notices. Any notice or communication required or desired to be served, given or delivered hereunder shall be in the form and manner specified below, and shall be addressed to the party to be notified as follows: -9- 10 If to the Lender: Walter Bosch Fraumunsterstr. 9 8001 Zurich Switzerland If to Borrower: Euphonix, Inc. 220 Portage Avenue Palo Alto, California 94306 Attention: Steve Vining Fax: (650) 846-1131 With a copy to: Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attn: John Roos, Esq. Fax: (650) 493-6811 or to such other address as each party designates to the other by notice in the manner herein prescribed. Notice shall be deemed given hereunder if (i) delivered personally or otherwise actually received, (ii) sent by overnight delivery service, (iii) mailed by first-class United States mail, postage prepaid, registered or certified, with return receipt requested, or (iv) sent via telecopy machine with a duplicate signed copy sent on the same day as provided in clause (ii) above. Notice mailed as provided in clause (iii) above shall be effective upon the expiration of three (3) business days after its deposit in the United States mail, and notice telecopied as provided in clause (iv) above shall be effective upon receipt of such telecopy if the duplicate signed copy is sent under clause (iv) above. Notice given in any other manner described in this section shall be effective upon receipt by the addressee thereof; provided, however, that if any notice is tendered to an addressee and delivery thereof is refused by such addressee, such notice shall be effective upon such tender unless expressly set forth in such notice. 4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or delinquent payment from Borrower hereunder, or Lender's failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Borrower hereunder, or any right of Lender hereunder, and shall not affect in any way the right to require full performance at any time thereafter. Except as otherwise expressly provided herein, Borrower waives presentment, diligence, demand of payment, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. In any action on this Note, Lender need not produce or file the original of this Note, but need only file a photocopy of this Note certified by Lender be a true and correct copy of this Note in all material respects. 5. Severability. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision is prohibited by or invalid under applicable law, it shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of the provision or the remaining provisions of this Note. -10- 11 6. Amendment. This Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Borrower and the Lender. 7. Binding Effect. This Note shall be binding upon, and shall inure to the benefit of, Borrower and the Lender hereof and their respective successors and assigns; provided, however, that Borrower's rights and obligations shall not be assigned or delegated without Lender's prior written consent, given in its sole discretion, and any purported assignment or delegation without such consent shall be void ab initio. 8. Headings. Section headings used in this Note have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Note. 9. No Usury. This Note is subject to the express condition that at no time shall the Borrower be obligated or required to pay interest hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate which the Borrower is permitted by law to contract or agree to pay. If, by the terms of this Note, the Borrower is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of this Note. 10. Attorneys' Fees. Should any litigation, enforcement or collection action be commenced between any of the parties to this Note under or in connection with this Note, the prevailing party in such litigation, enforcement or collection action shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for its attorneys' fees in such litigation, enforcement or collection action which shall be determined by the court in such litigation, enforcement or collection action or in a separate action brought for that purpose. The provisions of this section shall survive the entry of any judgment or award and shall continue to apply with respect to any action to collect or recover any such judgment or award. 11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. [remainder of the page intentionally left blank] -11- 12 IN WITNESS WHEREOF, the Borrower and the Lender have caused this Note to be duly executed on the date first written above. EUPHONIX, INC. By: ------------------------------------ Name: Steve Vining Title: Chief Executive Officer LENDER --------------------------------------- Walter Bosch [SIGNATURE PAGE TO SECURED PROMISSORY NOTE] 13 EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO SECURED PROMISSORY NOTE All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to: (1) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all investment property, including securities and securities entitlements; (2) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Lender (herein referred to as "Lender" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright; (3) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory); (4) all guarantees and other security therefor; (5) all trademarks, service marks, trade names and service names and the goodwill associated therewith including, without limitation, the following: Reel Feel(TM) Clear Displays(TM) Track Panner(TM) SnapShot Recall(TM) DSC(TM) (Digital Studio Controller) Hyper-Surround(TM) Total Automation(TM) Mixview(TM) (6) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (including, without limitation, United States Patents Nos. 5524060, 5402501, 5399820, 5677959 and 6,057,829 and applications for United States patents for (i) Multiple Driver Rotary Control for Audio Processors or Other Uses, (ii) Functional Panel for Audio Mixer, and (iii) Plug-in Modules for 14 Digital Signal Processor Functionalities), (b) licenses pertaining to any patent whether Debtor is licensor or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); (7) all rights in and to (i) the on-air mixing consoles of the Series CS3000B, (ii) mixer hardware software designs, (iii) Real Time(TM) software design, and (iv) analog and digital audio hardware design expertise; and (8) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing. Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term "Collateral" shall not include, any contractual, license or lease rights or interests in which Borrower is the grantee, licensee or lessee thereunder to the extent that Borrower, whether by law or by the terms of such contract, license or lease, is not permitted to assign or grant a security in interest in its rights thereunder without the consent of the other party thereto. -2- 15 EXHIBIT B REGISTRATION RIGHTS AGREEMENT 16 EXHIBIT C COMMON STOCK WARRANT EX-10.34 17 f70624ex10-34.txt EXHIBIT 10.34 1 EXHIBIT 10.34 =============================================================================== EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT ------------ --, --- ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights..........................................................1 1.1 Restrictions on Transferability...................................................1 1.2 Certain Definitions...............................................................1 1.3 Restrictive Legend................................................................3 1.4 Restrictions on Transfer; Notice of Proposed Transfers............................3 1.5 Requested Registration............................................................4 1.6 Company Registration..............................................................6 1.7 Expenses of Registration..........................................................7 1.8 Registration Procedures...........................................................8 1.9 Indemnification...................................................................8 1.10 Information by Holder............................................................10 1.11 Rule 144 Reporting...............................................................10 1.12 Transfer of Registration Rights..................................................10 1.13 Termination of Registration Rights...............................................11 SECTION 2 Miscellaneous....................................................................11 2.1 Governing Law....................................................................11 2.2 Survival.........................................................................11 2.3 Successors and Assigns...........................................................11 2.4 Entire Agreement; Amendment......................................................11 2.5 Notices, etc. ...................................................................11 2.6 Delays or Omissions..............................................................12 2.7 Counterparts.....................................................................12 2.8 Severability.....................................................................12 2.9 Titles and Subtitles.............................................................12 2.10 Attorney's Fees..................................................................12
-i- 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of ________ __, ____ between Euphonix, Inc., a California corporation (the "Company") and the Lender (the "Lender") pursuant to the Secured Promissory Note dated September 7, 2000 (the "Note") between the Company and the Lender. The Lender agrees to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY The Common Stock issued upon conversion of the Note shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Lender will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Lender to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first conversion of the Note into Common Stock pursuant to the Note. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Lender holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.12 hereof. 4 "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. "Registrable Securities" means (i) the Common Stock issued pursuant to the Note and Warrants and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Section 1.5 and Section 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. -2- 5 "Warrants" shall mean the Common Stock Warrants issued to the Purchasers pursuant to Section F.2 of the Note. 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Note and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or -3- 6 pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; -4- 7 (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this Section 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "Modification Agreement"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and -5- 8 the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines that a further limitation is required, the Company shall so advise all Holders of Registrable Securities under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. -6- 9 Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). -7- 10 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by -8- 11 the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this Section 1.9(b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an -9- 12 Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Section 1.5 and Section 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted for stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to -10- 13 any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Lender and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities, except that any new Lender that becomes party to the Note may be added to this Agreement by joinder signed only by the Company and such Lender. 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Lender, at such Lender's address, as shown on the stock records of the Company, or at such other address as such Lender shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the President -11- 14 and Chief Executive Officer, or at such other address as the Company shall have furnished to the Lender. