EXHIBIT 10.1
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN
ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD IMMEDIATELY CONSULT YOUR
STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL
ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000.
THIS DOCUMENT SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING FORM OF
ACCEPTANCE AND ELECTION.
IF YOU HAVE SOLD OR OTHERWISE TRANSFERRED all your OD2 Shares, your OD2 Warrants
or your OD2 Convertible Notes, please forward this document, together with the
accompanying Form of Acceptance and Election, as soon as possible to the
purchaser or transferee. However, this document and the accompanying Form of
Acceptance and Election should not be forwarded or transmitted in or into
Canada, Australia or the Republic of Ireland.
The Offer is not being made, directly or indirectly, and this document should
not be sent, in or into Canada, Australia or the Republic of Ireland or by use
of the mails of or by any means of instrumentality of interstate or foreign
commerce of, or any facilities of a national securities exchange of, any of
these jurisdictions, including, without limitation, the post, facsimile
transmission, telex and telephone and the Offer should not be accepted by any
such use, means, instrumentality or facility, or from within Canada, Australia
or the Republic of Ireland and doing so may render invalid any purported
acceptance of the Offer.
- ---------------------------------------------------------------------------
RECOMMENDED OFFER
BY
LOUDEYE CORP.
FOR
ON DEMAND DISTRIBUTION LIMITED
- ---------------------------------------------------------------------------
TO ACCEPT THE OFFER, FORMS OF ACCEPTANCE AND ELECTION SHOULD BE COMPLETED IN
ACCORDANCE WITH THE INSTRUCTIONS SET OUT THEREIN AND RETURNED, BY POST OR
(DURING NORMAL BUSINESS HOURS ONLY) BY HAND SIGNED AND WITNESSED TO CHRISTOPHER
PIKE AT OD2, BROADQUAY HOUSE, PRINCE STREET, BRISTOL BS1 4DJ AS SOON AS POSSIBLE
AND, IN ANY EVENT, SO AS TO BE RECEIVED BY NOT LATER THAN 3.00 PM ON 22 JULY
2004. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT ON PAGES 28 TO 30 OF
THIS DOCUMENT, APPENDIX I AND IN THE ACCOMPANYING FORM OF ACCEPTANCE AND
ELECTION.
A Letter from the Chairman of OD2 containing the recommendation of the directors
of OD2 is set out on pages 8 to 18 of this document.
THE PROVISIONS OF THE CITY CODE ON TAKEOVERS AND MERGERS DO NOT APPLY TO THE
OFFER AND THIS DOCUMENT.
No person has been authorized by Loudeye to give any information or to make any
representation other than those contained in this document and, if given or
made, such information or representation should not be relied upon as having
been authorized by Loudeye. The delivery of this Offer Document shall not under
any circumstances create any implication that there has been no change in
Loudeye's affairs since the date of this document, or that the information
contained in this document is correct as of any time subsequent to its date.
This Offer Document does not constitute an offer to sell Loudeye securities or
the solicitation of an offer to buy Loudeye securities, nor shall there be any
sale, issuance or transfer of Loudeye securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful.
Neither the proposed transaction described in this Offer Document nor the
securities of Loudeye to be issued in connection with such transaction have been
approved or disapproved by the Securities and Exchange Commission or any state
securities commission, nor has the Securities and Exchange Commission or any
state securities commission passed upon the accuracy or adequacy of this Offer
Document. Any representation to the contrary is a criminal offense.
This Offer Document is being used in connection with the private placement of
securities of Loudeye pursuant to an exemption from registration contained in
Section 4(2) of the US Securities Act of 1933 and Regulation D promulgated
thereunder and/or as a placement under Regulation S promulgated under the
Securities Act.
In addition to the transfer restrictions described below, Loudeye's securities
described in this document are subject to contractual and legal restrictions on
transferability and resale and may not be transferred or resold except as
permitted under this Offer Document, the Securities Act and applicable state
securities laws. As a prospective investor in Loudeye securities, you should be
aware that you may be required to bear the financial risks of this investment
for an indefinite period of time. For a description of the restrictions on
transfer of the Loudeye Securities, see Part D of Appendix I. The Promissory
Notes and the Contingent Value Rights are non-transferable.
THE SECURITIES OF LOUDEYE TO BE ISSUED IN CONNECTION WITH THE OFFER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT IS AVAILABLE. IN ADDITION, HEDGING TRANSACTIONS INVOLVING SUCH
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. A
LEGEND TO THIS EFFECT WILL BE PLACED ON THE CERTIFICATES EVIDENCING THE
SECURITIES. THE SECURITIES ARE SUBJECT TO OTHER RESTRICTIONS ON TRANSFER
DESCRIBED IN THIS OFFER DOCUMENT.
2
CONTENTS
SECTION PAGE
------- -----
Definitions 4
Letter from OD2 8
Letter from Loudeye Corp. 19
1. Introduction 19
2. The Offer for the OD2 Shares 19
3. Contingent Value Rights 21
4. Promissory Notes 22
5. Compulsory Sale Procedure 22
6. Undertakings to accept the Offer 23
7. Optionholders 23
8. Registration Rights 26
9. Information on Loudeye 26
10. Information on Loudeye Common Stock 27
11. Loudeye Dividend Policy 27
12. Reasons for the Offer 27
13. Directors, Management and Employees 28
14. Procedure for acceptance of the Offer and
participation in the Optionholder Alternative 28
15. Settlement 30
16. Further Information 31
Appendix I - Conditions and Further Terms of the Offer 32
Appendix II - Contingent Value Rights 40
Appendix III - Registration Rights 52
Appendix IV - Promissory Notes - Summary Terms 62
Appendix V - Additional Information 64
Appendix VI - Loudeye 10-Q 88
Appendix VII - Optionholder Alternative 143
3
DEFINITIONS
"ACCEPTING HOLDER" has the meaning given in paragraph 4 of the
Loudeye Letter;
"BROADVIEW" Broadview International Limited of St.
James's House, 23 King Street, London SW1Y
6QY;
"BUSINESS DAYS" means a day (other than a Saturday or
Sunday) on which banks are open for business
in London and Seattle, Washington USA;
"COMPLETION" completion of the transfer to Loudeye of 100
per cent. of the OD2 Shares the subject of
the Offer;
"COMPLETION DATE" the date of Completion;
"COMPULSORY SALE PROCEDURE" the procedure prescribed by Sections
428-430F of the Companies Act 1985 to
acquire compulsorily any outstanding OD2
Shares;
"CONTINGENT VALUE RIGHT" a Contingent Value Right to be issued by
Loudeye under the terms of the Offer having
the rights and being subject to the
restrictions set out in Appendix II to this
document;
"DEFERRED CONSIDERATION" that element of the Offer consideration
described in paragraph 2(ii) of the Loudeye
Letter;
"EARN-OUT CONSIDERATION" that element of the consideration under the
Offer described in paragraph 2(iii) of the
Loudeye Letter;
"EMI PLAN" the Company's enterprise management
incentive share option plan established by
deeds creating EMI options;
"EMPLOYEE OPTIONS" options to acquire OD2 Shares granted under
the Unapproved Plan and the Non-Executive
Options;
"EMPLOYEE OPTIONHOLDERS" the holders of Employee Options;
"EXCHANGED OPTIONS" has the meaning given in paragraph 7(ii) of
the Loudeye Letter;
"EXCHANGE RATE" the mid-range(pound)/U.S. dollar closing
price in respect of the relevant day as
reported in the Wall Street Journal;
"FINAL ACCEPTANCE DATE" 22 July, 2004 unless the Offer Period is
extended by Loudeye;
"FORM OF ACCEPTANCE AND ELECTION the form of acceptance and election relating
"OR " FORM" to the Offer dispatched with this document;
4
"FURTHER LOUDEYE SHARES" Loudeye Shares issued to holders of
Contingent Value Rights in accordance with
the terms of Appendix II;
"INITIAL CONSIDERATION" that element of the Offer consideration
described in paragraph 2(i) of the Loudeye
Letter;
"INITIAL LOUDEYE SHARES" the initial Loudeye Shares to be issued
pursuant to the Offer and the Compulsory
Sale Procedure and referred to in paragraph
2(i)(a) of the Loudeye Letter;
"LOUDEYE" OR "PURCHASER" Loudeye Corp. of 1130 Rainier Avenue South
Seattle, Washington 98144, USA;
"LOUDEYE LETTER" the letter from Loudeye set out on pages 19
to 31 of this document;
"LOUDEYE GROUP" Loudeye or any of its subsidiaries, or any
partnership, joint venture, firm or company
in which Loudeye or any of its subsidiaries
is interested;
"LOUDEYE SECURITIES" has the meaning given in Part D of Appendix
I;
"LOUDEYE SHARE PRICE" the volume weighted average of the closing
price in(pound)of a Loudeye Share on NASDAQ
for the 30 Trading Days (or such other
period as may be specified in this Offer
Document) ended on (and including) the day
in question (save that in the event that the
day in question is not a Trading Day, the
period of 30 Trading Days (or such other
period as may be specified in this Offer
Document) shall end on (and include) the
Trading Day immediately prior to the day in
question), calculated at the Exchange Rate
each day;
"LOUDEYE SHARES" shares of Common Stock, par value $0.001 per
share, of Loudeye;
"NASDAQ" the NASDAQ electronic stock market;
"NON-EXECUTIVE OPTIONS" options granted by the Company to
non-executive directors of the Company under
letters dated 24 April 2003;
"NOTEHOLDERS" the holders of OD2 Convertible Notes;
"OD2" or "COMPANY" On Demand Distribution Limited with
registered office address at Box Hill, Mill
Lane, Box, Corsham, Wiltshire SN13 8PN;
"OD2 BOARD" the board of directors of OD2;
"OD2 CONVERTIBLE NOTES" the loan notes issued by the Company on or
about 24 April 2003;
5
"OD2 DIRECTORS" the directors of OD2;
"OD2 GROUP" or "GROUP" OD2 and its Subsidiaries;
"OD2 LETTER" the letter set out on pages 8 to 18 of this
document;
"OD2 OPTIONS" Options over OD2 Shares on the terms and
conditions of the EMI Plan, the Unapproved
Plan and the Non-Executive Options or any
other options or rights to subscribe for OD2
Shares;
"OD2 SHARES" the existing unconditionally issued or
allotted and fully paid ordinary shares of
10p each in OD2 and any further such shares
which are unconditionally issued and
allotted or credited as fully paid on or
before the date on which the Offer ceases to
be open for acceptance (or such earlier date
as the Purchaser may decide) including any
shares in the capital of OD2 which fall to
be issued upon valid exercise of the OD2
Options, the OD2 Warrants or the OD2
Convertible Notes;
"OD2 WARRANTS" warrants to subscribe for OD2 Shares;
"OFFER" the Offer made by the Purchaser to acquire
OD2 Shares on the terms and subject to the
conditions set out in this document and the
accompanying Form of Acceptance and
Election;
"OFFER PERIOD" the period commencing on the date of this
Offer and ending at 3.00 p.m. on the Final
Acceptance Date, unless extended by Loudeye;
"OPTIONHOLDER ALTERNATIVE" the alternative available to Employee
Optionholders described in paragraph 7(ii)
of the Loudeye Letter;
"OPTIONHOLDERS" the holders of OD2 Options;
"PROMISSORY NOTES" OR "NOTES" the Series A Notes, the Series B Notes and
the Series C Notes or any of them;
"REGISTRATION RIGHTS" the Registration Rights in respect of the
Loudeye Shares issued pursuant to the Offer;
"SECURITIES ACT" the United States Securities Act of 1933, as
amended;
"SERIES A NOTES" the Series A loan notes the terms of which
are summarised in Appendix IV;
"SERIES B NOTES" the Series B loan notes the terms of which
are summarised in Appendix IV;
6
"SERIES C NOTES" the Series C loan notes the terms of which
are summarised in Appendix IV;
"SHAREHOLDERS" the holders of OD2 Shares;
"SUBSIDIARIES" means each of On Demand Distribution sas, On
Demand Distribution S.r.l., On Demand
Distribution GmbH and WebAudioNetwork
Limited;
"TRADING DAYS" days upon which Loudeye Shares are available
for trading on NASDAQ;
"UNAPPROVED PLAN" the On Demand Distribution Limited Employee
Share Option Plan;
"US" OR "UNITED STATES" the United States of America, its
territories and possessions, any state of
the United States and the District of
Columbia;
"VENDORS" persons accepting the Offer or who are
compelled to transfer OD2 Shares pursuant to
the Compulsory Sale Procedure or under
Article 13 of the Company's Articles of
Association;
"WARRANTHOLDERS" the holders of OD2 Warrants;
"WIDER OD2 GROUP" OD2 and any of its subsidiaries or
subsidiary undertakings and any associated
company and any company of which 20 per cent
or more of the voting capital is held by any
member of the OD2 Group and any partnership,
joint venture, firm or company in which any
member of OD2 Group is directly or
indirectly interested; and
"(POUND)" AND "PENCE" British pounds sterling and pence.
7
[OD2 LOGO]
BroadQuay House
Prince Street
Bristol, BS1 4DJ
22 June 2004
To: Shareholders, Optionholders, Warrantholders and Noteholders.
Dear Sir or Madam,
RECOMMENDED OFFER FOR OD2
On 22 June 2004, the board of Loudeye announced a private offer to acquire all
of the issued and to be issued ordinary share capital of OD2.
Loudeye will issue up to 13,950,000 Loudeye Shares in connection with the Offer,
the Compulsory Sale Procedure and the Optionholder Alternative (which are
described below). Loudeye will also pay deferred consideration over the next 18
months of between approximately (pound)9,760,000 and (pound)9,970,000 (depending
upon how many Employee Optionholders elect to participate in the Optionholder
Alternative), plus additional contingent consideration of up to an additional
(pound)10 million in the aggregate based on and subject to OD2's future
financial performance. All additional payments are payable, at Loudeye' option,
in further Loudeye Shares or cash (subject to the right of accepting holders of
OD2 Shares to elect to receive Promissory Notes in lieu of cash).
An alternative to acceptance of the Offer for Employee Optionholders is also
being proposed by Loudeye which Employee Optionholders may wish to consider.
Details of the Optionholder Alternative are set out below and in paragraph 7(ii)
of the Loudeye Letter and an explanation of the associated tax considerations is
set out below. The Optionholder Alternative is not available in respect of
options granted under the EMI Plan.
The purpose of this letter is to explain the background to the Offer and the
reasons why your board unanimously recommends you accept it.
THE OFFER FOR OD2 SHARES
The formal Offer to Shareholders and to Optionholders, Warrantholders and
Noteholders (in respect of OD2 Shares which fall to be issued by OD2 upon the
exercise of OD2 Options, OD2 Warrants and upon the conversion of OD2 Convertible
Notes respectively) is set out in the letter from Loudeye on pages 19 to 31 of
this document.
FOR EVERY OD2 SHARE (and so in proportion for any other number of OD2 Shares
held), a person accepting the Offer will receive:
8
(i) INITIAL CONSIDERATION
(a) the issue of 0.4469 Loudeye Shares, PLUS
(b) on 31 January 2005, at Loudeye's option, either:
- the payment of 18.12p in cash; or
- the issue of such number of Loudeye Shares with an aggregate
Loudeye Share Price as of 31 January 2005 (which shall be
determined based on the 90 Trading Days ended on (and
including) 31 January 2005) equal to 18.12p; AND
(ii) DEFERRED CONSIDERATION
19.04P, which shall be satisfied by:
(a) on 30 November 2004, at Loudeye's option, either:
- the payment of 4.76p in cash; or
- the issue of such number of Loudeye Shares with an aggregate
Loudeye Share Price as of 30 November, 2004 equal to 4.76p;
AND
(b) on 31 May 2005, at Loudeye's option, either:
- the payment of 4.76p in cash; or
- the issue of such number of Loudeye Shares with an aggregate
Loudeye Share Price as of 31 May 2005 equal to 4.76p; AND
(c) on 30 November 2005, at Loudeye's option, either:
- the payment of 9.52p in cash; or
- the issue of such number of Loudeye Shares with an aggregate
Loudeye Share Price as of 31 November 2005 equal to 9.52p; AND
(iii) EARN-OUT CONSIDERATION
the issue of ONE (1) CONTINGENT VALUE RIGHT, having the rights described
below and in Appendix II of this document.