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. [remainder of the page intentionally left blank] -12- 15 The foregoing agreement is hereby executed as of the date first above written. EUPHONIX, INC. ----------------------------------------- By: Steve Vining Title:Chief Executive Officer LENDER ----------------------------------------- Walter Bosch [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-10.35 18 f70624ex10-35.txt EXHIBIT 10.35 1 EXHIBIT 10.35 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. COMMON STOCK WARRANT OF EUPHONIX, INC. This Warrant is being issued pursuant to that certain Secured Promissory Note, dated September 7, 2000 (the "Note"), by and between Euphonix, Inc., a California corporation (the "Company"), and the Lender (as defined therein). This certifies that, for value received, Walter Bosch (the "Warrantholder") is entitled, on the terms and subject to conditions set forth below, to subscribe for and purchase from the Company at the Warrant Price defined in Section 2 below, the number of shares of fully paid and non-assessable shares of the Company's Common Stock (the "Common Stock") equal to the number of shares of Common Stock to be issued to the Warrantholder pursuant to section B.5 of the Note (the "Warrant Shares"). Such Warrant Price and such number of Warrant Shares shall be subject to adjustment upon occurrence of the contingencies set forth in this Warrant. Upon delivery of this Warrant (with the Notice of Exercise in the form attached as Attachment A), together with payment of the Warrant Price for the Warrant Shares thereby purchased, which payment may be made by converting this Warrant or any portion thereof pursuant to Section 3 below) ("Warrant Conversion"), at the principal office of the Company or at such other office or agency as the Company may designate by notice in writing to the holders hereof, the holder of this Warrant shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. All Warrant Shares which may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect thereto. This Warrant is subject to the following terms and conditions: 1. Term of Warrant. This Warrant may be exercised in whole or in part, at any time after issuance and prior to the earlier to occur of (i) 5:00 p.m., Pacific Time, on the five-year 2 anniversary of the date of this Warrant, and (ii) five business days prior to the estimated closing date of an Acquisition (as defined below) (the "Term"); provided, however, that in the event this Warrant is exercised, in whole or in part, in connection with an Acquisition, such exercise by the Warrantholder may be conditioned upon the consummation of the Acquisition if so indicated by the Warrantholder pursuant to the Notice of Exercise. For purposes of this Warrant, "Acquisition" shall mean a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into another corporation or entity, pursuant to which the stockholders immediately prior to such merger or consolidation hold less than 50% of the voting equity securities of the surviving or acquiring entity immediately following such merger or consolidation. Upon the expiration of the Term, this Warrant, to the extent not exercised, shall terminate. 2. Warrant Price. The exercise price of this Warrant (the "Warrant Price") shall equal the "Purchase Price" (as defined in the Note). 3. Method of Exercise. (a) Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant (with the duly executed Notice of Exercise attached as Attachment A) at the principal office of the Company, and by the payment to the Company, by certified or cashier's check, wire transfer or other acceptable means to the Company, of an amount equal to the aggregate Warrant Price of the Warrant Shares being purchased. (b) Net Issue Exercise. In lieu of exercising this Warrant for cash under Section 3(a) above, the Warrantholder may elect to receive Warrant Shares equal to the value of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company and specification of such election on the Notice of Election, in which event the Company shall issue to the Warrantholder a number of Warrant Shares computed using the following formula: X = Y(A-B) ------ A Where X = the number of Warrant Shares to be issued to the Warrantholder. Y = the number of Warrant Shares for which this Warrant is then being exercised. A = the fair market value of one share of the Company's Common Stock. B = the Warrant Price (as adjusted to the date of such calculation). For purposes of this Section 3(b), the fair market value of the Company's Common Stock shall mean the average closing ask prices of the Company's Common Stock quoted on the Nasdaq National Market or Nasdaq Small Cap Market, or the closing prices quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of -2- 3 The Wall Street Journal for the 30 trading days prior to the date of determination of fair market value. 4. Adjustment of Warrant Price and Number of Warrant Shares. The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time in accordance with the following provisions: (a) Reclassification or Consolidation. In case of any reclassification, consolidation or change of outstanding securities of the class issuable upon exercise of this Warrant (other than as a result of a subdivision or combination), the Company shall execute a new Warrant, providing that the holder of this Warrant shall have the right to exercise such new Warrant, and procure upon such exercise in lieu of each Warrant Share previously issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification or change by a holder of one Warrant Share. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4(a) shall similarly apply to successive reclassifications, consolidations or changes. (b) Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the Warrant Price shall be proportionately decreased in the case of a sub-division or increased in the case of a combination. (c) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price as contemplated under Section 4(b) above, the number of Warrant Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. 5. Registration Rights. The Warrant Shares to be issued to the Warrantholder upon exercise of this Warrant shall be granted Form S-3 (or other appropriate form) registration rights pursuant to that certain Registration Rights Agreement (the "Rights Agreement"), dated as of _____________, by and between the Company and the Lender (as defined in the Rights Agreement). (a) Notices. Upon (i) any adjustment of the Warrant Price and any increase or decrease in the Warrant Shares purchasable upon the exercise of this Warrant, or (ii) a proposed Acquisition, the Company shall give written notice of such adjustment and increase/decrease promptly thereafter, or, in the event of an Acquisition, at least ten business days prior to estimated closing date of the Acquisition, to the registered holder of this Warrant (a "Notice"). The Notice shall be mailed to the address of such holder as shown on the books of the Company and shall state (i) the Warrant Price as adjusted and/or the increased or decreased number of Warrant Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation of each, or (ii) the terms and estimated timing of the proposed Acquisition, as the case may be. -3- 4 6. Miscellaneous. (a) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of any permitted assigns of the Warrantholder. Neither this Warrant nor any right or obligation hereunder may be transferred by the Warrantholder, except in compliance with Section 1 of the Rights Agreement. (b) No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed to be a stockholder of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder of this Warrant, as such, any rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action, receive notice of meetings or receive dividends, or otherwise. (c) Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions. (d) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or distribution, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like date and tenor. (e) Any provision of this Warrant may be amended, waived or modified upon the written consent of the Company and the Warrantholder; provided, however, that the holders of the Warrants issued under the Purchase Agreement representing a majority of the Warrant Shares issued or issuable upon exercise of such Warrants may amend, waive or modify any provision of the Warrants on behalf of all holders of the Warrants (including the Warrantholder). (f) This Warrant shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California. [remainder of the page intentionally left blank] -4- 5 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. Dated: _________, 200_ EUPHONIX, INC. ----------------------------------- Steve Vining, Chief Executive Officer -5- 6 ATTACHMENT A NOTICE OF EXERCISE TO: Euphonix, Inc. 220 Portage Avenue Palo Alto, CA 94306 Attn: Chief Executive Officer 1. The undersigned hereby elects to purchase ___________ shares of the Common Stock of Euphonix, Inc. (the "Shares") pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. The undersigned hereby elects to exercise the purchase right with respect to ______% of such shares of such Common Stock through Warrant Conversion, as set forth in Section 3(b) of the attached Warrant. 3. Please issue a certificate(s) representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) --------------------------------- --------------------------------- (Address) 4. If the attached Warrant is being exercised in connection with an Acquisition, the undersigned hereby notifies Euphonix, Inc., by indicating below, that its exercise hereunder is conditioned upon the consummation of the Acquisition and, in the event the consummation of the Acquisition does not occur, this Notice of Exercise shall be canceled and deemed null and void. __________ The undersigned hereby states that its exercise of the attached Warrant is conditioned upon the consummation of the Acquisition and, in the event the consummation of the Acquisition does not occur, this Notice of Exercise shall be canceled and deemed null and void. 5. If the undersigned is electing to purchase the Shares prior to such Shares being registered under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned represents that the Shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such Shares. In support thereof, the undersigned will execute the Investment Representation Statement attached as Exhibit A. In the event the undersigned is electing to purchase the Shares after such Shares have -6- 7 been registered under the Securities Act pursuant to a registration statement declared effective by the Securities and Exchange Commission, the undersigned will execute a modified Investment Representation Statement reasonably satisfactory to the Company. Signature of Warrantholder ---------------------------------- By: ------------------------------- Title: ---------------------------- Date: ----------------------------- -7- 8 EXHIBIT A THIS STATEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO EUPHONIX, INC. ALONG WITH THE NOTICE OF EXERCISE BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANT WILL BE ISSUED. EUPHONIX, INC. WARRANT EXERCISE INVESTMENT REPRESENTATION STATEMENT PURCHASER: Walter Bosch COMPANY: Euphonix, Inc. SECURITY: Common Stock NUMBER OF SHARES: _______________ DATE :_______________, 200__ In connection with the purchase of the above-listed Securities, the Purchaser represents to the Company the following: (a) It has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. It acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and it is in a position to lose the entire amount of such investment. (b) It is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), but instead are issued pursuant to a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of its representations as expressed herein. It is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. (c) It acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of -8- 9 certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. (d) It understands that no public market may exist for any of the Securities and that the Company has made no assurances that a public market may exist for the Securities. (e) It has had an opportunity to discuss the Company's business, management and financial affairs with its management. It has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. It understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. It