Fractions of Loudeye Shares will be rounded down to the nearest whole Loudeye
Share and any fractional entitlements of accepting persons shall be ignored.
Based on representations that have been made to Loudeye regarding the
capitalisation of OD2, the payment of the consideration described above will not
result in the issuance of more than 13,950,000 Loudeye Shares in connection with
the Offer, the Compulsory Sale Procedure and the Optionholder Alternative.
Loudeye will not issue more than 13,950,000 Loudeye Shares in connection with
this transaction unless it obtains the approval of its stockholders in
accordance with NASDAQ requirements as described below. Accordingly, Loudeye may
elect to pay an amount of cash equal to the trading price of a Loudeye Share on
the date of settlement multiplied by 0.4469 per OD2 Share in lieu of the
issuance of Loudeye Shares described at paragraph (i)(a) above so as to ensure
that such limitation is not exceeded.
9
Persons accepting the Offer may elect to receive Promissory Notes in lieu of all
(and not part only) of the following elements of the consideration payable under
the Offer:
- - the consideration referred to at paragraphs (i)(b) and (ii)(a)-(c) above;
and
- - any consideration which becomes payable under the Contingent Value Rights
unless Loudeye elects to pay such consideration in the form of Loudeye
Shares.
Further details of the terms of the Promissory Notes are set out in paragraph 4
of the Loudeye Letter and in Appendix IV of this document.
The right to receive any future Consideration payable by Loudeye as described
above may not be transferred or assigned without the prior written consent of
Loudeye.
CONTINGENT VALUE RIGHTS
Persons who accept the Offer or who are compelled to transfer their OD2 Shares
pursuant to the Compulsory Sale Procedure will each be issued one Contingent
Value Right in respect of each OD2 Share sold under the terms of the Offer. Each
Contingent Value Right entitles the holder to receive additional consideration
for the sale of his OD2 Shares contingent upon the Company reaching certain
financial performance targets in the future. If such financial performance
targets are met the Purchaser shall make payments of additional consideration to
holders of Contingent Value Rights, to be satisfied in cash or, at the election
of the Purchaser, by the issue of further Loudeye Shares (alternatively, cash
payments may be satisfied by an issue of Promissory Notes in accordance with
paragraph 4 of the Loudeye Letter). The maximum amount of additional
consideration payable by the Purchaser under all Contingent Value Rights is
(pound)10 million.
The Contingent Value Rights will not be certificated. The Contingent Value
Rights are personal to the holder and are not transferable, assignable or
chargeable. Any purported transfer, assignment, disposal or dealing with the
rights attaching to the Contingent Value Rights will render the Contingent Value
Right void. Further details regarding the Contingent Value Rights are set out in
paragraph 3 of the Loudeye Letter and in Appendix II to this document.
LOUDEYE SHARES
The Loudeye Share Price as at 18 June 2004, the latest practicable date before
the dispatch of this document, was $1.32 (or 72.13p, at the Exchange Rate).
Loudeye will not issue more than 13,950,000 Loudeye Shares (including shares
underlying the Exchanged Options) in connection with the Offer, the Compulsory
Sale Procedure and the Optionholder Alternative unless it obtains the approval
of the holders of a majority of outstanding Loudeye Shares in accordance with
NASDAQ requirements. To the extent required by NASDAQ rules, the votes of
holders of Initial Loudeye Shares issued in connection with the Offer, the
Compulsory Sale Procedure or the Optionholder Alternative will not be counted
(with respect to such Initial Loudeye Shares) to approve or disapprove the
issuance of additional Loudeye Shares as a means of paying any additional
consideration that Loudeye may be required to pay in connection with the Offer
or the Compulsory Sale Procedure. If such approval is not obtained, any
obligation of Loudeye under the Offer to pay further consideration will be
satisfied in cash (subject to the right of accepting holders of OD2 Shares to
elect to receive Promissory Notes in lieu of cash (see paragraph 4 of the
Loudeye Letter)). In addition, no further shares or options will be issued under
the Unapproved Plan (other than Loudeye Shares issuable upon exercise of
Exchanged Options).
10
UNDERTAKINGS TO ACCEPT THE OFFER AND THE COMPULSORY SALE PROCEDURE
Irrevocable undertakings to accept the Offer have been given to Loudeye by the
OD2 Directors and certain other Shareholders in respect of their holdings of OD2
Shares (currently in issue and/or falling to be issued pursuant to the exercise
of their respective OD2 Options, OD2 Warrants and/or upon conversion of their
OD2 Convertible Notes). In aggregate these represent 23,923,470 OD2 Shares,
approximately 92.68 per cent. of the OD2 Shares. This means that immediately
following the launch of the Offer the acceptance condition set out in Section A
of Appendix I to this document will be satisfied and Loudeye will be entitled,
and intends, to apply the provisions of Sections 428-430F of the Companies Act
1985 and/or the provisions of Article 13 (Drag Along) of the Company's Articles
of Association compulsorily to acquire any outstanding OD2 Shares (including any
OD2 Shares issued following the date of the Offer).
BACKGROUND TO THE OFFER
Loudeye is an innovative business-to-business provider of services that
facilitates the distribution and promotion of digital media content to media &
entertainment, retail and enterprise customers. Loudeye's services enable its
customers to outsource the management and distribution of audio and video
digital media content over the Internet and on other digital distribution
platforms. Its technical infrastructure and back-end solutions, combined with
its proprietary applications, comprise an end-to-end solution, from basic
digital media services, such as the hosting, storage, encoding, management and
protection of media assets for content owners, to complex, fully-outsourced
digital media distribution and promotional services, such as private-labeled
digital music download stores and streaming Internet radio and music sample
services. Loudeye's solutions reduce the complexity and cost of internal
solutions, and enable its customers to provide branded digital media offerings
to their users while supporting a variety of digital media technologies and
consumer business models.
The acquisition supports Loudeye's commitment to global expansion by broadening
its delivery of end-to-end digital media solutions and services into new, key
geographic regions such as Europe and Australia. In addition, OD2 will provide a
platform and proven business-to-business technology to enhance Loudeye's Digital
Music Store offering. Loudeye will also seek to expand OD2's digital music
catalog, leveraging Loudeye's recently upgraded 4.5 million track commercial
archive of digital music.
MANAGEMENT AND EMPLOYEES
Loudeye has given assurances to the board of OD2 that the existing rights of OD2
employees will be safeguarded. In respect of the future, Loudeye will make
appropriate proposals for the directors and management of OD2 to participate in
Loudeye options consistent with the current Loudeye option plan.
THE OPTIONHOLDER ALTERNATIVE
An alternative to acceptance of the Offer for Employee Optionholders is being
proposed by Loudeye which Optionholders may wish to consider.
Employees exercising Employee Options and accepting the Offer will trigger an
income tax and employee's national insurance charge (as explained in the "United
Kingdom taxation" section of this letter (below)) which will be payable through
the PAYE system. Under the terms governing the Employee Options, Employee
Optionholders have agreed to indemnify the Company in respect of such
liabilities (including by way of deductions from salary and/or the sale of
shares). However, the Loudeye Shares which such employees will be issued upon
acceptance of the Offer will not be able to be sold in order to finance any such
income tax and national insurance contributions until such shares are registered
under the Securities Act or an exemption from the registration requirements of
the Securities Act is available, which is unlikely to happen before any such tax
becomes due.
11
The terms of the Optionholder Alternative are that Employee Optionholders who do
not exercise their Employee Options and accept the Offer may elect to exchange
their Employee Options for options over Loudeye Shares, in the form of the
substitution of the option agreement set out in Appendix VII to this document in
place of their existing option agreements. The principal difference between the
Employee Optionholders' existing option agreements and the agreement set out in
Appendix VII can be summarised as follows:
- - Exchanged Options will not lapse at the expiry of the Compulsory Sale
Procedure and will remain exercisable for a period of up to ten years from
the date of grant of the original OD2 Option (subject to the terms of the
relevant Option Exchange Agreement and the rules of the Unapproved Plan,
where applicable) whereas Employee Options which are not exercised as part
of the Offer will lapse.
- - The Board of OD2 has determined that accelerated vesting of the Employee
Options will occur so that the Exchanged Options will be fully vested and
exercisable in accordance with the Rules of the Unapproved Plan and the
terms of the Non-Executive Options.
- - Employee Optionholders will be required to meet a portion of the
employer's national insurance contributions arising on the exercise or
other dealing in the Exchanged Options. The employer's national insurance
contributions with respect to any increase in value of a Loudeye Share
following the grant of the Exchanged Option will be met by the Employee
Optionholder. OD2 will continue to be responsible for an amount of
employer's national insurance contributions equal to the amount of
contributions that would have arisen had the Optionholder exercised his
Employee Options at the fair market value at 21 June 2004 (with `fair
market value' per OD2 Share for this purpose (as determined by the OD2
Board) being 62.52p).
- - In the event of a sale of all or substantially all of Loudeye's assets, or
a merger, consolidation or other capital reorganization of Loudeye with or
into another corporation, the Exchanged Option may be assumed or replaced
with an equivalent option, or in certain circumstances, with a cash
incentive program, of the successor corporation or its affiliates. If the
successor corporation does not agree to assume the Exchanged Options or to
substitute an equivalent option, the Exchanged Options will lapse and
terminate upon the consummation of the transaction. In addition, the
Exchanged Options will lapse and terminate immediately prior to any
dissolution or liquidation of Loudeye, unless otherwise determined by the
Loudeye Board.
- - Employee Optionholders agree to cooperate with Loudeye to further amend
the Exchanged Options to the extent Loudeye determines it is necessary or
desirable in order to accommodate United States legal or tax
considerations or to conform such Exchanged Option to the terms and
conditions of Loudeye's existing stock option plan and option agreements,
however, any amendment which adversely affects the rights of Employee
Optionholders as a whole to a material extent requires the prior consent
of Employee Optionholder(s) holding between them more than 50 per cent. of
the outstanding Exchanged Options.
- - Loudeye Shares issuable upon exercise of the Exchanged Option will be
subject to the transfer restrictions set forth in Part D of Appendix I of
this document and will bear restrictive legends until they are registered.
Employee Optionholders who choose to exercise their OD2 Options and accept the
Offer will be entitled to receive the Initial Consideration, Deferred
Consideration and any Earn-Out Consideration, as described above. Employee
Optionholders electing to participate in the Optionholder Alternative should
note that they will have no right to participate in such consideration. Any
gains the Employee Optionholder makes on exercise of their Exchanged Options
will be dependent upon the price of a Loudeye Share at the time of exercise.
12
Employee Optionholders should consider carefully what action they should take in
relation to the Offer and the Optionholder Alternative and they should consult
an independent professional adviser if they are in any doubt. Employee
Optionholders are advised to read Appendix VII to this document.
The Optionholder Alternative is only available in respect of Employee Options.
Each of the OD2 Directors who hold Employee Options has irrevocably undertaken
to elect to participate in the Optionholder Alternative in respect of all of the
1,975,587 Employee Options which they hold in aggregate.
No further options will be issued under the OD2 Employee Share Option Plan
(other than Loudeye Shares issuable upon exercise of Exchanged Options).
UNITED KINGDOM TAXATION
The comments set out below summarise certain aspects of the UK taxation
treatment upon acceptance of the Offer and upon the exercise and lapse of
Options and the Optionholder Alternative, relating to Shareholders,
Optionholders, Warrantholders and Noteholders who are individuals resident and
ordinarily resident for tax purposes in the UK who hold their shares as an
investment. The comments are intended as a general guide only to certain aspects
of capital gains tax ("CGT"), stamp duty, income tax and national insurance
contributions, under current UK law and Inland Revenue practice. Accordingly,
the comments are not applicable to all Shareholders, Optionholders,
Warrantholders or Noteholders and they do not constitute advice to any
Shareholder, Optionholder, Warrantholder or Noteholder on his or her personal
tax position.
All Shareholders, Warrantholders, Noteholders and Optionholders should consult
their own tax advisers with respect to the tax consequences of the Offer and, if
applicable, the Optionholder Alternative.
(i) EXERCISE OF OD2 OPTIONS
A liability to income tax and employer's and employee's national insurance
contributions will arise on the exercise of the OD2 Options.
In respect of EMPLOYEE OPTIONS, income tax and employer's and employee's
national insurance contributions will be payable on the gain arising on
exercise of the OD2 Options (i.e. on the market value of the OD2 Shares at
the date of exercise less the aggregate exercise price per OD2 Option of
nil).
In respect of options granted under the EMI PLAN, as the exercise price of
such options is set at less than the market value of an OD2 Share at the
date of grant, income tax and employer's and employee's national insurance
contributions will be payable on the discounted element on exercise of the
OD2 Options (i.e. on the market value of the OD2 Shares at the date of
grant less the aggregate exercise price per OD2 Option of nil). In the
event that the EMI options are exercised more than 40 days after the date
upon which Loudeye acquires control of OD2, to the extent that they have
not lapsed by that date, a 'disqualifying event' will occur for tax
purposes, with the effect that CGT taper relief will cease to apply from
the date of grant of the EMI options and any gains attributable to the
increase in value of the OD2 Shares after the date of the disqualifying
event will be treated as unapproved for tax purposes.
OD2, as the Optionholders' employer, must account for the income tax and
employer's and employee's national insurance contributions arising on
exercise of the OD2 Options through the PAYE system. Under the rules
governing the OD2 Options, the Optionholders have agreed to indemnify OD2
in respect of any income tax and employee's national insurance
contributions arising on exercise of the OD2 Options. This will include
appointing OD2 as the Optionholders' agent and attorney for the sale of
the appropriate number of Loudeye
13
Shares and authorising payment to OD2 of the relevant amount out of the
net proceeds of sale of such shares. Further tax charges may arise in the
event that Optionholders fail to reimburse OD2 for the income tax and
employee's national insurance contributions within 90 days of exercise of
the OD2 Options.
As it is possible that OD2 Shares acquired by the Optionholders upon
exercise of their OD2 Options may be restricted securities for the
purposes of the Income Tax (Earnings and Pensions) Act 2003, it is a term
of the Offer that Optionholders enter into an election at the time of
exercise declaring that the Optionholders wish to be taxed on the market
value of the OD2 Shares as if they were not restricted securities. This
prevents a further income tax charge arising when the OD2 Shares are sold
and the generally more favourable CGT tax regime should apply. A form of
election in the form set out in Schedule 4 to the Form of Acceptance and
Election will be completed by Loudeye as attorney for the relevant
Optionholder pursuant to the power granted in the Form. Further elections
may also be necessary when OD2 Shares or Promissory Notes are exchanged
for Loudeye Shares.
(ii) ACCEPTANCE OF THE OFFER BY OPTIONHOLDERS
Assuming that Optionholders have made the election referred to above, the
comments set out in the paragraph below entitled 'Taxation on chargeable
gains on OD2 Shares' will be relevant to Optionholders upon acceptance of
the Offer.
(iii) WARRANTHOLDERS
The tax treatment of Warrantholders will mirror the treatment of the
Optionholders who accept the Offer if they have acquired their Warrants by
reason of their employment and to the extent that they decide to exercise
their Warrants to acquire OD2 Shares. It is also a term of the Offer that
the Warrantholders enter into an election as required for the
Optionholders who accept the Offer.