acknowledges that any business plans prepared by the Company have been and continue to be subject to change and that such business plans are necessary speculative in nature, and it can be expected that some or all of the assumptions used in such plans may not materialize or may vary significantly from actual results. (f) It understands that the certificates evidencing the Securities may be imprinted with legend(s) which prohibit the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Purchaser, reasonably satisfactory to the Company, or unless the Company receives a no-action letter from the SEC. The following legends may be placed on the certificate(s) for the Securities, or any substitutions therefor: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. (g) In connection with any public offering of the Company's securities, it agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any of the Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time -9- 10 (not to exceed 90 days) from the effective date of such registration as may be requested by the underwriters. (h) In accepting the transfer of the above-listed Securities, it agrees to be bound by the terms and conditions of that certain Registration Rights Agreement, dated ____________, as the same may be amended from time to time, by and between the Company and the Purchasers (as defined in such Agreement). Signature of Purchaser: By: ----------------------------------- Title: -------------------------------- Date: --------------------------------- -10- EX-10.36 19 f70624ex10-36.txt EXHIBIT 10.36 1 EXHIBIT 10.36 THE SECURITY EVIDENCED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE, TRANSFER OR ASSIGNMENT IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. SECURED PROMISSORY NOTE One Million Eight Hundred Thousand Dollars ($1,800,000.00) December 29, 2000 FOR VALUE RECEIVED, the undersigned, Euphonix, Inc., a California corporation ("Borrower"), hereby promises to pay to Dieter Meier, Walter Bosch, Stephen and Kathryn Jackson as Trustees of the Jackson Trust dated 5/31/2000, Onset Enterprise Associates, L.P. and Onset Enterprise Associates III, L.P. (individually an "Investor" and collectively, the "Investors" or "Lender"), or registered assigns, the principal sum of One Million Eight Hundred Thousand Dollars ($1,800,000) (the "Maximum Principal Amount") or so much of the Maximum Principal Amount as may from time to time have been advanced by each Investor and be outstanding, together with accrued interest, as provided herein, with the Maximum Principal Amount hereof (or lesser amount, to the extent that less than the full amount of the Maximum Principal Amount is advanced and outstanding) allocable among the Investors as follows:
Pro Rata Name of Investor Maximum Principal Amount Share - ------------------------------ ---------------------------- ------------ Dieter Meier $ 800,000.00 44.44% Walter Bosch $ 400,000.00 22.22% Stephen and Kathryn Jackson, Trustees of $ 200,000.00 11.11% the Jackson Trust dated 5/31/2000 Onset Enterprise Associates, L.P. $ 200,000.00 11.11% Onset Enterprise Associates III, L.P. $ 200,000.00 11.11% -------------- ------ Total $ 1,800,000.00 100.00%
A. Principal. 1. Advances. From the date hereof until 5:00 p.m. Pacific time on February 28, 2001, Borrower may from time to time request advances from Lender (individually an "Advance" and collectively the "Advances") by giving written notice to the Investors in accordance with the terms 2 hereof, which notice shall indicate the amount of the Advance requested; provided, however, that no advance shall be in the aggregate less than $500,000. Subject to the satisfaction or waiver of the conditions set forth in Section A.3 below, and provided that the requested Advance would not cause an Event of Default (as defined in Section E below) to occur, Lender shall make the Advance to Borrower within three (3) business days of receipt of Borrower's notice for each Advance. Lender shall not be obligated to make an Advance to the extent that such Advance, when aggregated with all prior Advances, would exceed the then-existing Maximum Principal Amount. 2. Commitments. Each Investor shall advance to Borrower its Pro Rata Share of each Advance based on its proportionate share of the Maximum Principal Amount set forth above besides its name. Each Investor shall be severally but not jointly liable to make its Pro Rata Share of the Advances hereunder. Failure by any Investor to fund its Pro Rata Share of any Advance shall not relieve any other Investor from its obligation to fund its Pro Rata Share thereof. 3. Conditions to Advances. Borrower's right to request, and Lender's obligation to make, each Advance shall be subject, in each case, to the satisfaction of the following conditions, any or all of which may be waived by Lender, in its sole and exclusive discretion, to the extent permitted by law: (a) The representations and warranties contained in Section D.2 and D.3 shall be true and correct in all material respects on and as of the date of such request for an Advance and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. (b) There shall be no law, order, rule or regulation of any governmental authority in effect which has the effect of prohibiting, making unlawful or hindering any of the transactions contemplated by this Note. (c) There shall be no outstanding Event of Default and no condition which, with notice or passage of time or both would constitute an Event of Default. (d) The Board of Directors of Borrower shall have approved this Note and the transactions evidence by this Note, including without limiting the conversion feature of this Note. 4. Use of Proceeds. The proceeds of Advances shall be used for general corporate purposes, including for working capital. The proceeds of Advances shall not be used for payments or distributions to shareholders, directors, officers or affiliates of the Borrower. Notwithstanding the foregoing, such proceeds may be used for payment of salaries and accrued bonuses of officers and employees of the Borrower. B. Interest. Interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of eight percent (8.00%), net of any deductions or withholding taxes. Interest payable hereunder shall be calculated on the basis of a three hundred sixty (360) day year for actual days elapsed. Interest shall be due and payable (or converted as set forth in Section C below) upon payment or conversion of the principal sum of this Note pursuant to Section C below. Notwithstanding the foregoing to the contrary, during any period for which an Event of Default shall -2- 3 have occurred and be continuing, interest shall accrue with respect to Advances on the principal sum hereunder at the per annum rate of fourteen percent (14.00%), net of any deductions or withholding taxes. C. Payment or Conversion. 1. Scheduled Payment. Subject to other provisions of this Note, the outstanding principal sum of this Note, together with the accrued interest thereon, shall be due and payable on July 31, 2001. 2. No Prepayment. Borrower shall not have the right at any time to time to prepay, in whole or in part, the outstanding principal sum of this Note and/or any accrued interest thereon. 3. Form of Payment. Unless converted pursuant to the terms set forth below, the outstanding principal sum and accrued interest thereon are to be paid in lawful money of the United States of America in federal or other immediately available funds. 4. Immediate Payment. Notwithstanding anything herein to the contrary, in the event that all necessary shareholder, regulatory and other approvals or consents for the convertibility of this Note as set forth below are not obtained by July 31, 2001, (i) the outstanding principal sum from all Advances as of the date thereof and all future Advances from the date thereof and (ii) accrued interest thereon, shall be repaid in full upon demand by the Investors representing two-thirds (2/3) of the then outstanding principal sum of this Note; provided, however, that the Investors must provide at least one (1) month prior written notice to the Borrower prior to such demand. In addition, such demand may not be made (x) if shareholder approval for the convertibility of this Note is not obtained as a result of the Investors failing to vote or consent for such convertibility, or (y) if shareholder approval for the convertibility of this Note would not be required so long as the Borrower obtain shareholder approval with respect to such other security issuances by the Borrower, but shareholder approval with respect to such other issuances not be obtained as a result of the investors failing to vote or consent with respect to such other issuances. 5. Conversion. (a) Subject to obtaining all necessary shareholders, regulatory and other approvals or consents and further subject to Section C.5(c) hereof, all or part of the principal sum of this Note, together with the accrued interest thereon (including any principal amounts which have not been advanced under this Note), shall be convertible at the option of the Lender into shares of common stock of the Borrower (the "Common Stock"). The number of shares of Common Stock to be issued upon such conversion(s) shall be equal to the quotient obtained by dividing (i) such part (or all) of the principal sum of this Note (including any principal amounts which have not been advanced under this Note) plus accrued interest thereon by (ii) the average closing bid price for the Common Stock for the ten trading days immediately preceding the day of execution of this Note, which is $1.26 per share (the "Purchase Price"). In the event that Investors (or any of them) exercise this conversion right and the full amount of principal under this Note has not been advanced, then as part of such conversion, such Investor(s) shall pay to Borrower such Investor's unadvanced portion of the principal amount of this Note. -3- 4 (b) No fractional share of Common Stock will be issued upon such conversion(s) of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled, the Borrower will pay to the Lender in cash the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into such fractional share. At its expense, the Borrower, will as soon as practicable thereafter, issue and deliver to each Investor, at its principal office, or other address notified by each Investor to the Borrower from time to time, a certificate or certificates for the number of shares (representing its pro rata portion) to which the Investor is entitled upon such conversion(s). Upon such conversion(s) of this Note, the Borrower will be forever released from all of its obligations and liabilities under this Note, to the extent of the conversion. Such conversions may be exercised individually by each Investor but notwithstanding anything herein to the contrary, each such conversion must be for the full amount of the outstanding principal and accrued interest thereon payable to the Investor exercising its rights under Section 5 hereunder at the time of such exercise. (c) Notwithstanding anything herein to the contrary, Section C.5(a) of this Note shall not apply and this Note shall not be convertible into shares of Common Stock as contemplated herein (i) until such time as the Borrower has obtained shareholder approval of the conversion feature of this Note as and to the extent required by the rules of the National Association of Securities Dealers; and (ii) upon the occurrence of the following: the consummation of any transaction or series of transactions (collectively, the "Transaction"), including without limitation, the sale, transfer or disposition of all or substantially all of the Borrower's assets or the merger of the Borrower with or into, or consolidation with, any other corporate entity, whereby the holders of the Borrower's voting securities prior to the Transaction do not hold more than 50% of the voting securities of the surviving entity following the consummation of the Transaction. Notice of any such Transaction shall be provided to the Investors fourteen (14) calendar days prior to the consummation of any such Transaction and, notwithstanding anything to the contrary contained elsewhere in this Note, Investors may exercise their rights of conversion during such 14-day period. D. Security Interest. 1. Grant of Security Interest. Upon the first Advance hereunder, Borrower grants to Lender a security interest in the Collateral, as defined herein, to secure the payment of all of the outstanding indebtedness hereunder (the "Secured Obligations") including, without limitation, principal, accrued interest, other advances made under this Note and any attorneys' fees to which Lender is entitled under this Note. 2. Representations and Warranties Regarding Collateral. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: (a) Borrower is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of any and all Liens other than the Lien and security interest granted to Lender hereunder and Permitted Liens. (b) The lien against the Collateral granted hereunder is and shall be a first-priority lien against the collateral and each portion thereof, subject to Permitted Liens. -4- 5 (c) Borrower shall not create or assume or permit to exist any such Lien on or against any of the Collateral except as created or permitted by this Note and Permitted Liens, and Borrower shall promptly notify Lender of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be reasonably necessary to remove or discharge, any such Lien. (d) Borrower shall take all commercially reasonable actions necessary to protect and preserve the Collateral which is used in its business in good condition and repair, subject to ordinary wear and tear, and to preserve its value and usefulness. (e) No part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part. (f) No claim has been made that any part of the Intellectual Property Collateral violates the rights of any third party. (g) The Collateral consists of all assets which are required for the conduct and operation of the business of Borrower as of the date of this Note. (h) The Intellectual Property Collateral includes all of the technology, know-how and proprietary information which are required for the conduct and operation of the business of borrower as of the date of this Note. 3. General Representations and Warranties. On the date of this Note and as of the date of each Advance under this Note, Borrower does and shall represent and warrant to Lender, that as of each such date: (a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Borrower has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Material Adverse Effect. The term "Material Adverse Effect," as used in this Note, means any change in or effect (or any development that is reasonably likely to result in any change or effect) on the business, business prospects, properties, assets, operations, financial condition or results of operations of Borrower that is materially adverse to Borrower taken as a whole. (b) AUTHORITY RELATIVE TO THIS NOTE. This Note has been duly and validly authorized, executed and delivered by Borrower and constitutes a valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. -5- 6 (c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Except for the approval of Shareholders contemplated under Section C, none of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will (i) conflict with or violate the certificate of incorporation or by-laws of Borrower, (ii) conflict with or violate any material statute, ordinance, rule, regulation, order, judgment or decree applicable to Borrower, or by which Borrower or its properties or assets may be bound, or (iii) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit, or the creation of any lien on any of the property or assets of Borrower pursuant to any material agreement, a copy of which would be required to be filed as an exhibit to the Company's Form 10-K or Form 10-Q filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (d) CONSENTS. None of the execution and delivery of this Note by Borrower, the consummation by Borrower of the transactions contemplated hereby or compliance by Borrower with any of the provisions hereof will require any consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any government or subdivision thereof, or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational (a "Governmental Entity"), except for Consents the failure of which to obtain or make would not have a Material Adverse Effect or adversely affect the ability of Borrower to consummate the transactions contemplated hereby; provided that the convertibility feature of this Note as set forth in Section C which requires shareholder approval pursuant to the Nasdaq Stock Market's shareholder approval provisions is obtained. (e) MATERIAL ADVERSE CHANGE. Since the date of the latest financial statements filed by Borrower with the Commission prior to the date of this Note, there has not been any event, occurrence or development that has resulted or, to the Company's knowledge, is reasonably likely to result in a Material Adverse Effect. 4. Perfection of Security Interest. Borrower agrees to take all actions required or requested by Lender and reasonably necessary to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder, including, but not limited to, execution and filing of financing statements and the filing of notices of security interests with the United States Patent and Trademark Office. E. Events of Default. 1. Definition of Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) Borrower's failure to perform, keep or observe any obligation under this Note or any of the covenants contained in this Note which failure is not cured within 30 days from the notice of the occurrence thereof delivered by Lender to Borrower. -6- 7 (b) The lapse of 60 days following the institution of proceedings against Borrower, or Borrower's filing of a petition or answer or consent seeking reorganization or release, under the federal Bankruptcy Code, or any other applicable federal or state law relating to creditor rights and remedies, or Borrower's consent to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Borrower or of any substantial part of its property, or Borrower's making of an assignment for the benefit of creditors, or the taking of corporate action in furtherance of such action. (c) Any representation or warranty of the Borrower made in this Note proves untrue in any material respect as of the date of the issuance or making thereof. 2. Rights and Remedies on Event of Default. (a) During the continuance of an Event of Default, Lender shall have the right, itself or through any of its agents, with notice to Borrower (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), declare all obligations evidenced by this Note immediately due and payable, cease advancing money or extending credit to or for the benefit of Borrower under this Note, and to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, Lender shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Lender, in its reasonable discretion, may deem advisable, and it shall have the right to purchase at any such sale. Borrower agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to Lender's reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which Lender shall account to Borrower for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Lender is legally entitled, Borrower shall be liable for the deficiency, together with interest thereon, and the reasonable fees of any attorneys Lender employs to collect such deficiency; provided, however that the foregoing shall not be deemed to require Lender to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency or other amount directly from Borrower. (b) Borrower appoints Lender, and any officer, employee or agent of Lender, with full power of substitution, as Borrower's true and lawful attorney-in-fact, effective as of the date hereof, with power, in its own name or in the name of Borrower, during the continuance of an Event of Default, to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into Lender's possession, to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; to notify persons and entities obligated with respect to -7- 8 the Collateral to make payments directly to Lender; and, generally, to do, at Lender's option and at Borrower's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve and realize upon the Collateral and Lender's security interest therein to effect the intent of this Note, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (c) All of Lender's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. (d) The rights of Lender under this Note with respect to any Collateral and the enforcement of the security interests and associated rights hereunder may be exercised jointly by Investors or singly by any Investor representing two-thirds (2/3) of the then outstanding principal sum of this Note. (e) Upon the occurrence of an Event of Default, any Investor may bring suit against Borrower to collect amounts due such Investor under this Note. (f) Any Investor may bring suit against Borrower to enforce the provisions of this Note. F. Restrictions on Transfer and Compliance with Securities Act. 1. Certificates. Certificates representing any of the shares of Common Stock acquired pursuant to the provisions of this Note shall have endorsed thereon the following legends, as appropriate. (a) Such shares of Common Stock will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), nor qualified (if necessary) under applicable state securities laws and consequently will have the following legend: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT." (b) Any legend required to be placed thereon by any applicable state securities laws. -8- 9 (c) Each Investor, by acceptance hereof, agrees that this Note and the shares of Common Stock to be issued upon conversion pursuant to the terms hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Note or any shares of Common Stock to be issued upon conversion pursuant to the terms hereof except under circumstances which will not result in a violation of the Securities Act or of applicable state securities laws. (d) Each Investor, by acceptance hereof, represents that such Investor is (i) an accredited investor within the meaning of Rule 501 under the Securities Act and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note; (ii) aware of the Company's business affairs and financial condition; and (iii) aware that the Note has not been registered under the Securities Act of 1933, as amended, in reliance upon a specific exemption therefrom. (e) Subject to the preceding, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to Borrower. Thereupon, a new Note for like principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of the Note. G. Covenants. 1. Registration Rights. Upon receipt of the necessary approvals for the convertibility feature of this Note set forth in Section C.5 above, the Borrower hereby covenants to enter into a registration rights agreement with each of the Investors to provide for the registration of the shares of Common Stock into which the Note is then convertible, in the form set forth on Exhibit B hereto. 2. Warrants. In the event any Investor shall elect to convert all or a portion of its Pro Rata Share of this Note into Common Stock in accordance with Section C.5 above, the Borrower shall issue to each Investor warrants to purchase shares of common stock, in the form set forth on Exhibit C hereto. H. Prior Advance Note. Borrower and the Investors are parties to a Note Purchase Agreement, dated November 3, 2000 (the "Note Purchase Agreement"), and each of the Investors hereto holds a Promissory Note dated as follows and in the following amounts (collectively, the "Prior Promissory Notes"):
Name of Investor Date Amount ----------------------------------------- --------------------- --------------------- Dieter Meier November 6, 2000 $400,000.00 Walter Bosch November 6, 2000 $200,000.00 Stephen and Kathryn Jackson, Trustees of November 6, 2000 $100,000.00 the Jackson Trust dated 5/31/2000 Onset Enterprise Associates, L.P. November 3, 2000 $100,000.00 Onset Enterprise Associates III, L.P. November 3, 2000 $100,000.00