(iv) LAPSE OF OD2 OPTIONS OR OD2 WARRANTS
There will be no income or CGT consequences of the lapse of the OD2
Options or OD2 Warrants, if Optionholders or Warrantholders choose not to
accept the Offer.
(v) OPTIONHOLDER ALTERNATIVE - EXCHANGE OF OD2 OPTIONS
Where Employee Optionholders elect to exchange their Employee Options
pursuant to the Optionholder Alternative, no tax liability should arise at
the point of exchange.
On exercise of the Exchanged Options, save as set out below, the tax
treatment will follow the treatment of those Optionholders who exercise
their OD2 Options (as explained under "(i) Exercise of OD2 Options" above)
and references to OD2 Shares should be read as references to Loudeye
Shares. Currently, OD2 is liable to pay employer's national insurance
contributions on exercise of the Employee Options. OD2 will continue to be
responsible for an amount of employer's national insurance contributions
equal to the amount of contributions that would have arisen had the
Optionholder exercised his Employee Options at the fair market value at 21
June 2004 (with 'fair market value' per OD2 Share for this purpose (as
determined by the OD2 Board) being 62.80p). Under the terms of the
Optionholder Alternative, the Optionholders will be required to meet any
employer's national insurance contributions arising on exercise of the
Exchanged Options in respect of the increased value of the Loudeye Shares
i.e. to the extent that the value of the Loudeye Shares on exercise
exceeds the fair market value at 21 June 2004 (with 'fair market value'
per OD2 Share for this purpose (as determined by the OD2 Board) being
62.80p). The amount of employer's
14
national insurance contributions paid by the Employee Optionholder should
be deductible for income tax purposes.
As it is possible that Loudeye Shares acquired by the Employee
Optionholders upon exercise of their Exchanged Options may be restricted
securities for the purpose of the Income Tax (Earnings and Pensions) Act
2003, it is a term of the Optionholder Alternative that Employee
Optionholders who accept the Optionholder Alternative enter into an
election at the time of acceptance declaring that the Employee
Optionholders wish to be taxed on the market value of the Loudeye Shares
as if they were not restricted securities. This prevents a further income
tax charge arising when the Loudeye Shares are sold and the generally more
favourable CGT tax regime should apply. A form of election in the form set
out in Schedule 4 of the Form of Acceptance and Election will be completed
by Loudeye as attorney for the relevant Optionholder pursuant to the power
granted in the Form.
(vi) NOTEHOLDERS
If the Noteholders elect to convert their OD2 Convertible Notes into OD2
Shares an income tax charge will arise in respect of any interest due on
such OD2 Convertible Notes up to the date of conversion. It is also a term
of the Offer that the Noteholders who are employees of OD2 enter into an
election as required for the Optionholders above. Following the exchange
of OD2 Shares for Loudeye Shares, the comments in paragraph (vii) below
will be relevant to the tax position of Noteholders.
(vii) TAXATION ON CHARGEABLE GAINS ON OD2 SHARES
Subject to an exception noted in the next paragraph, Shareholders who are
individuals will not be treated as making a disposal for CGT purposes to
the extent that they receive Initial Loudeye Shares (being the Offer
consideration referred to in paragraph 2(i) of the Loudeye Letter).
Instead, the Initial Loudeye Shares will be treated as the same asset as
the existing holding of shares in OD2.
The exception is that any Shareholder who has claimed and retained the
benefit of EIS deferral relief on their OD2 Shares cannot claim the
benefit of this treatment. Such Shareholders will be deemed to make a gain
(subject to personal circumstances) to the extent of the share exchange
and the sale will also cause any EIS deferral relief to be recaptured.
Shareholders who are individuals, and WHO DO NOT TAKE ADVANTAGE OF THE
PROMISSORY NOTE ALTERNATIVE, will be treated as making a disposal for CGT
purposes to the extent that they receive any cash consideration from
Loudeye as part of the Initial Consideration or the Deferred
Consideration. With regard to the Loudeye Shares that may be issued as
part of the Initial Consideration as at 31st January 2005 (the "SECOND
STAGE OF THE INITIAL CONSIDERATION") and the Deferred Consideration, it is
possible that the Inland Revenue would treat the issue of these shares, so
that there is no disposal for CGT purposes (in the same manner described
in the first paragraph above). However, this treatment should not be
relied upon as compared to the Promissory Note alternative (see below).
With regard to CONTINGENT VALUE RIGHTS, if the Promissory Note alternative
is not taken, a value will need to be brought into account for the
Contingent Value Right at the point of completion of the sale and transfer
of the relevant OD2 Shares to Loudeye, and will be taxed as part of the
initial disposal. Any gain on the Earn-Out (over and above the amount
already taxed) will be taxed as and when further Loudeye Shares are issued
or cash received (at Loudeye's election). There is no basis upon which the
Inland Revenue would treat the issue of these Shares in the same terms as
the first paragraph above.
15
Shareholders who are individuals, and WHO TAKE ADVANTAGE OF THE PROMISSORY
NOTE ALTERNATIVE, will not be treated as making a disposal for CGT
purposes to the extent that they receive the Second Stage of the Initial
Consideration and the Deferred Consideration in the form of the Promissory
Note. Instead, the Promissory Note will be treated as the same asset as
the existing holding of OD2 Shares (as part of the process noted above)
and will continue to be so treated if and to the extent that Loudeye
elects to convert the Promissory Note into Loudeye Shares. A gain will
potentially arise (subject to personal circumstances) at that point if
Loudeye instead elects to redeem the Promissory Note for cash.
With regard to the CONTINGENT VALUE RIGHTS, Shareholders who are
individuals, and WHO TAKE ADVANTAGE OF THE PROMISSORY NOTE ALTERNATIVE,
will not be treated as making a disposal for CGT purposes to the extent
that they elect at box 5 on the Form of Acceptance and Election to receive
Promissory Notes with respect to the EARN-OUT. In this case, such
shareholders may treat the CONTINGENT VALUE RIGHT received under the Offer
as the same asset as the existing holding of OD2 Shares (as part of the
process noted above) and this treatment will continue whether Loudeye
elects to satisfy any consideration payable under the Contingent Value
Right by the issue of Loudeye Shares or a Promissory Note.
In any of these cases, where Shareholders have not been treated as making
a disposal for CGT, a gain will potentially arise (subject to personal
circumstances) at the point that the Loudeye Shares or the Promissory Note
are sold, redeemed or otherwise disposed of for CGT purposes.
Taper relief may be available to reduce the gain at any point, at a rate
depending upon the precise circumstances of an individual shareholder and
the nature of the business of OD2 and Loudeye from time to time.
Shareholders may care to note that the Series A Notes and the Series C
Notes are expected to be "non Qualifying Corporate Bonds" for CGT purposes
and that the Series B Notes are expected to be "Qualifying Corporate
Bonds" for CGT purposes.
In deciding whether to elect to take non-qualifying corporate bonds
(Series C Notes) or qualifying corporate bonds (Series B Notes) in lieu of
any cash consideration paid out under the Contingent Value Rights,
shareholders should examine their own personal capital gains tax taper
relief position. The taper relief rules are complex and specific advice
should be sought. However, in general, non-qualifying corporate bonds will
extend the qualifying ownership period for taper relief purposes until
they are redeemed. Again, depending on the nature of the Loudeye business,
this may lower the effective rate of capital gains tax payable by certain
Shareholders. Purely by way of an illustration, Shareholders who are
employed by OD2 and who have held their OD2 Shares for less than two years
may wish to consider taking non-qualifying corporate bonds. This would
extend their taper relief ownership period so that they may qualify for a
lower rate of tax. However, for some Shareholders, taking non-qualifying
corporate bonds may actually increase their effective rate of tax. Those
shareholders may prefer to take qualifying corporate bonds. By taking
qualifying corporate bonds, the qualifying ownership period stops at the
date of issue (rather than at the date of redemption) and freezes the
effective rate of tax. Again, by way of an illustration, Shareholders who
will not be employed by OD2 following the sale of their OD2 Shares) may
wish to consider taking qualifying corporate bonds. For these
Shareholders, this should preserve a lower rate of tax compared to taking
non-qualifying corporate bonds.
Optionholders may wish to note the following. EMI Plan Optionholders'
period of ownership for taper relief commenced on the date they acquired
their Options. For holders of Employee Options the period of ownership
starts to run from the date of exercise.
As the Loudeye Shares acquired by Shareholders may be restricted
securities for the purposes of the Income Tax (Earnings and Pensions) Act
2003, it is a term of the Offer that Shareholders (if they are employees
of OD2) enter into an election at the time of acquiring the
16
Loudeye Shares, declaring that the Shareholders wish to be taxed on the
market value of the Loudeye Shares as if they were not restricted
securities. This prevents a further income tax charge arising when the
Loudeye Shares are sold and the generally more favourable CGT tax regime
should apply. A form of election in the form set out in Schedule 4 to the
Form of Acceptance and Election will be completed by Loudeye as attorney
for the relevant shareholder pursuant to the power granted in the form.
Further elections may also be necessary when Loudeye Shares are issued
upon redemption of Promissory Notes.
(viii) STAMP DUTY
No stamp duty will be payable by the Shareholders as a result of accepting
the Offer.
(ix) INCOME TAX
For shareholders who are individuals resident and ordinarily resident for
tax purposes in the UK, interest on the Promissory Notes and dividends on
the Loudeye Shares (if any) will in the first instance be subject to tax
in the US and thereafter be subject to UK income tax (with credit for tax
paid in the US). Payments of interest on the Promissory Notes or dividends
on the Loudeye Shares may be subject to withholding tax in the US. In
appropriate cases the US tax may be eliminated or reduced where an
appropriate claim is made under the terms of the double taxation treaty
between the UK and the US.
ANY SHAREHOLDER, OPTIONHOLDER, WARRANTHOLDER OR NOTEHOLDER WHO IS IN ANY DOUBT
ABOUT HIS OR HER OWN TAX POSITION AND/OR WHO IS SUBJECT TO TAXATION IN ANY
JURISDICTION OTHER THAN THE UK IS STRONGLY RECOMMENDED TO CONSULT HIS OR HER
INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY.
ACTION TO BE TAKEN
The procedure for acceptance of the Offer is set out on pages 28 to 30 of this
document, Appendix I and in the accompanying Form of Acceptance and Election. To
accept the Offer you must complete the Form of Acceptance and Election in
accordance with the instructions printed thereon and return it by post or by
hand, to CHRISTOPHER PIKE of OD2, BROADQUAY HOUSE, PRINCE STREET, BRISTOL BS1
4DJ as soon as possible, but in any event so as to be received no later than
3:00 pm on 22 July 2004.
The procedure for Optionholders to elect to participate in the Optionholder
Alternative is set out in paragraph 7(ii) of the Loudeye Letter and in the
accompanying Form of Acceptance and Election.
RECOMMENDATION
Your board, which has received advice from Broadview on the financial
implications of the Offer, considers the terms of the Offer to be fair. In
providing advice to the OD2 Directors, Broadview has relied upon the OD2
Directors' commercial assessment of the Offer. Accordingly, your directors
unanimously recommend that you accept the Offer as they intend to do in respect
of their own beneficial holdings of OD2 Shares (whether issued or falling to be
issued under OD2 Options (save to the extent Directors elect for tax reasons to
participate in the Optionholder Alternative), OD2 Warrants and/or OD2
Convertible Notes). OD2 Directors have irrevocably undertaken to accept the
Offer in respect of 11,641,887 OD2 Shares in aggregate, representing
approximately 40.33 per cent. of the fully diluted share capital of OD2.
17
Yours sincerely
/s/ Charles Grimsdale
________________________________
Charles Grimsdale
for and on behalf of
ON DEMAND DISTRIBUTION LIMITED
18
[LOUDEYE LOGO]
1130 Rainier Avenue South
Seattle, Washington 98144
USA
22 June 2004
To OD2 Shareholders, Optionholders, Warrantholders and Noteholders.
Dear Sir or Madam,
OFFER FOR OD2
On 22 June 2004, the board of Loudeye announced the terms of a private offer to
acquire all of the issued and to be issued ordinary share capital of OD2.
1. INTRODUCTION
This letter sets out the terms of an offer by Loudeye to acquire the
entire issued and to be issued share capital of OD2.
Your attention is drawn to the letter from Charles Grimsdale on pages 8 to
18 of this document, from which you will see that the directors of OD2
consider the terms and conditions of the Offer to be fair and unanimously
recommend that you accept the Offer.
2. THE OFFER FOR THE OD2 SHARES
We hereby offer to acquire, on the terms and subject to the conditions set
out or referred to in this document and in the Form of Acceptance and
Election, all of the OD2 Shares in issue and to be issued on the following
basis:
FOR EVERY OD2 SHARE (and so in proportion for any other number of OD2
Shares held), a person accepting the Offer will receive:
(i) INITIAL CONSIDERATION
(a) the issue of 0.4469 Loudeye Shares, PLUS
(b) on 31 January 2005, at Loudeye's option, either:
- the payment of 18.12p in cash; or
- the issue of such number of Loudeye Shares with an
aggregate Loudeye Share Price on 31st January 2005
(which shall be determined based on the 90 Trading Days
ended on (and including) 31 January 2005) equal to
18.12p; AND
(ii) DEFERRED CONSIDERATION
19.04P, which shall be satisfied by:
(a) on 30 November 2004, at Loudeye's option, either:
19
- the payment of 4.76p in cash; or
- the issue of such number of Loudeye Shares with an
aggregate Loudeye Share Price on 30 November 2004 equal
to 4.76p; AND
(b) on 31 May 2005, at Loudeye's option, either:
- the payment of 4.76p in cash; or
- the issue of such number of Loudeye Shares with an
aggregate Loudeye Share Price on 31 May 2005 equal to
4.76p; AND
(c) on 30 November 2005, at Loudeye's option, either:
- the payment of 9.52p in cash; or
- the issue of such number of Loudeye Shares with an
aggregate Loudeye Share Price on 30 November 2005 equal
to 9.52p; AND
(iii) EARN-OUT CONSIDERATION
the issue of ONE (1) CONTINGENT VALUE RIGHT, having the rights
described in Appendix II of this document.
Fractions of Loudeye Shares will be rounded down to the nearest whole
Loudeye Share and any fractional entitlements of accepting persons shall
be ignored.
Based on representations that have been made to Loudeye regarding the
capitalisation of OD2, the payment of the consideration described above
will not result in the issuance of more than 13,950,000 Loudeye Shares
(including shares underlying the Exchanged Options) in connection with the
Offer, the Compulsory Sale Procedure and the Optionholder Alternative.
Loudeye will not issue more than 13,950,000 Loudeye Shares (including
shares underlying the Exchanged Options), which amounts to approximately
19.9 per cent. of the number of shares of Loudeye Common Stock outstanding
as of the date of this Offer Document, in connection with the Offer, the
Compulsory Sale Procedure and the Optionholder Alternative unless it
obtains the approval of the holders of a majority of outstanding Loudeye
Shares (excluding shares issued in connection with the Offer, the
Compulsory Sale Procedure or the Optionholder Alternative) in accordance
with NASDAQ requirements. Accordingly, Loudeye may elect to pay an amount
of cash equal to the trading price of a Loudeye Share on the date of
settlement multiplied by 0.4469 per OD2 Share in lieu of the issuance of
Loudeye Shares described at paragraph (i)(a) above so as to ensure that
such limitation is not exceeded. In addition, no further shares or options
will be issued under the Unapproved Plan (other than Loudeye Shares
issuable upon exercise of Exchanged Options).
Persons accepting the Offer may elect to receive a Promissory Note in lieu
of:
- the consideration referred to at paragraphs 2(i)(b) and 2(ii)(a-c)
above; and
- any consideration which becomes payable under the Contingent Value
Rights unless Loudeye elects to pay such consideration in the form
of Loudeye Shares,
in each case, in accordance with paragraph 4 of this letter.
The right to receive any future Consideration payable by Loudeye as
described above may not be transferred or assigned without the prior
written consent of Loudeye.
20
The Loudeye Shares to be issued pursuant to the Offer will be issued
credited as fully paid and non-assessable and will rank pari passu in all
respects with the issued and outstanding Loudeye Shares.
Acceptances of the Offer should be dispatched as soon as possible, and in
any event so as to be received no later than 3.00 p.m. on 22 July 2004.
Your attention is drawn to paragraph 14 of this letter, which sets out the
procedure for acceptance of the Offer, and to the conditions and further
terms of the Offer set out in Appendix I, II, III, IV, V, VI and VII to
this document and in the Form of Acceptance and Election.
The OD2 Shares are to be acquired fully paid and free from all liens,
equities, charges and encumbrances and other interests and together with
all rights attaching to them, including without limitation, the right to
receive and retain in full all dividends and other distributions declared,
made or paid on or after 22 June, 2004.
3. CONTINGENT VALUE RIGHTS
Shareholders and Optionholders, Warrantholders and Noteholders (in respect
of OD2 Shares which fall to be issued by OD2 upon the exercise of OD2
Options, OD2 Warrants and upon the conversion of OD2 Convertible Notes)
who accept the Offer or who are compelled to transfer their OD2 Shares
pursuant to the Compulsory Sale Procedure will each be issued one
Contingent Value Right in respect of each OD2 Share sold under the terms
of the Offer. Each Contingent Value Right entitles the holder to the right
to receive additional consideration for the sale of his OD2 Shares
contingent upon the Company reaching certain financial performance targets
in the future which are based on the gross profits and pre-tax profits or
losses of the Group less a multiple of the Group's pre-tax losses in
respect of four earn-out periods. The four earn-out periods in respect of
which those targets will be applied, and the maximum aggregate value of
consideration payable in respect of each of those periods, are as follows:
EARN-OUT PERIODS AGGREGATE VALUE OF CONSIDERATION PAYABLE
(a) Six months ending 30 Up to (pound)1,250,000
November 2004
(b) 12 months ending 31 May Up to (pound)2,500,000 (less any amount paid in respect of the first
2005 earn-out period)
(c) 18 months ending 30 Up to (pound)5,000,000 (less any amount paid
November 2005 in respect of the first and second earn-out periods)
(d) 30 months ending 30 Up to (pound)5,000,000
November 2006
The maximum amount of additional consideration payable by Loudeye in
respect of the Contingent Value Rights is (pound)10 million.
If the specified financial performance targets are met by the Company,
Loudeye will make payments of additional consideration to holders of
Contingent Value Rights, to be satisfied in cash or, at the election of
Loudeye, by the issue of further Loudeye Shares. The Contingent Value
Rights are personal to the holder and are not transferable, assignable or
chargeable. Any purported transfer, assignment, disposal or dealing with
the rights attaching to the Contingent Value Rights will render the
Contingent Value Right void.
21
Details of the Contingent Value Rights (including the financial
performance targets, the basis on which the gross profits and pre-tax
profits or losses of the Group are to be calculated, and the mechanics of
payment of any additional consideration) are set out in full in Appendix
II.
4. PROMISSORY NOTES
A holder of OD2 Shares accepting the Offer (an "ACCEPTING HOLDER") shall
be entitled to elect at the time of acceptance that in lieu (and in full
satisfaction) of:
(i) the consideration referred to in paragraphs 2(i)(b) and 2(ii)(a)-(c)
of this letter, such Accepting Holder be issued with a Series A
Note; and
(ii) any consideration which becomes payable under the Contingent Value
Rights unless Loudeye elects to pay such consideration in the form
of Loudeye Shares (as specified in Appendix II), such Accepting
Holder be issued with either a Series B Note or a Series C Note, at
the election of the Accepting Holder.
Series A Notes shall be issued with a principal amount which is less than
the aggregate value of the consideration payable to the relevant Accepting
Holder under paragraphs 2(i)(b) and 2(ii)(a-c) of this letter. However,
the Series A Notes will carry interest such that the principal amount to
be redeemed upon each redemption date plus the interest accrued on that
principal amount shall be equal to the aggregate value of consideration
payable under each of paragraphs 2(i)(b), 2(ii)(a), 2(ii)(b) and 2(ii)(c),
as appropriate.
Series A Notes shall be issued by Loudeye to electing Accepting Holders at
the same time as Initial Loudeye Shares are issued to Accepting Holders in
accordance with paragraph 15 below. Series B Notes and Series C Notes
shall be issued to electing Accepting Holders by Loudeye at the same time
as consideration, if any, in the form of further Loudeye Shares or cash is
issued or paid in accordance with Appendix II.
An Accepting Holder must make such an election by completing either or
both of boxes 5 and 9 in the Form of Acceptance and Election.
Summary terms of the Promissory Notes are set out in Appendix IV to this
document and copies of the instruments constituting the Promissory Notes
will be available for inspection during the Offer Period at the address
specified in Part D of Appendix V.
No Accepting Holder shall be entitled to receive Promissory Notes pursuant
to this paragraph 4 with respect to any payment to be satisfied by the
issue of Loudeye Shares under paragraph 2(i)(a) of the Offer. No Accepting
Holder shall be entitled to receive any Promissory Notes unless he
provides to Loudeye the warranties set forth in paragraph 9 of the Form of
Acceptance and Election.
5. COMPULSORY SALE PROCEDURES
When sufficient acceptances are received and/or sufficient OD2 Shares are
otherwise acquired, Loudeye intends to apply the provisions of Sections
428-430F of the Companies Act 1985 and/or the provisions of Article 13
(Drag Along) of the Company's Articles of Association to acquire any
outstanding OD2 Shares (including any OD2 Shares issued following the date
of the Offer).
At the date of this Offer there are no shares in or debentures of OD2 (or,
save for the irrevocable undertakings referred to at paragraph 6 below,
investments falling within paragraphs 17, 18 or 21 of Schedule 1 of the
Financial Services and Markets Act 2000
22
(Financial Promotion) Order 2001 relating to shares in or debentures of
OD2) which are held by or on behalf of Loudeye.
6. UNDERTAKINGS TO ACCEPT THE OFFER
Irrevocable undertakings to accept the Offer have been received from the
OD2 Directors and all major Shareholders in respect of their holdings of
OD2 Shares. In aggregate these represent 23,923,470 OD2 Shares,
approximately 92.68 per cent of the fully diluted share capital of OD2
(after deducting OD2 Options in respect of which irrevocable undertakings
to participate in the Optionholder Alternative have been received).
7. OPTIONHOLDERS
(i) GENERAL
Under the rules of the Unapproved Plan, the EMI Plan and the
Non-Executive Options, an Optionholder shall be entitled to exercise
his or her OD2 Options on (or immediately prior to) the occurrence
of a sale, even though such exercise occurs before the normal
vesting date.
The courses of action available to Optionholders are (i) to exercise
their OD2 Options to acquire OD2 Shares and then immediately accept
the Offer in respect of such OD2 Shares (as set out in paragraph 14
below), (ii) to take no action, in which case the OD2 Options will
lapse and cease to be capable of exercise in accordance with the
rules of the relevant plan or arrangement; or (iii) in respect of
their Employee Options, elect to participate in the Optionholder
Alternative (see (ii) below), in which case their options over OD2
Shares will be amended and exchanged for options over Loudeye
Shares.
Optionholders may exercise their OD2 Options without accepting the
Offer, but Loudeye will be entitled compulsorily to acquire the OD2
Shares acquired on exercise of the OD2 Options as described in
paragraph 5 above.
(ii) OPTIONHOLDER ALTERNATIVE
An alternative to acceptance of the Offer for Employee Optionholders
is being proposed by Loudeye which Optionholders may wish to
consider. Each of the OD2 Directors who hold Employee Options has
irrevocably undertaken to elect to participate in the Optionholder
Alternative in respect of all of the 1,975,587 Employee Options
which they hold in aggregate.
Employees exercising Employee Options and accepting the Offer will
trigger an income tax and employee's national insurance charge (as
explained in the "United Kingdom taxation" section of the OD2
Letter) which will be payable through the PAYE system. Under the
terms governing the Employee Options, Employee Optionholders have
agreed to indemnify the Company in respect of such liabilities
(including by way of deductions from salary and/or the sale of
shares). However, the Loudeye Shares which such employees will be
issued upon acceptance of the Offer will not be able to be sold in
order to finance any such income tax and national insurance charges
until such shares are registered under the Securities Act or an
exemption from the registration requirements of the Securities Act
is available, which is unlikely to happen before any such tax
becomes due.
The terms of the Optionholder Alternative are that Employee
Optionholders who do not exercise their Employee Options and accept
the Offer may elect to exchange their
23
Employee Options for options over Loudeye Shares (the "EXCHANGED
OPTIONS"), in the form of the option agreement set out in Appendix
VII to this document in place of their existing option agreements.
The principal difference between Employee Optionholder's existing
option agreements and the agreement set out in Appendix VII can be
summarised as follows:
- Exchanged Options will not lapse at the expiry of the
Compulsory Sale Procedure and will remain exercisable for a
period of up to ten years from the date of grant of the
original OD2 Option (subject to the terms of the relevant
Option Exchange Agreement and the rules of the Unapproved
Plan, where applicable) whereas Employee Options which are not
exercised as part of the Offer will lapse.
- The Board of OD2 has determined that accelerated vesting of
the Employee Options will occur so that the Exchanged Options
will be fully vested and exercisable in accordance with the
Rules of the Unapproved Plan/the terms of the Non-Executive
Options.
- Employee Optionholders will be required to meet a proportion
of the employer's national insurance contributions arising on
the exercise or other dealing in the Exchanged Options. The
employer's national insurance contributions on any increase in
value of a Loudeye Share following the grant of the Exchanged
Option will be met by the Employee Optionholder. OD2 will
continue to be responsible for an amount of employer's
national insurance contributions equal to the amount of
contributions that would have arisen had the Optionholder
exercised his Employee Options at the fair market value at 21
June 2004 (with 'fair market value' per OD2 Share for this
purpose (as determined by the OD2 Board) being 62.80p).
- In the event of a sale of all or substantially all of
Loudeye's assets, or a merger, consolidation or other capital
reorganization of Loudeye with or into another corporation,
the Exchanged Option may be assumed or replaced with an
equivalent option, or in certain circumstances, with a cash
incentive program, of the successor corporation or its
affiliates. If the successor corporation does not agree to
assume the Exchanged Options or to substitute an equivalent
option, the Exchanged Options will lapse and terminate upon
the consummation of the transaction. In addition, the
Exchanged Options will lapse and terminate immediately prior
to any dissolution or liquidation of Loudeye, unless otherwise
determined by the Loudeye Board.
- Employee Optionholders agree to cooperate with Loudeye to
further amend the Exchanged Options to the extent Loudeye
determines it is necessary or desirable in order to
accommodate United States legal or tax considerations or to
conform such Exchanged Option to the terms and conditions of
Loudeye's existing stock option plan and option agreements,
however, any amendment which adversely affects the rights of
Employee Optionholders as a whole to a material extent
requires the prior consent of Employee Optionholder(s) holding
between them more than 50 per cent. of the outstanding
Exchanged Options.
- Loudeye Shares issuable upon exercise of the Exchanged Option
will be subject to the transfer restrictions set forth in Part
D of Appendix I of this document and will bear restrictive
legends until they are registered.
24
Employee Optionholders who choose to exercise their OD2 Options and
accept the Offer will be entitled to receive the Initial
Consideration, Deferred Consideration and any Earn Out
Consideration, as described above. Employee Optionholders electing
to participate in the Optionholder Alternative should note that they
will have no right to participate in such consideration. Any gains
the Employee Optionholder makes on exercise of their Exchanged
Options will be dependent upon the price of a Loudeye Share at the
time of exercise.
An election to participate in the Optionholder Alternative shall
constitute acceptance of the terms of Appendix VII of this document.
In addition to agreeing to these amendments, Optionholders electing
to participate in the Optionholder Alternative are required to
complete a national insurance joint election in the form set out in
Schedule 5 (for holders of options under the Unapproved Plan) or
Schedule 6 (for holders of Non-Executive Options) to the Form of
Acceptance and Election. Completion of the joint election means that
the electing Optionholder agrees to become liable to pay that part
of employer's secondary national insurance contributions equal to
the amount of contributions that would have arisen had the
Optionholder exercised his Employee Options at the fair market value
at 21 June 2004 (with 'fair market value' per OD2 Share for this
purpose (as determined by the OD2 Board) being 62.80p) ("EMPLOYER'S
NIC LIABILITY"). Employer's NIC Liability which arises can be
recovered from the Optionholder on default in a number of ways, at
OD2's election, including by deduction from salary, by withholding
the issue of Loudeye Shares upon the exercise of the Exchanged
Options or by requiring payment contemporaneous with the exercise of
the Exchanged Options. Optionholders should read carefully the terms
of the joint election.
Under the Optionholder Alternative each option over an OD2 Share
will be substituted for an option over 0.8706 Loudeye Shares. This
ratio has been determined by the OD2 Board and represents their view
of the relative values of an OD2 Share under the Offer and a Loudeye
Share at the date the Offer is made.
Employee Optionholders electing to participate in the Optionholder
Alternative should note that they will have no right to participate
in any Initial Consideration, Deferred Consideration or Earn-Out
Consideration as they would have if they exercised their Employee
Options and accepted the Offer.
The Optionholder Alternative shall cease to be available after 3.00
p.m. on the Final Acceptance Date.
No further options will be issued under the Unapproved Plan (other
than Loudeye Shares issuable upon exercise of Exchanged Options).
The Transfer Restrictions set out in Part D of Appendix I of this
document apply to the Exchanged Options and any Loudeye Shares
issued upon exercise of the Exchanged Options.
(iii) PROCEDURE FOR PARTICIPATING IN OPTIONHOLDER ALTERNATIVE
Guidance on what you need to do to participate in the Optionholder
Alternative is set out at paragraph 14(b) below.
25
8. REGISTRATION RIGHTS
The Registration Rights Agreement set out in Appendix III contains an
agreement by Loudeye to use its commercially reasonable best efforts to
cause a re-sale registration statement covering:
(i) the Initial Loudeye Shares to be filed with the Securities Exchange
Commission on or prior to the date that is the later to occur of (A)
45 days following the date of this Offer; (B) 15 days following
Completion; and (C) ten Business Days following the receipt by
Loudeye of all audited and interim financial statements and pro
forma financial information of OD2 (in final agreed form) required
to be filed by Loudeye under a Form 8-K;
(ii) any Loudeye Shares issued under paragraph 2(i)(b) of the Offer
(above), to be filed with the Securities Exchange Commission no
later than February 15, 2005;
(iii) any Loudeye Shares issued under paragraph 2(ii) (a-c) of the Offer
(above) to be filed with the Securities Exchange Commission within
45 days of the issue of any such Loudeye Shares; and
(iv) any Further Loudeye Shares to be filed with the Securities Exchange
Commission within 60 days of the issue of any such Further Loudeye
Shares.
Certain selling restrictions and the terms of the Registration Rights
described above are summarised in Parts D and E of Appendix I to this
document and the Registration Rights Agreement is set out in Appendix III.
Acceptance of the Offer shall constitute acceptance of the terms of the
Registration Rights Agreement.