-9- 10 The parties hereto agree that the foregoing amounts loaned to Borrower by Investors pursuant to the Note Purchase Agreement and Prior Promissory Notes shall be deemed Advances under this Note. The parties hereto further agree that as of the date hereof, the Note Purchase Agreement and the Prior Promissory Notes are hereby null and void; provided, however, that calculation of interest on the above Advances shall have begun on the dates set forth above. I. Other Provisions. 1. Definitions. As used herein, the following terms shall have the following meanings: "Collateral" means the property described on Exhibit A attached hereto. "Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held. "Intellectual Property Collateral" means: (a) Copyrights, Trademarks and Patents; (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; (d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and (g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, -10- 11 mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. "Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations in part of the same. "Permitted Liens" means: (i) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising out of judgments or awards against Borrower with respect to which Borrower at the time shall currently be prosecuting an appeal or proceedings for review; (ii) Liens for taxes not yet subject to penalties for nonpayment and Liens for taxes the payment of which is being contested in good faith and by appropriate proceedings and for which, to the extent required by generally accepted accounting principles then in effect, proper and adequate book reserves relating thereto are established by Borrower; (iii) purchase money security interests and liens in connection with capital leases incurred in the ordinary course of business (to the extent such liens are only on the leased property) or existing on after acquired property at the time of its acquisition by the Borrower; (iv) liens existing on property as of the date of this Note; (v) liens securing the performance of bids, trade contracts, leases, surety bonds and the like; (vi) leases and sublicenses granted to others in the ordinary course of business; (vii) liens consisting of rights of set-off or bankers liens of a customary nature; (viii) liens in connection with the establishment of receivable lines of credit with commercial banks or other institutional lenders; (ix) liens consisting of agreements to refrain from giving or creating Liens (other than the Lien and security interest granted to Lender hereunder) in connection with joint venture agreements, strategic alliances and the like; (x) liens granted in all of the Company's assets pursuant to the secured Promissory Note dated July 30, 1999; (xi) liens granted in all of the Company's assets pursuant to the secured Promissory Note dated February 22, 2000; and (xii) liens granted in all of the Company's assets pursuant to the secured Promissory Note dated April 14, 2000. "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. "UCC" means the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 2. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state and federal courts located in the City and County of Santa Clara, State of California or, at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. -11- 12 3. Notices. Any notice or communication required or desired to be served, given or delivered hereunder shall be in the form and manner specified below, and shall be addressed to the party to be notified as follows: If to Investors: Dieter Meier c/o Data Sound Wohllebgasse #6 CH-8001 Zurich, Switzerland or c/o Soundproof, Inc. 5180 Linwood Drive Los Angeles, CA 90027 Walter Bosch Fraumunsterstr. 9 8001 Zurich Switzerland Stephen and Kathryn Jackson, Trustees of the Jackson Trust dated 5/31/2000 c/o Fashion Magic 1307 East Pine Street Lodi, CA 95240 Onset Enterprise Associates, L.P. 2400 Sand Hill Road, Suite 150 Menlo Park, CA 94025 Attn: Rob Kuhling Onset Enterprise Associates III, L.P. 2400 Sand Hill Road, Suite 150 Menlo Park, CA 94025 Attn: Rob Kuhling If to Borrower: Euphonix, Inc. 220 Portage Avenue Palo Alto, California 94306 Attention: Steve Vining Fax: (650) 846-1131 With a copy to: Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attn: John Roos, Esq. Fax: (650) 493-6811 -12- 13 or to such other address as each party designates to the other by notice in the manner herein prescribed. Notice shall be deemed given hereunder if (i) delivered personally or otherwise actually received, (ii) sent by overnight delivery service, (iii) mailed by first-class United States mail, postage prepaid, registered or certified, with return receipt requested, or (iv) sent via telecopy machine with a duplicate signed copy sent on the same day as provided in clause (ii) above. Notice mailed as provided in clause (iii) above shall be effective upon the expiration of three (3) business days after its deposit in the United States mail, and notice telecopied as provided in clause (iv) above shall be effective upon receipt of such telecopy if the duplicate signed copy is sent under clause (iv) above. Notice given in any other manner described in this section shall be effective upon receipt by the addressee thereof; provided, however, that if any notice is tendered to an addressee and delivery thereof is refused by such addressee, such notice shall be effective upon such tender unless expressly set forth in such notice. 4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or delinquent payment from Borrower hereunder, or Lender's failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Borrower hereunder, or any right of Lender hereunder, and shall not affect in any way the right to require full performance at any time thereafter. Except as otherwise expressly provided herein, Borrower waives presentment, diligence, demand of payment, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. In any action on this Note, Lender need not produce or file the original of this Note, but need only file a photocopy of this Note certified by Lender be a true and correct copy of this Note in all material respects. 5. Severability. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision is prohibited by or invalid under applicable law, it shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of the provision or the remaining provisions of this Note. 6. Amendment Provisions. Except for increases in the Maximum Principal Amount of this Note as provided herein, this Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Borrower and the Investors who have advanced a majority of the outstanding principal amount of this Note. 7. Binding Effect. This Note shall be binding upon, and shall inure to the benefit of, Borrower and the holder hereof and their respective successors and assigns; provided, however, that Borrower's rights and obligations shall not be assigned or delegated without Lender's prior written consent, given in its sole discretion, and any purported assignment or delegation without such consent shall be void ab initio. 8. Headings. Section headings used in this Note have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Note. 9. No Usury. This Note is subject to the express condition that at no time shall the Borrower be obligated or required to pay interest hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate which the -13- 14 Borrower is permitted by law to contract or agree to pay. If, by the terms of this Note, the Borrower is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of this Note. 10. Attorneys' Fees. Should any litigation, enforcement or collection action be commenced between any of the parties to this Note under or in connection with this Note, the prevailing party in such litigation, enforcement or collection action shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for its attorneys' fees in such litigation, enforcement or collection action which shall be determined by the court in such litigation, enforcement or collection action or in a separate action brought for that purpose. The provisions of this Section shall survive the entry of any judgement or award and shall continue to apply with respect to any action to collect or recover any such judgment or award. [remainder of the page intentionally left blank] -14- 15 IN WITNESS WHEREOF, the Borrower and each of the Investors has caused this Note to be duly executed on the date first written above. EUPHONIX, INC. By: ----------------------------------------- Name: Steve Vining Title: Chief Executive Officer INVESTORS ------------------------------------------- Dieter Meier ------------------------------------------- Walter Bosch ------------------------------------------- Stephen and Kathryn Jackson, Trustees of the Jackson Trust dated 5/31/2000 ------------------------------------------- Onset Enterprise Associates, L.P. By: Title: ------------------------------------------- Onset Enterprise Associates III, L.P. By: Title: [SIGNATURE PAGE TO SECURED PROMISSORY NOTE] 16 EXHIBIT A COLLATERAL DESCRIPTION ATTACHMENT TO SECURED PROMISSORY NOTE All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created, written, produced or acquired, including, but not limited to: (1) all accounts receivable, accounts, chattel paper, contract rights (including, without limitation, royalty agreements, license agreements and distribution agreements), documents, instruments, money, deposit accounts and general intangibles, including, without limitation, returns, repossessions, books and records relating thereto, and equipment containing said books and records, all investment property, including securities and securities entitlements; (2) all software, computer source codes and other computer programs (collectively, the "Software Products"), and all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, United States of America and foreign, obtained or to be obtained on or in connection with the Software Products, or any parts thereof or any underlying or component elements of the Software Products together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Lender (herein referred to as "Lender" or "Secured Party") to sue in its own name and/or the name of the Debtor for past, present and future infringements of copyright; (3) all goods, including, without limitation, equipment and inventory (including, without limitation, all export inventory); (4) all guarantees and other security therefor; (5) all trademarks, service marks, trade names and service names and the goodwill associated therewith including, without limitation, the following: Reel Feel(TM) Clear Displays(TM) Track Panner(TM) SnapShot Recall(TM) DSC(TM) (Digital Studio Controller) Hyper-Surround(TM) Total Automation(TM) Mixview(TM) (6) (a) all patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (including, without limitation, United States Patents Nos. 5524060, 5402501, 5399820, 5677959 and 6,057,829 and applications for United States patents for (i) Multiple Driver Rotary Control for Audio Processors or Other Uses, (ii) Functional Panel for Audio Mixer, and (iii) Plug-in Modules for 17 Digital Signal Processor Functionalities), (b) licenses pertaining to any patent whether Debtor is licensor or licensee, (c) all income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (d) the right (but not the obligation) to sue for past, present and future infringements thereof, (e) all rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (f) the reissues, divisions, continuations, renewals, extensions and continuations-in-part with any of the foregoing (all of the foregoing patents and applications and interests under patent license agreements, together with the items described in clauses (a) through (f) in this paragraph are sometimes herein individually and collectively referred to as the "Patents"); (7) all rights in and to (i) the on-air mixing consoles of the Series CS3000B, (ii) mixer hardware software designs, (iii) Real Time(TM) software design, and (iv) analog and digital audio hardware design expertise; and (8) all products and proceeds, including, without limitation, insurance proceeds, of any of the foregoing. Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term "Collateral" shall not include, any contractual, license or lease rights or interests in which Borrower is the grantee, licensee or lessee thereunder to the extent that Borrower, whether by law or by the terms of such contract, license or lease, is not permitted to assign or grant a security in interest in its rights thereunder without the consent of the other party thereto. -2- 18 EXHIBIT B REGISTRATION RIGHTS AGREEMENT 19 EXHIBIT C COMMON STOCK WARRANT EX-10.37 20 f70624ex10-37.txt EXHIBIT 10.37 1 EXHIBIT 10.37 ================================================================================ EUPHONIX, INC. 220 PORTAGE AVENUE PALO ALTO, CALIFORNIA 94306 REGISTRATION RIGHTS AGREEMENT DECEMBER __, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 Restrictions on Transferability of Securities; Compliance with Securities Act; Registration Rights..........................................................1 1.1 Restrictions on Transferability...................................................1 1.2 Certain Definitions...............................................................1 1.3 Restrictive Legend................................................................3 1.4 Restrictions on Transfer; Notice of Proposed Transfers............................3 1.5 Requested Registration............................................................4 1.6 Company Registration..............................................................6 1.7 Expenses of Registration..........................................................7 1.8 Registration Procedures...........................................................8 1.9 Indemnification...................................................................8 1.10 Information by Holder............................................................10 1.11 Rule 144 Reporting...............................................................10 1.12 Transfer of Registration Rights..................................................10 1.13 Termination of Registration Rights...............................................11 SECTION 2 Miscellaneous....................................................................11 2.1 Governing Law....................................................................11 2.2 Survival.........................................................................11 2.3 Successors and Assigns...........................................................11 2.4 Entire Agreement; Amendment......................................................11 2.5 Notices, etc.....................................................................11 2.6 Delays or Omissions..............................................................12 2.7 Counterparts.....................................................................12 2.8 Severability.....................................................................12 2.9 Titles and Subtitles.............................................................12 2.10 Attorney's Fees..................................................................12
-i- 3 EUPHONIX, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of December __, 2000 between Euphonix, Inc., a California corporation (the "Company") and the Investors (the "Investors") pursuant to the Secured Promissory Note dated December 29, 2000 (the "Note") between the Company and the Investors. The Investors agree to be bound by all of the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFERABILITY. The Common Stock issued upon conversion of the Note shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 1, which conditions are intended to ensure compliance with the provisions of the Securities Act (as defined below). The Investors will cause any proposed purchaser, assignee, transferee, or pledgee of any such shares held by the Investors to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 1. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Closing Date" shall mean the date of the first conversion of the Note into Common Stock pursuant to the Note. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock of the Company, par value $0.001 per share. "Holder" shall mean (i) any Investor holding Registrable Securities and (ii) any person holding Registrable Securities to whom the rights under this Section 1 have been transferred in accordance with Section 1.12 hereof. 4 "Initiating Holders" shall mean Holders or transferees of any Holders under Section 1.12 hereof who in the aggregate are Holders of greater than 50% of the Registrable Securities. "Registrable Securities" means (i) the Common Stock issued pursuant to the Note and Warrants and (ii) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issuable with respect to such Common Stock; provided, however, that shares of Common Stock, or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, whether in a registered offering, Rule 144 or otherwise, or (B) sold or are, in the opinion of counsel for the Company, available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.5 and 1.6 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), and the reasonable fees and disbursements if one counsel for all Holders not to exceed $20,000. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 1.3 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for any Holder. "Total Voting Power" of the Company shall mean the total number of the votes which may be cast in the election of directors of the Company at any meeting of stockholders if all securities entitled to vote in this election of directors were present and voted at such meeting. "Voting Securities" shall mean all securities of the Company entitled to vote in the election of directors of the Company and all securities of the Company convertible into, exchangeable or exercisable for shares of Common Stock. -2- 5 "Warrants" shall mean the Common Stock Warrants issued to the Purchasers pursuant to Section G.2 of the Note. 1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Common Stock issued pursuant to the Note and (ii) any other securities issued in respect of such Common Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of the Common Stock in order to implement the restrictions on transfer established in this Section 1. 1.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, (ii) in transactions involving the distribution without consideration of Restricted Securities by the Holder to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) any transfer by any Holder to (A) any individual or entity controlled by, controlling, or under common control with, such Holder or (B) any individual or entity with respect to which such Holder (or any person controlled by, controlling, or under common control with, such Holder) has the power to direct investment decisions, (iv) to the spouse of a holder of Restricted Securities, or (v) in transactions in compliance with Rule 144, provided, in each case, that the transferee agrees in writing to be subject to the terms hereof), and unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or -3- 6 pledge in sufficient detail, and, if requested by the Company, shall be accompanied, at such holder's expense, by an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. It is agreed that the Company will not request an opinion of counsel for the Holder for transactions made in reliance on Rule 144 under the Securities Act except in unusual circumstances, the existence of which shall be determined in good faith by the Board of Directors of the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.3 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 1.5 REQUESTED REGISTRATION. (a) Request for Registration. In case the Company shall receive from Initiating Holders a written request that the Company effect any registration, qualification or compliance with respect to the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.5: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the Closing Date; -4- 7 (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) Unless the aggregate number of shares of Registrable Securities sought to be registered by all Initiating Holders and other Holders pursuant to this Section 1.5 is greater than one (1) million shares; (E) After the Company has effected one (1) such registration pursuant to this subparagraph 1.5(a), and such registration has been declared or ordered effective; or (F) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.5 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Initiating Holders; provided that the Company may not exercise this deferral right more than once per twelve (12) month period. Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in any event within 120 days of such request. (b) Underwriting. In the event that a registration pursuant to Section 1.5 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.5(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.5 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.5, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 1.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then (i) any securities requested to be registered by persons other than Holders (as defined herein) or the Holders of Registrable Securities (as such terms are defined in that certain Modification Agreement, dated November 6, 1991 (the "Modification Agreement"), by and between the Company, the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, the Series C Purchasers and -5- 8 the Affiliates (each as defined in the Modification Agreement)) shall be limited (or excluded entirely) on a pro rata basis from such registration, and (ii) if the managing underwriter determines that a further limitation is required, the Company shall so advise all Holders of Registrable Securities under this Agreement and the Holders of Registrable Securities under the Modification Agreement and the number of shares of Registrable Securities (including those under the Modification Agreement) that may be included in the registration and underwriting shall be allocated among all Holders under this Agreement and Holders under the Modification Agreement in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities (including those under the Modification Agreement) excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) to the nearest 100 shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 120 days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 1.6 COMPANY REGISTRATION. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.6(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. -6- 9 Notwithstanding any other provision of this Section 1.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit (or exclude entirely) on a pro rata basis the Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) to be included in such registration. If all Registrable Securities of the Affiliates (as each term is defined in the Modification Agreement) have been excluded from such registration and the managing underwriter determines that a further limitation is required, the managing underwriter may limit the remaining Registrable Securities (including those under the Modification Agreement) to be included in such registration; provided, however, that the managing underwriter may not reduce the amount of Registrable Securities of the Holders under the Modification Agreement to be included in the registration to less than 25% of the total shares so included; provided further, however, that such percentage may be reduced or waived by the Holders of a majority of the Registrable Securities under the Modification Agreement, excluding Registrable Securities held by the Affiliates (each as defined under the Modification Agreement). The Company shall so advise all Holders under this Agreement and under the Modification Agreement and other holders distributing their securities through such underwriting and the number of shares of Registrable Securities (including those under the Modification Agreement) and other securities that may be included in the registration and underwriting shall be allocated among all the Holders under this Agreement and under the Modification Agreement and such other holders exercising their registration rights in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by such Holders and such other holders exercising their registration rights at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder (both under this Agreement and the Modification Agreement) or holder to the nearest 100 shares. If any Holder or holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.6 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 1.7 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with (i) one (1) registration pursuant to Section 1.5 and (ii) all registrations pursuant to Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders and all other Registration Expenses shall be borne by the Holders of such securities, and by the Company, in the event the Company participates in the registration, pro rata on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.5 above if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses). -7- 10 1.8 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the registration statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; and (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 1.9 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by -8- 11 the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under such laws applicable to the Company in connection with any such registration, qualification or compliance, and within a reasonable period the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and within a reasonable period will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. Notwithstanding the above, the liability of each Holder under this subsection (b) shall not exceed such Holder's net proceeds from the sale of securities pursuant to such registration statement, unless such liability arises out of or is based on willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 1.9 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an -9- 12 Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be liable for indemnification hereunder with respect to any settlement or consent to judgment, in connection with any claim or litigation to which these indemnification provisions apply, that has been entered into without the prior consent of the Indemnifying Party (which consent will not be unreasonably withheld). 