9. INFORMATION ON LOUDEYE
Loudeye is an innovative business-to-business provider of services that
facilitates the distribution and promotion of digital media content to
media & entertainment, retail and enterprise customers. Loudeye's services
enable its customers to outsource the management and distribution of audio
and video digital media content over the Internet and on other digital
distribution platforms. Its technical infrastructure and back-end
solutions, combined with its proprietary applications, comprise an
end-to-end solution, from basic digital media services, such as the
hosting, storage, encoding, management and protection of media assets for
content owners, to complex, fully-outsourced digital media distribution
and promotional services, such as private-labeled digital music download
stores and streaming Internet radio and music sample services. Loudeye's
solutions reduce the complexity and cost of internal solutions, and enable
its customers to provide branded digital media offerings to their users
while supporting a variety of digital media technologies and consumer
business models.
Loudeye's Common Stock trades through the Nasdaq SmallCap Market under the
symbol "LOUD." Loudeye's principal executive offices are located at 1130
Rainier Avenue South, Seattle, WA 98144 and its Internet site is located
at www.loudeye.com.
Loudeye is a reporting company and files annual, quarterly and current
reports, proxy statements and other information with the US Securities
Exchange Commission (the "SEC"). You can request copies of these documents
by writing to the SEC and paying a fee for the copying cost. Loudeye's SEC
filings are also available at the SEC's website at "http:\\www.sec.gov."
Loudeye also makes available through its website (www.loudeye.com) free of
charge all of its annual, quarterly and current reports as soon as
reasonably practicable after it files them electronically with, or
furnishes them to, the SEC.
26
Further information regarding Loudeye is set out or referred to in
Appendix V (Further Information).
10. INFORMATION ON LOUDEYE COMMON STOCK
The holders of Loudeye common stock are entitled to one vote per share on
all matters to be voted on by the stockholders. Subject to preferences
that may be applicable to any outstanding preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, as
may be declared from time to time by the board of directors of Loudeye out
of funds legally available for that purpose. To date Loudeye has not
declared any dividends on its common stock. In the event of a liquidation,
dissolution or winding up of Loudeye, the holders of common stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if
any, then outstanding. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock.
The closing price of a Loudeye Share on NASDAQ on the first Trading Day in
each month in 2004 up to and including June 2004 is set out in the
following table:
DATE PRICE IN US$
2 January 2004 $2.07
2 February 2004 $2.25
1 March 2004 $2.35
1 April 2004 $1.94
3 May 2004 $1.99
1 June 2004 $1.73
Loudeye will not issue more than 13,950,000 Loudeye Shares (which amounts
to approximately 19.9 per cent. of the number of shares of Loudeye Common
Stock outstanding as of the date of this Offer Document) in connection
with the Offer, the Compulsory Sales Procedure and the Optionholder
Alternative unless it obtains the approval of the holders of a majority of
outstanding Loudeye Shares in accordance with NASDAQ requirements. To the
extent required by NASDAQ rules, the votes of holders of Initial Loudeye
Shares issued in connection with the Offer, the Compulsory Sale Procedure
or the Optionholder Alternative will not be counted (with respect to such
Initial Loudeye Shares) to approve or disapprove the issuance of
additional Loudeye Shares as a means of paying any additional
consideration that Loudeye may be required to pay in connection with the
Offer or the Compulsory Sale Procedure. If such approval is not obtained,
any obligation of Loudeye under the Offer to pay further consideration
will be satisfied in cash (with persons accepting the Offer being able to
take Promissory Notes in lieu of cash at their election (see paragraph 4
of this letter)). In addition, no further shares or options will be issued
under the Unapproved Plan (other than Loudeye Shares issuable upon
exercise of Exchanged Options).
11. LOUDEYE DIVIDEND POLICY
Loudeye currently intends to retain future earnings to finance its growth
and development and therefore does not anticipate paying any cash
dividends in the foreseeable future. Payment of any future dividends will
depend upon the future earnings and capital requirements of Loudeye and
other factors which the Loudeye Board of Directors considers appropriate.
12. REASONS FOR THE OFFER
The acquisition supports Loudeye's commitment to global expansion by
broadening its delivery of end-to-end digital media solutions and services
into new, key geographic regions such as Europe and Australia. In
addition, OD2 will provide a platform and proven business-
27
to-business technology to enhance Loudeye's Digital Music Store offering.
Loudeye will also seek to expand OD2's digital music catalog, leveraging
Loudeye's recently upgraded 4.5 million track commercial archive of
digital music.
13. DIRECTORS, MANAGEMENT AND EMPLOYEES
Loudeye has given assurances to the board of OD2 that the existing rights
of OD2 employees will be safeguarded. In respect of the future, Loudeye
will make proposals for appropriate directors and management of OD2 to
participate in Loudeye options consistent with the current Loudeye option
plan.
14. PROCEDURE FOR ACCEPTANCE OF THE OFFER AND PARTICIPATION IN THE
OPTIONHOLDER ALTERNATIVE
THIS SECTION SHOULD BE READ TOGETHER WITH THE NOTES ON THE FORM OF
ACCEPTANCE AND ELECTION.
(a) TO ACCEPT THE OFFER
To accept the Offer you should complete Boxes 1 and 3 and sign Box 2
of the Form of Acceptance and Election in accordance with the
instructions printed on it.
If you are an OPTIONHOLDER you will need to exercise your OD2
Options to acquire OD2 Shares which will then be acquired by Loudeye
under the Offer. You may do this by:
- completing Box 6 of the Form of Acceptance and Election;
- completing the exercise notice set out in schedule 1 of the
Form of Acceptance and Election; and
- including with the completed Form a cheque made payable to On
Demand Distribution Limited in respect of 10p as payment of
the nominal value of one OD2 Share.
If you are a WARRANTHOLDER you will need to exercise your OD2
Warrants to acquire OD2 Shares which will then be acquired by
Loudeye under the Offer. You may do this by:
- completing Box 9 of the Form of Acceptance and Election;
- completing the subscription notice set out in schedule 3 of
the Form of Acceptance and Election; and
- including with the completed Form a cheque made payable to On
Demand Distribution Limited in respect of all subscription
monies payable upon exercise of your OD2 Warrants.
If you are a NOTEHOLDER you will need to convert your OD2
Convertible Notes into OD2 Shares which will then be acquired by
Loudeye under the Offer. You may do this by:
- completing Box 8 of the Form of Acceptance and Election; and
- completing the conversion notice set out in schedule 2 of the
Form of Acceptance and Election;
OD2 Options and OD2 Warrants which are not exercised will, by their
terms, lapse and cease to be capable of exercise.
28
(b) TO PARTICIPATE IN THE OPTIONHOLDER ALTERNATIVE
Optionholders electing to participate in the OPTIONHOLDER
ALTERNATIVE can do this by:
- completing box 7 of the Form of Acceptance and Election; and
- completing the National Insurance Joint Election at schedule 5
or schedule 6 of the Form of Acceptance and Election.
(c) RETURN OF FORM OF ACCEPTANCE AND ELECTION
TO ACCEPT THE OFFER OR ELECT TO PARTICIPATE IN THE OPTIONHOLDER
ALTERNATIVE, THE FORM OF ACCEPTANCE AND ELECTION MUST BE COMPLETED
AND RETURNED. The completed Form of Acceptance and Election,
together with, in the case of an acceptance of the Offer, your
certificate(s) for your OD2 Shares, OD2 Options, OD2 Warrants or OD2
Convertible Notes and/or other documents(s) of title (or indemnity
for lost certificate in a form approved by Loudeye), exercise
notices (as appropriate) and subscription monies (as required); and,
in the case of the Optionholder Alternative, the National Insurance
Joint Election SHOULD BE RETURNED BY POST OR BY HAND TO CHRISTOPHER
PIKE OF OD2, BROADQUAY HOUSE, PRINCE STREET, BRISTOL, BS1 4DJ IN
EACH CASE AS SOON AS POSSIBLE BUT IN ANY EVENT SO AS TO BE RECEIVED
NOT LATER THAN 3.00 PM ON 22 JULY, 2004. No acknowledgment of
receipt of documents will be given. The instructions printed on the
Form of Acceptance and Election shall be deemed to form part of the
terms of the Offer.
(d) CERTIFICATES NOT READILY AVAILABLE OR LOST
If your certificate(s) and/or other document(s) of title in respect
of OD2 Shares, OD2 Options, OD2 Warrants or OD2 Convertible Notes
is/are not readily available or is/are lost, the Form of Acceptance
and Election should nevertheless be completed, signed and RETURNED
AS STATED ABOVE SO AS TO ARRIVE NOT LATER THAN 3.00 PM ON 22 JULY,
2004 together with any certificate(s) and/or other document(s) of
title that you have available, accompanied by an indemnity for lost
certificate in a form approved by Loudeye or a letter stating, that
the balance will follow or that you have lost one or more of your
certificate(s) and/or documents(s) of title. You should then arrange
for the relevant certificate(s) and/or other document(s) of title to
be forwarded as soon as possible. No acknowledgment of receipt of
documents will be given. In the case of loss (unless the Form of
Acceptance and Election is accompanied by an indemnity for lost
certificate in a form approved by Loudeye), you should write as soon
as possible to OD2's Company Secretary at OD2 for a letter of
indemnity for lost certificate(s) and/or other document(s) of title
which, when completed in accordance with the instructions given,
should be returned to Christopher Pike as set out in paragraph (b)
above. Your attention is drawn to paragraph (e) below regarding
issuance of consideration in circumstances where certificates and/or
other document(s) of title (or an indemnity for lost certificate in
a form approved by Loudeye) do not accompany a Form of Acceptance
and Election.
29
(e) VALIDITY OF ACCEPTANCES
Loudeye reserves the right to treat as valid any acceptance of the
Offer which is not entirely in order or (as applicable) the relevant
certificate(s) and/or other document(s) of title (or an indemnity in
respect of lost certificates in a form approved by Loudeye). In that
event, no issuance of any consideration under the Offer will be made
until the relevant certificate(s) and/or other document(s) of title
or indemnity satisfactory to Loudeye have been received.
If you are in any doubt as to the procedure for acceptance, please
contact Christopher Pike, (telephone number +44 (0) 117 905 8974) at
OD2, BroadQuay House, Prince Street, Bristol BS1 4DJ.
(e) TAX
Any Shareholder, Optionholder, Warrantholder or Noteholder who is in
any doubt about his or her own tax position and/or who is subject to
taxation in any jurisdiction other than the UK is strongly
recommended to consult his or her independent professional adviser
immediately and prior to acceptance of the Offer or the Optionholder
Alternative. The limited tax information contained in the letter
from OD2 is not provided by Loudeye or its advisors and has been
provided by the advisor to certain selling shareholders. Loudeye is
not providing any advice or assurance in relation to the tax
position of any person accepting the Offer or the Optionholder
Alternative.
15. SETTLEMENT
Subject to the Offer becoming or being declared unconditional:
(i) the issue of any Initial Loudeye Shares or Series A Notes to which
any Person is entitled to be issued under the Offer will be effected
within 7 days of the date of the Offer for Shareholders,
Optionholders, Warrantholders and Noteholders in respect of whom
valid acceptances of the Offer have been received within 5 days of
the date of the Offer. For all other acceptances the issue of any
Initial Loudeye Shares or Series A Notes to which any Person is
entitled to be issued under the Offer will be effected within 14
days of the Final Acceptance Date or at such earlier time as Loudeye
may determine. Definitive certificates for the appropriate number of
Loudeye Shares and (if applicable) Series A Notes will be sent to
validly accepting Shareholders, Optionholders, Warrantholders or
Noteholders (as appropriate) or their appointed agents;
(ii) the issue of any Loudeye Shares or the payment of any cash which any
Person who has not elected to receive Series A Notes is entitled to
be issued or paid under paragraph 2(i)(b) or 2(ii)(a-c) of the Offer
(above) will be effected within 14 days of the date upon which such
shares or cash becomes due. Definitive stock certificates for the
appropriate number of Loudeye Shares will be sent to validly
accepting Shareholders, Optionholders, Warrantholders or Noteholders
(as appropriate) or their appointed agents; and
(iii) the issue of any Further Loudeye Shares, Series B Notes or Series C
Notes or the payment of any cash which any Person is entitled to be
issued or paid under the Contingent Value Rights will be effected in
accordance with the terms of Appendix II.
30
In the event that Loudeye elects to satisfy any amount due under paragraph
2(i)(b), any Deferred Consideration or any Earn-Out Consideration by cash
and fails to make payment to the relevant Person within 30 days of the
date upon which such cash payment becomes payable in accordance with this
paragraph 15, interest at a rate equal to 2 per cent. above the base rate
of NatWest plc from time to time shall accrue on the overdue amount from
(and including) the date upon which payment was due to be made by Loudeye
until (but excluding) the date upon which payment is made.
If the Offer does not become unconditional or lapses, certificates and/or
other documents of title (or any indemnity for lost certificate which has
been provided) will be returned by post, within 14 days of the Offer being
withdrawn, or lapsing, to the person or agent whose name and address is
set out in Box 3 on the relevant Form of Acceptance and Election or, if
none is set out, to the first-named holder at his registered address.
All communications, notices, certificates, documents of title (or
indemnities for lost certificates), and remittances to be delivered by or
sent to or from Shareholders, Optionholders, Warrantholders or Noteholders
(as appropriate) (or their designated agent(s)) will be delivered by or
sent to or from them (or their designated agent(s)) at their risk.
16. FURTHER INFORMATION
Your attention is driven to the further information in Appendix I, II,
III, IV, V, VI and VII which form part of this document.
Yours faithfully,
/s/ Jeffrey M. Cavins
_______________________
Jeffrey M. Cavins
for and on behalf of
LOUDEYE CORP.
31
APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
PART A: CONDITIONS OF THE OFFER
The Offer will be subject to the condition that valid acceptances must have been
received by 3.00 p.m. on 24 June 2004 in respect of not less than 90 per cent.
of the OD2 Shares to which the Offer relates, and for this purpose:
(i) the expression "OD2 Shares to which the Offer relates" shall be construed
in accordance with sections 428 to 430F of the Companies Act 1985; and
(ii) shares which have been unconditionally allotted shall be deemed to carry
the voting rights which they will carry upon issue.
The Purchaser reserves the right to waive, in whole or in part, the condition
set out above. The Purchaser shall be under no obligation to waive or treat as
satisfied the above condition by a date earlier than the latest date specified
above for the satisfaction thereof.
PART B: FURTHER TERMS OF THE OFFER
The following further terms apply to the Offer. Except where the context
otherwise requires, any reference in Parts B or C of this Appendix I and in the
Form of Acceptance and Election:
(i) to the "Offer", shall include any revision, variation or renewal thereof
or extension thereto;
(ii) to the "Offer becoming effective" and to the "Offer becoming
unconditional", means the condition to the Offer becoming or being
declared satisfied or waived;
(iii) to "acceptances of the Offer", shall include deemed acceptances of the
Offer; and
(iv) to the Offer Document, shall mean this document and any other document
containing the Offer.
1. ACCEPTANCE PERIOD
(a) The Offer will be open for acceptance until 3.00 pm on 22 July 2004,
or such later time as the Purchaser may determine, being not later
than 31 August 2004. Notwithstanding the foregoing, if the Offer
becomes unconditional it will remain open for acceptance until
further notice and at least 14 days' notice will be given before it
is closed.
(b) Acceptances shall be irrevocable.
(c) The Purchaser may extend the Final Acceptance Date to any later time
and/or date to any time up to 3.00 pm on the date falling 10 weeks
following the date of the Offer. Acceptances of the Offer received
prior to any such extension shall be treated as an acceptance of the
Offer as so extended. The Purchaser shall notify all persons to whom
this Offer Document has been sent of any such extension.
2. GENERAL
(a) The Offer will lapse unless the condition has been fulfilled or
waived by 24 June 2004. If the Offer lapses for any reason, the
Offer shall cease to be capable of further
32
acceptance and the Purchaser and Shareholders, Optionholders,
Warrantholders and Noteholders shall cease to be bound by prior
acceptances.
(b) The terms, provisions, instructions and authorities contained in or
deemed to be incorporated in the Form of Acceptance and Election
constitute part of the terms of the Offer. Words and expressions
defined in this document will have the same meanings when used in
the Form of Acceptance and Election unless the context otherwise
requires.
(c) The Offer and all acceptances thereof or pursuant thereto and the
relevant Form of Acceptance and Election and all contracts made
pursuant thereto and action taken or made or deemed to be taken or
made under any of the foregoing shall be governed by and construed
in accordance with English law save that the Registration Rights
Agreement set out in Appendix III of this document shall be governed
by and enforced in accordance with the internal laws of the State of
Delaware. Execution by or on behalf of a Shareholder, Optionholder,
Warrantholder or Noteholder of a Form of Acceptance and Election
will constitute his submission, in relation to all matters arising
out of or in connection with the Offer and the Form of Acceptance
and Election, to the jurisdiction of the Courts of England and his
agreement that nothing shall limit the rights of the Purchaser
arising out of or in connection with the Offer and the Form of
Acceptance and Election.
(d) Any omission to dispatch this document or the Form of Acceptance and
Election or any notice required to be dispatched under the terms of
the Offer to, or any failure to receive the same by, any person to
whom the Offer is made, or should be made, shall not invalidate the
Offer in any way. The Offer extends to all Shareholders,
Optionholders, Warrantholders or Noteholders to whom this document,
the Form of Acceptance and Election and any related documents may
not be dispatched, and such persons may request copies of those
documents from CHRISTOPHER PIKE at OD2, BROADQUAY HOUSE, PRINCE
STREET, BRISTOL BS1 4DJ (TEL: +44 (0) 117 905 8974).
(e) Without prejudice to any other provision in Part B of this Appendix
I, the Purchaser reserves the right to treat acceptances of the
Offer as valid if received by or on behalf of it at any place or
places determined by it otherwise than as set out herein or in the
Form of Acceptance and Election.
(f) All powers of attorney, appointments of agents and authorities on
the terms conferred by or referred to in this Appendix I or in the
Form of Acceptance and Election are given by way of security for the
performance of the obligations of the Shareholder, Optionholder,
Warrantholder or Noteholder concerned and are irrevocable (in
respect of powers of attorney in accordance with section 4 of the
Powers of Attorney Act 1971) for a period of six months from the
date of the Offer.
(g) No acknowledgment of receipt of any Form of Acceptance and Election,
share certificate(s) and/or other document(s) of title (or
indemnities for lost certificates) will be given. All
communications, notices, certificates, documents of title (or
indemnities for lost certificates) and remittances to be delivered
by or sent to or from Shareholders, Optionholders, Warrantholders or
Noteholders (or their designated agent(s)) will be delivered by or
sent to or from such Shareholders, Optionholders, Warrantholders or
Noteholders (or their designated agent(s)) at their risks.
(h) If the Offer does not become effective, the Form of Acceptance and
Election and any share certificate(s) and/or other document(s) of
title (or indemnities for lost certificates) will be returned by
post within 14 days of the Offer lapsing, at the risk of the person
entitled thereto, to the person or agent whose name and address
outside
33
Canada, Australia or the Republic of Ireland is set out in the
relevant Box on the Form of Acceptance and Election or, if none is
set out, to the first-named holder at his/her registered address
outside Canada, Australia or the Republic of Ireland. No such
documents will be sent to an address in Canada, Australia or the
Republic of Ireland.
(i) The Offer described in this document was made on 22 June 2004 and is
capable of acceptance from and after that time. Copies of this
document, the Form of Acceptance and Election and any related
documents are available from Christopher Pike at BroadQuay House,
Prince Street, Bristol, BS1 4DJ from that time.
(j) If sufficient acceptances are received and/or sufficient OD2 Shares
are otherwise acquired, Loudeye intends to apply the provisions of
Sections 428-430F of the Companies Act 1985 and/or the provisions of
Article 13 (Drag Along) of the Company's Articles of Association to
acquire any outstanding OD2 Shares (including any OD2 Shares issued
following the date of the Offer).
(k) The Purchaser reserves the right to notify any matter (including the
making of the Offer) to all or any Shareholder, Optionholder,
Warrantholder or Noteholder with registered address(es) outside the
UK or whom the Purchaser knows to be nominees for such persons by
announcement or paid advertisement in any daily newspaper published
and circulated in the UK in which case such notice shall be deemed
to have been sufficiently given notwithstanding any failure by any
such shareholders to receive such notice, and all references in this
document to notice in writing shall be construed accordingly.
(l) The Purchaser has been advised that this document does not
constitute a financial promotion pursuant to Section 21 of the
Financial Services and Markets Act 2000 by virtue of exemptions
contained in the Financial Services and Markets Act 2000 (Financial
Promotion) Order (SI 2001/1335).
(m) Completion of a Form of Acceptance and Election will constitute
agreement to the terms of the Registration Rights Agreement set out
in Appendix III to this document.
(n) All references in this Appendix to any statute or statutory
provision shall include a statute or statutory provision which
amends, consolidates or replaces the same (whether before or after
the date hereof).
(o) The acquisition of OD2 Shares under the Offer is not conditional
upon Shareholders, Optionholders, Warrantholders or Noteholders
approving or consenting to any payment or other benefit being made
or given to any director or former director of OD2 in connection
with, or as compensation or consideration for his ceasing to be a
director; his ceasing to hold any office held in conjunction with
any directorship; or, in the case of a former director, his ceasing
to hold any office which he held in conjunction with his former
directorship and which he continued to hold after ceasing to be a
director.
(p) Broadview has given and not withdrawn its written consent to the
issue of this document with the inclusion herein of the reference to
its name in the form and context in which it appears.
PART C: FORM OF ACCEPTANCE AND ELECTION
Each Shareholder, Optionholder, Warrantholder or Noteholder by whom, or on
whose behalf, a Form of Acceptance and Election is executed and received
during the Offer Period or by or
34
on behalf of the Purchaser irrevocably undertakes, represents, warrants
and agrees to and with the Purchaser (so as to bind him, his personal
representatives, heirs, successors and assigns) to the following effect:
(a) that the execution of a Form of Acceptance and Election, whether or
not any other Boxes on such Form are completed, shall constitute:
(i) an acceptance of the Offer in respect of the relevant
Shareholder's, Optionholder's, Warrantholder's or Noteholder's
entire holding of OD2 Shares, provided that, if the word
"all", if no number, or a number which exceeds such holder's
holding of OD2 Shares, is inserted in Box 1, the acceptance
will be deemed to have been made in respect of that holder's
entire holding of OD2 Shares, and
(ii) an undertaking to execute any further documents and give any
further assurances which may be required to enable the
Purchaser to obtain the full benefit of the terms of the Offer
(including this Appendix) and/or to perfect any of the
authorities expressed to be given hereunder,
on and subject to the terms and conditions set out or in this
document and the Form of Acceptance and Election and that each such
acceptance shall be irrevocable;
(b) that such Shareholder, Optionholder, Warrantholder or Noteholder
represents and warrants for the benefit of the Purchaser that (i) he
has not received or sent copies or originals of this document, the
Form of Acceptance and Election or any related documents in, into or
from Canada, Australia or the Republic of Ireland; (ii) he has not
otherwise utilised in connection with the Offer, directly or
indirectly, the mail of or any means or instrumentality (including,
without limitation, the post, facsimile transmission, telex and
telephone) of interstate or foreign commerce or any facility of a
national securities exchange of Canada, Australia or the Republic of
Ireland; (iii) he was outside Canada, Australia or the Republic of
Ireland when the Form of Acceptance and Election was delivered; and
(iv) in respect of the OD2 Shares to which the Form of Acceptance
and Election relates, he is not an agent or a fiduciary acting on a
non-discretionary basis for a principal, unless such agent or
fiduciary is an authorised employee of such principal or such
principal has given any instructions with respect to the Offer from
outside Canada, Australia or the Republic of Ireland;
(c) that the OD2 Shares in respect of which the Offer is accepted or
deemed to be accepted are sold with full title guarantee and free
from all liens, equities, charges, encumbrances and other interests
and together with all rights attaching thereto on or after 22 June
2004 including voting rights and the right to all dividends,
interest and other distributions declared, made or paid on or after
that date;
(d) that the execution of the Form of Acceptance and Election will
(except to the extent that any document referred to in this
paragraph is executed by a Shareholder, Optionholder, Warrantholder
or Noteholder as principal) constitute, subject to the Offer
becoming effective, the irrevocable appointment of the Purchaser and
its directors and agents as such shareholder's attorney and/or agent
(the "ATTORNEY"), and an irrevocable instruction to the attorney
with the authority to complete and execute all or any forms of
transfer and to deliver such form(s) of transfer together with the
certificate(s) and/or other document(s) of title (or indemnities for
lost certificates) relating to such OD2 Shares for registration
within six months of the Offer becoming effective and to do all such
other acts and things as may in the opinion of the attorney be
necessary or expedient for the purposes of or in connection with,
the acceptance of the Offer including the exercise of any relevant
OD2 Options, OD2 Warrants or the
35
conversion of any OD2 Convertible Notes and to vest in the Purchaser
or its nominee(s) the OD2 Shares as aforesaid;
(e) that the execution of the Form of Acceptance and Election will
constitute, subject to the Offer becoming effective, the irrevocable
appointment of Christopher Pike as such person's attorney and/or
agent (the "CVR REPRESENTATIVE"), and an irrevocable instruction to
the CVR Representative with the authority to give, complete and/or
execute all or any documents, deeds, consents, agreements,
resolutions, statements or forms in connection with the
determination and agreement of any Additional Consideration which
may become payable under the Contingent Value Rights (including,
without limitation, agreement of the Accounts for each Earn Out
Period) and to do all such other acts and things as may in the
opinion of the CVR Representative be necessary or expedient for the
purposes of or in connection with, such person's rights under any
Contingent Value Rights issued to them;
(f) that the execution of the Form of Acceptance and Election and such
receipt will constitute, subject to the Offer becoming unconditional
an irrevocable authority and request:
(i) to OD2 or its agents to procure the registration of the
transfer of the OD2 Shares in certificated form pursuant to
the Offer and the delivery of the share certificate(s) and/or
other document(s) of title (or indemnities for lost
certificates) in respect thereof to the Purchaser or as it may
direct;
(ii) subject to the provisions of this Appendix, to the Purchaser
or its agents to procure the dispatch by post of the
consideration to which he is entitled under the Offer together
with any documents of title for any Loudeye Shares or
Promissory Notes to which the accepting Shareholder,
Optionholder, Warrantholder or Noteholder becomes entitled
pursuant to his acceptance of the Offer at the risk of such
Shareholder, Optionholder, Warrantholder or Noteholder to the
person whose name and address is set out in Box 3 of the Form
of Acceptance and Election or, if none is set out, to the
first-named holder at his registered address (outside Canada,
Australia and the Republic of Ireland);
(g) that the Purchaser shall be entitled after the Offer becomes
effective or if the Offer will become effective immediately upon the
outcome of the resolution in question, to direct the exercise of any
votes and any or all other rights and privileges (including the
right to requisition the convening of a general or separate class
meeting of OD2) attaching to any OD2 Shares in respect of which the
Offer has been accepted and the execution of the Form of Acceptance
and Election will constitute an authority to OD2 from such
shareholder to send any notice, circular, warrant or other document
of communication which may be required to be sent to him as a member
of OD2 in respect of such shares to the Purchaser at its registered
office, and an authority to the Purchaser or any person nominated by
the Purchaser to sign any consent to short notice of a general or
separate class meeting as his attorney and/or agent and on his
behalf and/or to execute a form of proxy in respect of such OD2
Shares appointing any person nominated by the Purchaser to attend
general and separate class meetings of OD2 and to exercise the votes
attaching to such slates on his behalf where relevant, such votes to
be cast so far as possible to satisfy any outstanding condition of
the Offer, and will also constitute the agreement of such
shareholder not to exercise any such rights without the consent of
the Purchaser and the irrevocable undertaking of such shareholder
not to appoint a proxy for or to attend such general or separate
class meeting;
36
(h) that he will deliver or procure the delivery, to Christopher Pike at
OD2, BroadQuay House, Prince Street, Bristol BS1 4DJ his
certificate(s) and/or other documents of title in respect of the OD2
Shares, in respect of which the Offer has been accepted held by him
or an indemnity acceptable to the Purchaser in lieu thereof, as soon
as possible and in any event within six months of the Offer becoming
effective;
(i) that he agrees to ratify each and every act or thing which may be
done or effected by the Purchaser or any of its partners, directors
or agents or OD2 or its agents, as the case may be, in the proper
exercise of any of its or his powers and/or authorities hereunder;
(j) that he shall do all such acts and things as shall be necessary or
expedient to vest in the Purchaser or its nominee(s) the OD2 Shares
and (as appropriate) all such acts and things as shall be necessary
or desirable in connection with the exercise of OD2 Options or OD2
Warrants or the conversion of OD2 Convertible Notes so that the OD2
Shares issued by OD2 as a result may be vested in the Purchaser or
its nominee(s);
(k) that if any provision of Part A, B or C of this Appendix I shall be
unenforceable or invalid or shall not operate so as to afford the
Purchaser or any of its partners, directors or agents the benefit of
the authority expressed to be given therein, he shall with all
practicable speed do all such acts and things and execute all such
documents that may be required to enable the Purchaser and/or any of
its partners, directors or agents to secure the full benefits of
Part A, B or C of this Appendix I; and
(l) that an execution of the Form of Acceptance and Election takes
effect as a deed.
PART D: TRANSFER RESTRICTIONS
The right to receive any future consideration payable by Loudeye as
described in the Offer Document may not be transferred or assigned without
the prior written consent of Loudeye.
The Loudeye Shares, Contingent Value Rights, Promissory Notes, Exchanged
Options and any Loudeye Shares issued upon exercise of the Exchanged
Options (the "SECURITIES") have not been registered under the Securities
Act and may not be offered, sold, transferred or otherwise disposed of
except pursuant to a registration under the Securities Act, Regulation S
under the Securities Act or another available exemption from the
registration requirements of the Securities Act. Except in the case of
transactions pursuant to an effective registration, Loudeye will instruct
its transfer agent not to register and transfer Loudeye Shares unless
Loudeye shall have received an opinion of counsel reasonably acceptable to
it that foregoing legal requirements have been satisfied. In addition to
the foregoing, the Contingent Value Rights, the Promissory Notes and the
Exchanged Options are personal to the holder and are not transferable
assignable or chargeable.
No Securities shall be offered or sold or otherwise transferred or
disposed of (i) in the United States or to, or (ii) for the benefit or
account of, a U.S. Person, until one year after the Completion Date, in
each case other than pursuant to registration under the Securities Act,
Regulation S or an available exemption from the registration requirements
of the Securities Act. During the one year period following the
Completion, any person acquiring of Securities will be required to certify
to Loudeye either that:
- it is not a U.S. Person and its is not acquiring the Securities for
the account or benefit of a U.S. Person; or
37
- it is acquiring the Securities in a transaction not requiring
registration under the Securities Act.
No hedging transactions may be undertaken with regard to the Securities
unless in compliance with the Securities Act.