1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.11 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Act or the Exchange Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 1.12 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Holders under Sections 1.5 and 1.6 may be assigned to a transferee or assignee reasonably acceptable to the Company (which consent shall not be unreasonably withheld) in connection with any transfer or assignment of Registrable Securities by a Holder, provided that (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such assignee or transferee acquires at least 50,000 shares of Registrable Securities (adjusted for stock splits, stock dividends, stock recombinations and the like after the date of this Agreement). Notwithstanding the above, the rights to cause the Company to register securities may be assigned to -10- 13 any partner, shareholder, equity holder or officer of a Holder without compliance with item (ii) above, provided written notice thereof is promptly given to the Company. 1.13 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to Section 1 shall terminate as to each Holder at such time as a public market for the Company's Common Stock exists and all Registrable Securities held by such Holder may, in the opinion of counsel to the Company (which opinion shall be addressed and rendered to Holder), be sold within a given three month period pursuant to Rule 144 or any other applicable exemption that allows for resale free of registration. SECTION 2 MISCELLANEOUS 2.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of California. 2.2 SURVIVAL. The covenants and agreements made herein shall survive any investigation made by the Investors and the closing of the transactions contemplated hereby. 2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Registrable Securities, except that new Investors that become party to the Note may be added to this Agreement by joinder signed only by the Company and such Investor. 2.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Investor, at such Investor's address, as shown on the stock records of the Company, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of the Common Stock, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Common Stock who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of -11- 14 the President and Chief Executive Officer, or at such other address as the Company shall have furnished to the Investors. Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 2.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nondefaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 2.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 2.8 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 2.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. 2.10 ATTORNEY'S FEES. In any action brought or maintained by either party asserting a cause of action arising under or relating in any way to this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees. [remainder of the page intentionally left blank] -12- 15 The foregoing agreement is hereby executed as of the date first above written. EUPHONIX, INC. ---------------------------------------------- By: Steve Vining Title:Chief Executive Officer INVESTORS ---------------------------------------------- Dieter Meier ---------------------------------------------- Walter Bosch ---------------------------------------------- Stephen and Kathryn Jackson, Trustees of the Jackson Trust dated 5/31/2000 ---------------------------------------------- Onset Enterprise Associates, L.P. By: Title: ---------------------------------------------- Onset Enterprise Associates III, L.P. By: Title: [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-10.38 21 f70624ex10-38.txt EXHIBIT 10.38 1 EXHIBIT 10.38 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. COMMON STOCK WARRANT OF EUPHONIX, INC. This Warrant is being issued pursuant to that certain Secured Promissory Note, dated December 29, 2000 (the "Note"), by and between Euphonix, Inc., a California corporation (the "Company"), and the Investors (as defined therein). This certifies that, for value received, ________ (the "Warrantholder") is entitled, on the terms and subject to conditions set forth below, to subscribe for and purchase from the Company at the Warrant Price defined in Section 2 below, the number of shares of fully paid and non-assessable shares of the Company's Common Stock (the "Common Stock") equal to the number of shares of Common Stock to be issued to the Warrantholder pursuant to section C.5 of the Note (the "Warrant Shares"). Such Warrant Price and such number of Warrant Shares shall be subject to adjustment upon occurrence of the contingencies set forth in this Warrant. Upon delivery of this Warrant (with the Notice of Exercise in the form attached as Attachment A), together with payment of the Warrant Price for the Warrant Shares thereby purchased, which payment may be made by converting this Warrant or any portion thereof pursuant to Section 3 below) ("Warrant Conversion"), at the principal office of the Company or at such other office or agency as the Company may designate by notice in writing to the holders hereof, the holder of this Warrant shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. All Warrant Shares which may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect thereto. This Warrant is subject to the following terms and conditions: 1. Term of Warrant. This Warrant may be exercised in whole or in part, at any time after issuance and prior to the earlier to occur of (i) 5:00 p.m., Pacific Time, on the five-year 2 anniversary of the date of this Warrant, and (ii) five business days prior to the estimated closing date of an Acquisition (as defined below) (the "Term"); provided, however, that in the event this Warrant is exercised, in whole or in part, in connection with an Acquisition, such exercise by the Warrantholder may be conditioned upon the consummation of the Acquisition if so indicated by the Warrantholder pursuant to the Notice of Exercise. For purposes of this Warrant, "Acquisition" shall mean a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into another corporation or entity, pursuant to which the stockholders immediately prior to such merger or consolidation hold less than 50% of the voting equity securities of the surviving or acquiring entity immediately following such merger or consolidation. Upon the expiration of the Term, this Warrant, to the extent not exercised, shall terminate. 2. Warrant Price. The exercise price of this Warrant (the "Warrant Price") shall equal the "Purchase Price" (as defined in the Note). 3. Method of Exercise. (a) Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant (with the duly executed Notice of Exercise attached as Attachment A) at the principal office of the Company, and by the payment to the Company, by certified or cashier's check, wire transfer or other acceptable means to the Company, of an amount equal to the aggregate Warrant Price of the Warrant Shares being purchased. (b) Net Issue Exercise. In lieu of exercising this Warrant for cash under Section 3(a) above, the Warrantholder may elect to receive Warrant Shares equal to the value of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company and specification of such election on the Notice of Election, in which event the Company shall issue to the Warrantholder a number of Warrant Shares computed using the following formula: X = Y(A-B) ------ A Where X = the number of Warrant Shares to be issued to the Warrantholder. Y = the number of Warrant Shares for which this Warrant is then being exercised. A = the fair market value of one share of the Company's Common Stock. B = the Warrant Price (as adjusted to the date of such calculation). For purposes of this Section 3(b), the fair market value of the Company's Common Stock shall mean the average closing ask prices of the Company's Common Stock quoted on the Nasdaq National Market or Nasdaq Small Cap Market, or the closing prices quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of -2- 3 The Wall Street Journal for the 30 trading days prior to the date of determination of fair market value. 4. Adjustment of Warrant Price and Number of Warrant Shares. The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time in accordance with the following provisions: (a) Reclassification or Consolidation. In case of any reclassification, consolidation or change of outstanding securities of the class issuable upon exercise of this Warrant (other than as a result of a subdivision or combination), the Company shall execute a new Warrant, providing that the holder of this Warrant shall have the right to exercise such new Warrant, and procure upon such exercise in lieu of each Warrant Share previously issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification or change by a holder of one Warrant Share. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this paragraph 4(a) shall similarly apply to successive reclassifications, consolidations or changes. (b) Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the Warrant Price shall be proportionately decreased in the case of a sub-division or increased in the case of a combination. (c) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price as contemplated under paragraph (b) above, the number of Warrant Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. 