The Securities, and any securities issued in respect of or in exchange for
the Securities, will bear the following legend (or a legend with similar
effect) and all transfers of Securities (if permitted) must satisfy the
provisions of such legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, REGULATION S PROMULGATED UNDER THE
ACT OR ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND, IN THE
CASE OF A TRANSACTION NOT SUBJECT TO SUCH REGISTRATION REQUIREMENTS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION
UNDER THE ACT. HEDGING TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
PART E: SUMMARY OF REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, Loudeye has agreed to use
its commercially reasonable best efforts to prepare and file with the U.S.
Securities Exchange Commission (the "SEC") one or more registration
statements to register for resale the shares issued by it in connection
with the Offer. The dates for filing such registration statements are:
(i) with respect to the Initial Loudeye Shares, on or prior to the date
that is the later to occur of (A) 45 days following the date of this
Offer; (B) 15 days following Completion; and (C) ten Business Days
following the receipt by Loudeye of all audited and interim
financial statements and pro forma financial information of OD2 (in
final agreed form) required to be filed by Loudeye under a Form 8-K;
(ii) with respect to any Loudeye Shares issued under paragraph 2(i)(b),
no later than February 15, 2005;
(iii) with respect to any Loudeye Shares issued under paragraph 2(ii) of
the Offer, within 45 days of the issue of any such Loudeye Shares;
and
(iv) with respect to any Further Loudeye Shares, within 60 days of the
issue of any such Further Shares.
Loudeye has agreed to use commercially reasonable best efforts to have
each such registration statement declared effective as soon as practicable
after it is filed. Once a registration statement is effective, Loudeye has
agreed to use commercially reasonable efforts to keep it effective for a
period of twelve months or until such earlier time as all of the shares
included in that registration statement have been sold or are no longer
"Registrable Securities." "Registrable Securities" are defined as the
Loudeye Shares issued in the Offer, until such shares (i) have been
disposed of pursuant to an effective registration statement, (ii) have
been transferred pursuant to Rule 144 under the Securities Act or are
eligible for resale pursuant to
38
Rule 144, or (iii) have ceased to be outstanding. Upon notice from
Loudeye, selling holders may be required to suspend temporarily sales
under an effective registration statement in certain circumstances
described in the Registration Rights Agreement.
Each selling holder must furnish to Loudeye certain information regarding
itself, the Registrable Securities held by it, and such holder's intended
method of disposition of the Registrable Securities as Loudeye may
request.
Loudeye shall bear all costs and expenses incident to its performance of
its registration obligations under the Registration Rights Agreement, and
the selling holders shall bear all selling expenses (including
underwriting discounts, selling commissions, brokers' fees and transfer
taxes) incurred in connection with the sale of their Loudeye Shares.
39
APPENDIX II
CONTINGENT VALUE RIGHTS
1. INTERPRETATION
In this Appendix II the definitions used elsewhere in this document shall
apply save as follows:
"ACCOUNTS" means in relation to any Earnout Period the consolidated profit
and loss account of the Group for that Earnout Period made up as at the
close of that Earnout Period in accordance with the provisions of this
Appendix II;
"ADDITIONAL CONSIDERATION" has the meaning given in paragraph 2.1 below;
"ADJUSTED NET PRE-TAX FIGURE" means in relation to any Earnout Period, the
consolidated profits or losses before interest and taxation of the Group
for that period shown in the Accounts for the relevant Earnout Period,
adjusted as may be necessary to:
(i) exclude in computing such amount:
(a) any profits achieved in such Earnout Period which are derived
from sales made by any Group Company in North America and/or
Japan;
(b) any management charges, contributions to central overheads or
other similar charges levied by any member of the Purchaser's
Group on any member of the Group other than:
(i) reimbursement by any Group Company of reasonable
direct costs incurred by a member of the
Purchaser's Group on behalf of any Group Company,
including but not limited to dedicated finance
personnel, outside legal fees and other direct
costs; and
(ii) a contribution by the Company in respect of the
central overheads of the Purchaser's Group
amounting to two (2) per cent. of incremental
quarterly Gross Profits of the Group in excess of
(pound)449,662 (being the quarterly Gross Profits
of the Group for the quarter ended 31 March 2004);
(c) any interest on borrowed moneys which would not have been
incurred but for the transfer from any Group Company to any
member of the Purchaser's Group of any cash resources now or
hereafter held by any Group Company whether by way of
dividend, loan or howsoever otherwise;
(d) twenty (20) per cent. of the value of Gross Profit (as
calculated in accordance with UK GAAP) earned by any Group
Company in respect of any sales by such Group Company of
products or services of the Purchaser on behalf of the
Purchaser, provided that the Group Company is primarily
responsible for implementing, executing and financing such
commercial activities;
(e) eighty (80) per cent. of the value of Gross Profit (as
calculated in accordance with UK GAAP) earned by any Group
Company in respect of any sales by
40
such Group Company of products or services of the Purchaser on
behalf of the Purchaser, provided that the Purchaser is
primarily responsible for implementing, executing and
financing such commercial activities;
(f) any liability to Tax (including deferred Tax);
(ii) include in computing such amount:
(a) all expenditure (other than any expressly excluded by
paragraph (i) of this definition) which properly relates to
the relevant Earnout Period;
(b) full provision for all bad and doubtful debtors in respect of
products sold by any Group Company in such Earnout Period,
which shall include, without prejudice to any other
inclusions, all debtors which have been overdue for more than
60 days when the Accounts are prepared and in respect of
credit notes issued and refunds granted in respect of any
debtors;
(c) full provision in respect of all liabilities (whether actual
or contingent) incurred or sustained by any Group Company in
the course of their respective trades during the relevant
Earnout Period, including, without limitation, actual or
anticipated guarantee or warranty claims in respect of goods
and services supplied, but excluding:-
(A) any liabilities expressly excluded by paragraph (i) of
this definition; and
(B) any liabilities guaranteed by a Group Company which are
the primary responsibility of any member of the
Purchaser's Group;
(d) provision for all dilapidations and wants of repair in respect
of any fixed assets of any Group Company arising in the
relevant Earnout Period that would normally have been accrued
for in such Earnout Period;
(e) notwithstanding paragraph (i)(a) above, twenty (20) per cent.
of the value of Gross Profit (as calculated in accordance with
US GAAP) earned by the Purchaser in respect of any sales by
the Purchaser of products or services of any Group Company on
behalf of the Group Company; provided that the Purchaser is
primarily responsible for implementing, executing and
financing such commercial activities;
(f) notwithstanding paragraph (i)(a) above, eighty (80) per cent.
of the value of Gross Profit (as calculated in accordance with
US GAAP) earned by the Purchaser in respect of any sales by
the Purchaser of products or services of a Group Company;
provided that such Group Company is primarily responsible for
implementing, executing and financing such commercial
activities; and
(iii) (Subject to paragraphs (i) and (ii) of this definition) reflect any
differences between the accounting policies, bases, methods,
practices and principles employed in the audited accounts of the
Company and those employed in the Accounts with the intent that,
subject as aforesaid, the Adjusted Net Pre-Tax Figure shall be
ascertained on the same accounting policies, bases, methods,
practices and principles as those employed in the audited accounts
of the Company and otherwise in accordance with UK GAAP
41
in force at the relevant time, except as provided for in (ii)(e) and
(f) above and save to the extent that there are any changes under UK
GAAP relating to the manner in which share options are expensed.
"ADJUSTED NET PRE-TAX LOSSES" means in relation to any Earnout Period in
which the Adjusted Net Pre-Tax Figure is a negative number, the absolute
value of the Adjusted Net Pre-Tax Figure for such Earnout Period.
"EARNOUT PERIOD" means all or any of the First Earnout Period, Second
Earnout Period, Third Earnout Period and Fourth Earnout Period as the
context requires;
"FIRST EARNOUT PERIOD" means the period of 6 calendar months ending 30th
November, 2004 inclusive;
"FOURTH EARNOUT PERIOD" means the period of 30 calendar months ending 30th
November, 2006 inclusive;
"GROSS PROFIT" means in relation to any Earnout Period, the Revenue
recognized by the Group in such Earnout Period less all direct costs
incurred by the Group in such Earnout Period associated with generating
such Revenue calculated in accordance with UK GAAP, including, but not
limited to license fees, retailer commissions, co-location costs,
bandwidth charges and sales commissions as shown in the Accounts for such
Earnout Period; for the avoidance of doubt, indirect costs (including but
limited to internal overhead allocations) shall not be deducted from
Revenue for the purposes of calculating Gross Profit in respect of an
Earnout Period;
"GROUP" means the Company, the Subsidiary and the New Subsidiaries and
each a "GROUP COMPANY";
"NEW SUBSIDIARIES" means any wholly-owned subsidiary (within the meaning
of Sections 736 and 736A, Companies Act 1985) of any Group Company from
time to time provided that subsidiaries of any Group Company established
by way of an acquisition subsequent to Closing shall be specifically
excluded from this definition;
"PURCHASER'S GROUP" means Purchaser and its subsidiaries (other than any
Group Company);
"REVENUE" means revenue recognised by the Group in accordance with the UK
GAAP;
"SECOND EARNOUT PERIOD" means the period of 12 calendar months ending on
31st May 2005 inclusive;
"TAX" means all forms of taxation, duties, levies, and imposts whether of
the United Kingdom or any other jurisdiction including (without
limitation) corporation tax, including instalment payments in respect of
corporation tax, advance corporation tax, the charge under s.419 Taxes Act
1988, the charge under s.747 Taxes Act 1988, income tax, capital gains
tax, the charge under s.601(2) Taxes Act 1988, value added tax, the charge
to tax under Schedule 9A Value Added Tax Act 1994, duties of excise,
customs and other import duties, inheritance tax, stamp duty, stamp duty
reserve tax, stamp duty land tax, capital duties, national insurance
contributions, landfill tax, insurance premium tax, climate change levy,
aggregates levy, local authority council taxes, petroleum revenue tax,
amounts payable in consideration for the surrender of group relief or
advance corporation tax or refunds pursuant to s.102 Finance Act 1989, and
any payment whatsoever which the Company may be or become bound to make to
42
any person as a result of the operation of any enactment relating to any
such taxes or duties and all penalties, fines, charges and interest
relating to any of the foregoing or resulting from a failure to comply
with the provisions of any enactment relating to taxation;
"THIRD EARNOUT PERIOD" means the period of 18 calendar months ending on
30th November, 2005 inclusive.
"UK GAAP" shall mean United Kingdom generally accepted accounting
principles as in effect from time to time.
"US GAAP" shall mean United States generally accepted accounting
principles as in effect from time to time.
"CVR REPRESENTATIVES" means Charles Grimsdale and Christopher Pike.
2. AMOUNT OF ADDITIONAL CONSIDERATION PAYABLE UNDER THE CONTINGENT VALUE
RIGHTS
2.1 AGGREGATE AMOUNT OF ADDITIONAL CONSIDERATION
The Additional Consideration required to be paid under all Contingent
Value Rights shall comprise the aggregate of the amounts payable in
respect of the First Earnout Period, the Second Earnout Period, the Third
Earnout Period and the Fourth Earnout Period and shall not exceed an
aggregate value of (pound)10,000,000 (and shall be subject to the
additional limitations set forth below).
The maximum aggregate amount of the Additional Consideration in respect
of:
(i) the First Earnout Period shall not exceed (pound)1,250,000;
(ii) the Second Earnout Period shall not exceed (pound)2,500,000 (less
any amounts payable in respect of the First Earnout Period);
(iii) the Third Earnout Period shall not exceed (pound)5,000,000 (less any
amounts payable in respect of the First Earnout Period and the
Second Earnout Period); and
(iv) the Fourth Earnout Period shall not exceed (pound)5,000,000.
2.2 AMOUNT OF ADDITIONAL CONSIDERATION PER CONTINGENT VALUE RIGHT
Subject as provided below in relation to costs and expenses borne by the
Vendor Representative, each Contingent Value Right shall entitle the
holder to such part of the Additional Consideration (if and when any
becomes payable in any Earn Out Period) determined in accordance with the
following formula:
P=AC/S
where:
P = the entitlement to Additional Consideration for each Contingent Value
Right in an Earnout Period;
43
AC = the aggregate amount of the Additional Consideration payable in
respect of such Earnout Period;
S = the total number of Contingent Value Rights issued by the Purchaser
under the Offer.
Persons accepting the Offer may elect to receive a Promissory Note in lieu
of any consideration which becomes payable under the Contingent Value
Rights (see paragraph 4 of the Loudeye Letter).
To the extent that the Vendor Representative becomes responsible for
bearing all or part of the fees and expenses of the Firm in accordance
with paragraph 3.3 below, an amount equal to such fees and expenses
actually incurred by the Vendor Representative shall be deducted from the
aggregate amount of Additional Consideration payable in respect of the
relevant Earnout Period prior to determining the entitlement to Additional
Consideration for each Contingent Value Right in such Earnout Period. The
amount so deducted shall be paid by Loudeye to the Vendor Representative
by way of reimbursement of such fees and expenses.
2.3 FIRST EARNOUT PERIOD
2.3.1 TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, to the extent that the Gross Profits in
the First Earnout Period equal or exceed (pound)1,804,919, the
Purchaser shall pay the aggregate of:
(i) (pound)1,250,000; less
(ii) 0.5 times the amount, if any, by which Adjusted Net Pre-Tax
Losses for the First Earnout Period are greater than
(pound)1,811,442 (it being understood that this clause (ii)
shall not apply if there are no Adjusted Net Pre-Tax Losses
for the First Earnout Period or if the amount of Adjusted Net
Pre-Tax Losses for the First Earnout Period are less than
(pound)1,811,442).
2.3.2 80 PER CENT. OF TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, and to the extent that the provisions of
paragraph 2.3.1 do not apply, if the Gross Profits in the First
Earnout Period are equal to or greater than (pound)1,443,935 but
less than (pound)1,804,919 the Purchaser shall pay the aggregate of:
(i) an amount equal to (pound)1,250,000 multiplied by a fraction,
the numerator of which is the amount of Gross Profits in the
First Earnout Period less (pound)1,443,935 and the denominator
of which is (pound)360,984; plus
(ii) 0.5 times the sum of the Adjusted Net Pre-Tax Figure for the
First Earnout Period and (pound)1,811,442,
up to a maximum amount payable pursuant to this paragraph 2.3.2
of (pound)1,250,000.
2.3.3 LESS THAN 80 PER CENT. OF TARGETED PROFITS
If the Gross Profits in the First Earnout Period are less than
(pound)1,443,935, no Additional Consideration in respect of
the First Earnout Period shall be payable under this clause
2.3.
44
2.4 SECOND EARNOUT PERIOD
2.4.1 TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, to the extent that the Gross Profits in
the Second Earnout Period equal or exceed (pound)4,443,348 the
Purchaser shall pay the aggregate of:
(i) (pound)2,500,000; less
(ii) the amount, if any, by which Adjusted Net Pre-Tax Losses for
the Second Earnout Period exceed (pound)3,298,166 (it being
understood that this clause (ii) shall not apply if there are
no Adjusted Net Pre-Tax Losses for the Second Earnout Period
or if the amount of Adjusted Net Pre-Tax Losses for the Second
Earnout Period are less than (pound)3,298,166),
up to a maximum amount payable pursuant to this paragraph 2.4.1 of
(pound)2,500,000 less the total amount payable pursuant to paragraph
2.3.
2.4.2 80 PER CENT. OF TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, and to the extent that the provisions of
paragraph 2.4.1 do not apply, if the Gross Profits in the Second
Earnout Period are equal to or greater than (pound)3,554,678 but
less than (pound)4,443,348 the Purchaser shall pay the aggregate of:
(i) an amount equal to (pound)2,500,000 multiplied by a fraction,
the numerator of which is the amount of Gross Profits in the
Second Earnout Period less (pound)3,554,678 and the
denominator of which is (pound)888,669; plus
(ii) one (1) times the sum of the Adjusted Net Pre-Tax Figure for
the Second Earnout Period and (pound)3,298,166
up to a maximum amount payable pursuant to this paragraph 2.4.2 of
(pound)2,500,000 less the total amount payable pursuant to paragraph
2.3.