5. Registration Rights. The Warrant Shares to be issued to the Warrantholder upon exercise of this Warrant shall be granted Form S-3 (or other appropriate form) registration rights pursuant to that certain Registration Rights Agreement (the "Rights Agreement"), dated as of December __, 2000, by and between the Company and the Purchasers (as defined in the Rights Agreement). (a) Notices. Upon (i) any adjustment of the Warrant Price and any increase or decrease in the Warrant Shares purchasable upon the exercise of this Warrant, or (ii) a proposed Acquisition, the Company shall give written notice of such adjustment and increase/decrease promptly thereafter, or, in the event of an Acquisition, at least ten business days prior to estimated closing date of the Acquisition, to the registered holder of this Warrant (a "Notice"). The Notice shall be mailed to the address of such holder as shown on the books of the Company and shall state (i) the Warrant Price as adjusted and/or the increased or decreased number of Warrant Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation of each, or (ii) the terms and estimated timing of the proposed Acquisition, as the case may be. -3- 4 6. Miscellaneous. (a) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of any permitted assigns of the Warrantholder. Neither this Warrant nor any right or obligation hereunder may be transferred by the Warrantholder, except in compliance with Section 1 of the Rights Agreement. (b) No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed to be a stockholder of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder of this Warrant, as such, any rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action, receive notice of meetings or receive dividends, or otherwise. (c) Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions. (d) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or distribution, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like date and tenor. (e) Any provision of this Warrant may be amended, waived or modified upon the written consent of the Company and the Warrantholder; provided, however, that the holders of the Warrants issued under the Purchase Agreement representing a majority of the Warrant Shares issued or issuable upon exercise of such Warrants may amend, waive or modify any provision of the Warrants on behalf of all holders of the Warrants (including the Warrantholder). (f) This Warrant shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California. -4- 5 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. Dated: _________, 200_ EUPHONIX, INC. ----------------------------------- Steve Vining, Chief Executive Officer -5- 6 ATTACHMENT A NOTICE OF EXERCISE TO: Euphonix, Inc. 220 Portage Avenue Palo Alto, CA 94306 Attn: Chief Executive Officer 1. The undersigned hereby elects to purchase ___________ shares of the Common Stock of Euphonix, Inc. (the "Shares") pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. The undersigned hereby elects to exercise the purchase right with respect to ______% of such shares of such Common Stock through Warrant Conversion, as set forth in Section 3(b) of the attached Warrant. 3. Please issue a certificate(s) representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) --------------------------------- --------------------------------- (Address) 4. If the attached Warrant is being exercised in connection with an Acquisition, the undersigned hereby notifies Euphonix, Inc., by indicating below, that its exercise hereunder is conditioned upon the consummation of the Acquisition and, in the event the consummation of the Acquisition does not occur, this Notice of Exercise shall be canceled and deemed null and void. __________ The undersigned hereby states that its exercise of the attached Warrant is conditioned upon the consummation of the Acquisition and, in the event the consummation of the Acquisition does not occur, this Notice of Exercise shall be canceled and deemed null and void. 5. If the undersigned is electing to purchase the Shares prior to such Shares being registered under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned represents that the Shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such Shares. In support thereof, the undersigned will execute the Investment Representation Statement attached as Exhibit A. In the event the undersigned is electing to purchase the Shares after such Shares have -6- 7 been registered under the Securities Act pursuant to a registration statement declared effective by the Securities and Exchange Commission, the undersigned will execute a modified Investment Representation Statement reasonably satisfactory to the Company. Signature of Warrantholder -------------------------------------- By: ----------------------------------- Title: -------------------------------- Date: --------------------------------- -7- 8 EXHIBIT A THIS STATEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO EUPHONIX, INC. ALONG WITH THE NOTICE OF EXERCISE BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE ATTACHED WARRANT WILL BE ISSUED. EUPHONIX, INC. WARRANT EXERCISE INVESTMENT REPRESENTATION STATEMENT PURCHASER: ______________________ COMPANY: Euphonix, Inc. SECURITY: Common Stock NUMBER OF SHARES: _______________ DATE :_______________, 200__ In connection with the purchase of the above-listed Securities, the Purchaser represents to the Company the following: (a) It has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. It acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and it is in a position to lose the entire amount of such investment. (b) It is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), but instead are issued pursuant to a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of its representations as expressed herein. It is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. (c) It acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of -8- 9 certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. (d) It understands that no public market may exist for any of the Securities and that the Company has made no assurances that a public market may exist for the Securities. (e) It has had an opportunity to discuss the Company's business, management and financial affairs with its management. It has also had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. It understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. It acknowledges that any business plans prepared by the Company have been and continue to be subject to change and that such business plans are necessary speculative in nature, and it can be expected that some or all of the assumptions used in such plans may not materialize or may vary significantly from actual results. (f) It understands that the certificates evidencing the Securities may be imprinted with legend(s) which prohibit the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Purchaser, reasonably satisfactory to the Company, or unless the Company receives a no-action letter from the SEC. The following legends may be placed on the certificate(s) for the Securities, or any substitutions therefor: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. (g) In connection with any public offering of the Company's securities, it agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any of the Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time -9- 10 (not to exceed 90 days) from the effective date of such registration as may be requested by the underwriters. (h) In accepting the transfer of the above-listed Securities, it agrees to be bound by the terms and conditions of that certain Registration Rights Agreement, dated December __, 2000, as the same may be amended from time to time, by and between the Company and the Purchasers (as defined in such Agreement). Signature of Purchaser: By: -------------------------------- Title: ----------------------------- Date: ------------------------------ -10- EX-10.39 22 f70624ex10-39.txt EXHIBIT 10.39 1 EXHIBIT 10.39 EUPHONIX, INC. AMENDMENT TO SECURED PROMISSORY NOTE This Amendment (the "Amendment"), dated January 12, 2001, to the Secured Promissory Note (the "Note"), dated April 14, 2000, in the aggregate amount of eight hundred thousand dollars ($800,000), by and among Euphonix, Inc., a California corporation ("Borrower"), Dieter Meier, Walter Bosch, and Onset Ventures (individually an "Investor" and collectively the "Investors" or the "Lender"). Capitalized terms not defined here shall have the meaning set forth in the Note. RECITALS A. On April 14, 2000, Borrower and the Investors executed the Note, pursuant to which Borrower promised to pay each Investor up to the Maximum Principal Amount set forth in the Note, pursuant to the terms set forth in the Note. B. Section C.1 of the Note provides that the outstanding principal sum of the Note, together with the accrued interest thereon, shall be due and payable on January 1, 2001. C. Section C.4 of the Note provides that Investors representing two-thirds (2/3) of the outstanding principal sum of the Note may demand payment of the outstanding principal sum of the Note, together with the accrued interest thereon, on January 1, 2001, if any necessary shareholder, regulatory and other approvals or consents for the convertibility of the Note are not obtained by June 30, 2000. D. As of the date hereof, the shareholders of Borrower have not yet approved the convertibility of the Note. E. Section H.3 of the Note provides that the Note may not be amended, except by written instrument signed by Borrower and the Lender. NOW, THEREFORE, in consideration of the mutual promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE I: AMENDMENTS 1. Subsection C.1 of the Note is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following new subsection: "Scheduled Payment. Subject to other provisions of this Note, the outstanding principal sum of this Note, together with the accrued interest thereon, shall be due and payable on July 31, 2001." 2 2. Subsection C.4 of the Note is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following new subsection: "Immediate Payment. Notwithstanding anything herein to the contrary, in the event that all necessary shareholder, regulatory and other approvals or consents for the convertibility of this Note as set forth below are not obtained by July 31, 2001, (i) the outstanding principal sum from all Advances as of the date thereof and all future Advances from the date thereof and (ii) accrued interest thereon, shall be repaid in full upon demand by the Investors representing two-thirds (2/3) of the then outstanding principal sum of this Note; provided, however, that the Investors must provide at least one (1) month prior written notice to the Borrower prior to such demand. In addition, such demand may not be made (x) if shareholder approval for the convertibility of this Note is not obtained as a result of the Investors failing to vote or consent for such convertibility, or (y) if shareholder approval for the convertibility of this Note would not be required so long as the Borrower obtain shareholder approval with respect to such other security issuances by the Borrower, but shareholder approval with respect to such other issuances not be obtained as a result of the investors failing to vote or consent with respect to such other issuances." ARTICLE II: GENERAL 1. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state and federal courts located in the City and County of Santa Clara, State of California or, at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. 2. Entire Agreement; Counterparts. This Amendment and the Note together embody the entire understanding and agreement between Borrower and the Investors and supersede all prior agreements and understandings relating to the subject matter hereof. This Amendment and the Note shall not be further amended except by an instrument in writing signed by the parties hereto. This Amendment may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. [remainder of the page intentionally left blank] -2- 3 IN WITNESS WHEREOF, the Borrower and each of the Investors has caused this Note to be duly executed on the date first written above. EUPHONIX, INC. By: -------------------------------------- Name: Steve Vining Title: Chief Executive Officer INVESTORS ----------------------------------------- Dieter Meier ----------------------------------------- Walter Bosch ----------------------------------------- Onset Ventures By: Title: [SIGNATURE PAGE TO AMENDMENT TO SECURED PROMISSORY NOTE] EX-23.1 23 f70624ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to incorporation by reference in the Registration Statements on Form S-8 (No. 333-36756, No. 333-17545, No. 333-98130, No. 333-68425) of Euphonix Inc. of our report dated March 26, 2001 relating to the financial statements which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California March 28, 2001 -64- EX-23.2 24 f70624ex23-2.txt EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-17545) pertaining to the 1990 Stock Plan, the Registration Statement (Form S-8 No. 333-98130) pertaining to the 1990 Stock Plan, 1995 Performance Based Stock Option Plan and 1995 New Director Option Plan, the Registration Statement (Form S-8 No. 333-68425) pertaining to the 1997 Nonstatutory Stock Option Plan, and the Registration Statement (Form S-8 No. 333-36756) pertaining to the 1999 Stock Plan of our report dated March 4, 1999, with respect to the Euphonix, Inc. consolidated statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998 included in its Annual Report (Form 10-K) for the year ended December 31, 2000, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, California March 26, 2001 -65- -----END PRIVACY-ENHANCED MESSAGE-----