2.4.3 LESS THAN 80 PER CENT. OF TARGETED PROFITS
If the Gross Profits in the Second Earnout Period are less than
(pound)3,554,678, no Additional Consideration in respect of the
Second Earnout Period shall be payable.
2.5 THIRD EARNOUT PERIOD
2.5.1 TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, to the extent that the Gross Profits in
the Third Earnout Period equal or exceed (pound)8,891,670 the
Purchaser shall pay the aggregate of:
(i) (pound)5,000,000; less
(ii) two (2) times the amount by which Adjusted Net Pre-Tax Losses
for the Third Earnout Period exceed (pound)3,312,662 (it being
understood that this clause (ii) shall not apply if there are
no Adjusted Net Pre-Tax Losses for the Third Earnout Period or
if the amount of Adjusted Net Pre-Tax Losses for the Third
Earnout Period are less than (pound)3,312,662)
45
up to a maximum amount payable pursuant to this paragraph 2.5.1 of
(pound)5,000,000 less the total amounts payable pursuant to
paragraphs 2.3 and 2.4.
2.5.2 80 PER CENT. OF TARGETED PROFITS EXCEEDED
Subject to paragraph 2.1, and to the extent that the provisions of
paragraph 2.5.1 do not apply, to the extent that the Gross Profits
in the Third Earnout Period are equal to or greater than
(pound)7,113,336 but less than (pound)8,891,670 the Purchaser shall
pay the aggregate of:
(i) an amount equal to (pound)5,000,000 multiplied by a fraction,
the numerator of which is the amount of Gross Profits in the
Third Earnout Period less (pound)7,113,336 and the denominator
of which is (pound)1,778,334; plus
(ii) two (2) times the sum of the Adjusted Net Pre-Tax Figure for
the Third Earnout Period and (pound)3,312,662,
up to a maximum amount payable pursuant to this paragraph 2.5.2 of
(pound)5,000,000 less the total amounts payable pursuant to
paragraphs 2.3 and 2.4.
2.5.3 LESS THAN 80 PER CENT. OF TARGETED PROFITS
If the Gross Profits in the Third Earnout Period are less than
(pound)7,113,336, no Additional Consideration in respect of the
Third Earnout Period shall be payable.
2.6 FOURTH EARNOUT PERIOD
Subject to paragraph 2.1 to the extent that the Gross Profits in the
Fourth Earnout Period equal or exceed (pound)25,000,000 the Purchaser
shall pay:
2.6.1 the amount by which the Gross Profits exceed (pound)25,000,000; less
2.6.2 the amount by which the Adjusted Net Pre-Tax Figure for the Fourth
Earnout Period is less than (pound)3,250,000,
up to a maximum amount payable pursuant to this paragraph 2.6
of (pound)5,000,000.
2.7 NEGATIVE EARNOUT VALUES
If in any circumstance any of the formulas in paragraphs 2.3, 2.4, 2.5 or
2.6 yield a negative number, no amount shall be paid by the Purchaser to
the holders of Contingent Value Rights nor, for the avoidance of doubt,
shall any amount be payable by the holders of the Contingent Value Rights
to the Purchaser with respect thereto. For the avoidance of doubt, the sum
of the amounts described in any of paragraphs 2.3.2(ii), 2.4.2(ii) and/or
2.5.2(ii) may result in a negative number in which case such amount would
result in a reduction of the amount set forth in clause (i) of the
corresponding paragraph for purposes of determining the amount, if any, of
Earnout Consideration to be paid with respect to the applicable Earnout
Period.
46
3. DETERMINATION OF THE ADDITIONAL CONSIDERATION
3.1 PREPARATION OF ACCOUNTS
3.1.1 The Purchaser shall procure that draft Accounts for each Earnout
Period (each "DRAFT ACCOUNTS") shall be prepared by the Company at
the direction and under the supervision of the Purchaser. The
Purchaser shall within 40 days of the end of each Earnout Period
deliver copies of the Draft Accounts to the Vendor Representative
together with a statement in draft showing the Purchaser's
calculation of the Additional Consideration (if any) payable in
respect of that Earnout Period incorporating a list of the
adjustments made to the Accounts in order to arrive at Gross Profit
and the Adjusted Net Pre-Tax Figure for that Earnout Period (the
"CALCULATION"). A copy of the Draft Accounts and the Calculation
shall be sent by the Purchaser to Charles Grimsdale at the same time
as a copy is delivered to the Vendor Representative. The Purchaser
shall afford to the Vendor Representative and their accounting
representatives reasonable access upon reasonable notice during
normal business hours to such information as is reasonably necessary
to verify calculations set forth in the Calculation.
3.1.2 Unless the Vendor Representative shall, within 15 days after receipt
of the draft Calculation, serve a notice on the Purchaser that he
objects to it, identifying the reason for the objection and the
items comprised in the Draft Accounts or the draft Calculation which
are in dispute (such notice, an "OBJECTION NOTICE") the Vendor
Representative shall be deemed to have irrevocably agreed to the
draft Calculation for all purposes under this Appendix II and such
Calculation shall be binding upon all holders of Contingent Value
Rights.
3.2 AGREEMENT OF DRAFT
If, within the period referred to in paragraph 3.1.2, the Vendor
Representative shall serve upon the Purchaser an Objection Notice then the
Purchaser and the Vendor Representative shall use all reasonable
endeavours to reach agreement upon the matters in dispute. Neither the
Vendor Representative nor the Purchaser shall be entitled to propose any
adjustments to the draft Calculation except (i) in the case of the Vendor
Representative an adjustment relating to any item referred to in its
Objection Notice and (ii) in the case of either of them an adjustment by
way of counter proposal to an adjustment proposed by the other of them,
being in each case, a revision of an adjustment referred to in the
Objection Notice.
3.3 INDEPENDENT ACCOUNTANT
If the Vendor Representative and the Purchaser shall have failed to agree
the draft Calculation within 40 Business Days after service of the
Objection Notice either the Vendor Representative or the Purchaser shall
be entitled to refer the matter or matters in dispute to an independent
firm of Chartered Accountants (the "FIRM") agreed upon between them or
(failing agreement) to be selected (at the instance of either party) by
the President for the time being of the Institute of Chartered Accountants
in England and Wales. The Vendor Representative and the Purchaser shall
use their respective reasonable endeavours to procure that the Firm
delivers its decision within such time as may be stipulated in their terms
of reference. The Firm shall act as experts and not as arbitrators and
shall determine the matters or matters in dispute (which may include any
dispute concerning the interpretation of any provision of this Appendix
affecting the Calculation or their jurisdiction to determine the dispute
or their terms of reference) and their decision shall be final and
binding. The Firm may, so far as is reasonable, instruct valuers,
solicitors and other professional advisers to the
47
extent they consider necessary to reach their determination. The fees and
expenses of the Firm (including the fees of any professional adviser
appointed by the Firm as aforesaid) shall be borne by the Purchaser and
the Vendor Representative (on behalf of the holders of Contingent Value
Rights) in proportion to the amount of the disputed items with respect to
which such party's claim was unsuccessful (i.e., if there is a
(pound)1,000,000 dispute regarding the amount of Additional Consideration
for an Earnout Period and the Firm determines that Vendor Representative's
claim prevails with respect to (pound)250,000 of such disputed amount and
the Purchaser's claim prevails with respect to (pound)750,000 of such
disputed amount, then Vendor Representative would be obligated to pay
seventy five (75) per cent. of the fees and expenses and the Purchaser
would be obligated to pay twenty five (25) per cent. of the fees and
expenses). The Vendor Representative and the Purchaser shall each provide
or procure the provision to the Firm of such information and explanations
as they shall reasonably require of them for the purposes of their
determination.
3.4 CALCULATION FINAL AND BINDING
If within the period referred to in paragraph 3.1.2 the Vendor
Representative shall not have served an Objection Notice on the Purchaser,
or if such notice is served and the Purchaser and the Vendor
Representative shall subsequently agree the draft Calculation, or the
matters in dispute are referred to the Firm under paragraph 3.3, the draft
Calculation, as adjusted (where applicable) so as to be in accordance with
the agreement of the Purchaser and the Vendor Representative or the
determination of the Firm shall be the Calculation for the purposes of
this Appendix II and shall be final and binding on the Vendor
Representative, each Vendor and the Purchaser.
4. PAYMENT OF THE ADDITIONAL CONSIDERATION
4.1 ALLOCATION
Any Additional Consideration due from the Purchaser will be allocated
amongst the holders of Contingent Value Rights in accordance with their
entitlements determined in accordance with paragraph 2.2 above.
4.2 METHOD OF PAYMENT
In respect of each Earnout Period individually, the Purchaser may, in its
sole discretion, elect to pay any Additional Consideration either in cash
or by issuing to the holders of Contingent Value Rights additional shares
of unregistered common stock of Loudeye.
Loudeye will not issue more than 13,950,000 Loudeye Shares (which amounts
to approximately 19.9 per cent. of the number of shares of Loudeye Common
Stock outstanding as of the date of this Offer Document) in connection
with the Offer, the Compulsory Sales Procedure and the Optionholder
Alternative unless it obtains the approval of the holders of a majority of
outstanding Loudeye Shares in accordance with NASDAQ requirements. To the
extent required by NASDAQ rules, the votes of holders of Initial Loudeye
Shares issued in connection with the Offer, the Compulsory Sale Procedure
or the Optionholder Alternative will not be counted (with respect to such
Initial Loudeye Shares) to approve or disapprove the issuance of
additional Loudeye Shares as a means of paying any additional
consideration that Loudeye may be required to pay in connection with the
Offer or the Compulsory Sale Procedure. If such approval is not obtained,
any obligation of Loudeye under the Offer to pay further consideration
will be satisfied in cash (with persons accepting the Offer being able to
take Promissory Notes in lieu of cash at their election (see paragraph 4
of the Loudeye
48
Letter)). In addition, no further shares or options will be issued under
the Unapproved Plan (other than Loudeye Shares issuable upon exercise of
Exchanged Options).
4.3 PAYMENT IN CASH
If pursuant to paragraph 4.2 the Purchaser elects to pay any Additional
Consideration in cash, any such amount in respect of any Earnout Period
shall be paid by the Purchaser to the holders of Contingent Value Rights
within 60 Business Days after the end of the relevant Earnout Period if no
Objection Notice has been served. Should an Objection Notice be served the
Purchaser shall pay any balance owing within 10 Business Days of the
Calculation becoming final and binding. Each amount due in respect of the
Additional Consideration shall be paid by cheque or by transfer into such
bank account as the holders of Contingent Value Rights may hereafter
notify to the Purchaser. As set forth in paragraph 2.2, if Purchaser
elects to pay any Additional Consideration in cash, the amount of such
cash payment to be made with respect to each Contingent Value Right shall
equal "P" (as such term is defined in paragraph 2.2). Holders of
Contingent Value Rights that elected to receive consideration payable
under the Contingent Value Rights in the form of Series B Notes or Series
C Notes shall receive such Series B Notes or Series C Notes in lieu of the
cash payments described in this paragraph 4.3.
4.4 PAYMENT IN SHARES
If pursuant to paragraph 4.2 the Purchaser elects to pay any Additional
Consideration in shares, the number of such additional shares to be issued
to each holder of Contingent Value Rights in respect of each Contingent
Value Right held by him shall be calculated by using the following
formula:
N=P/C
where:
N = the number of additional shares to be issued in respect of each
Contingent Value Right;
P has the meaning assigned to "P" in paragraph 2.2 above; and
C = the volume weighted average closing share price in (pound) of a
Loudeye Share on NASDAQ for the 6 month period immediately
preceding and inclusive of the last day of the relevant Earnout
Period, calculated at the Exchange Rate each day;
and such amount of shares in respect of any Earnout Period
multiplied by the number of Contingent Value Rights held by the
relevant Vendor shall be issued by the Purchaser to that Vendor
within 60 Business Days after the end of the relevant Earnout Period
if no Objection Notice has been served. Should an Objection Notice
be served the Purchaser shall issue such number of shares within 10
Business Days of the Calculation becoming final and binding. The
Purchaser shall use its reasonable endeavours to file a registration
statement with the Securities and Exchange Commission with respect
to any shares issued as Additional Consideration in accordance with
the terms of the Registration Rights Agreement.
49
5. PROTECTION OF THE ADDITIONAL CONSIDERATION AND WORKING CAPITAL
5.1 CONDUCT OF THE COMPANY'S AFFAIRS DURING THE EARNOUT PERIOD
5.1.1 The Purchaser and each of the Vendors agree to act in good faith
during the Earnout Period in relation to the Group and not to take
actions that would be unfairly prejudicial or discriminatory to the
Group for the purpose of adversely affecting the Vendors' interests
in receiving Additional Consideration. Nothing in this paragraph 5.1
shall require the Purchaser to make available to the Company and any
of the Subsidiaries any additional capital in excess of
(pound)5,000,000 in the aggregate in accordance with paragraph 5.2.
5.1.2 During the Earnout Period, Executive Directors of the Company shall
prepare and submit to the Purchaser's Board of Directors for
approval annual operating budgets. During the Earnout Period, the
Executive Directors of the Company shall have the authority to
operate the Company's business in the ordinary course of business
consistent with past practice so long as such activities are within
the parameters set forth in the applicable budget approved by
Purchaser's Board of Directors and are otherwise in compliance with
directives and restrictions that may be issued by Purchaser's Board
of Directors or the Company's Board of Directors (which shall
include representatives designated by Purchaser) from time to time.
5.1.3 If increases in the Purchaser's authorized common stock and option
plan are approved by the Purchaser's stockholders at the Purchaser's
annual meeting of stockholders scheduled to be held on July 22,
2004, then, subject to receipt of any other shareholder approvals
which may be required by NASDAQ, the Purchaser shall reserve options
to purchase 2,000,000 shares of the Purchaser's common stock for
grant to employees of the Company for future services and shall
consult with the Executive Directors with respect to the appropriate
allocation of such stock options (which allocation shall be subject
to approval by the Purchaser's Board of Directors or compensation
committee).
5.2 WORKING CAPITAL
The Purchaser shall advance (pound)3,000,000 to the Company (by
telegraphic transfer to the Company's bank account) within five (5) days
following the date of the Offer becoming unconditional. The Purchaser
further agrees to provide up to (pound)2,000,000 of additional funding, if
necessary, on a quarterly basis beginning on April 1, 2005 pursuant to
budgets approved by the Purchaser's Board of Directors. For the avoidance
of doubt, the Purchaser is not obligated to advance any amounts to the
Company in excess of (pound)5,000,000, provided that in its sole
discretion the Purchaser may agree to provide additional funding.
6. TRANSFER
6.1 The Contingent Value Rights are personal to the holder and shall not be
transferable, assignable or chargeable. Any purported transfer,
assignment, disposal or dealing with the rights attaching to the
Contingent Value Rights shall render the Contingent Value Right void.
7. CERTIFICATES AND REGISTRATION
7.1 The Contingent Value Rights shall be uncertificated and the Purchaser
shall not issue any certificate to holders.
50
7.2 The Purchaser shall procure that a register is maintained in respect of
the Contingent Value Rights recording:
7.2.1 the number of Contingent Value Rights issued;
7.2.2 the names and addresses of the holders of the Contingent Value
Rights;
7.2.3 the number of Contingent Value Rights held by each holder.
7.3 Any change of name or address on the part of any holder of Contingent
Value Rights shall forthwith be notified by the holder to the Purchaser.
7.4 A Noteholder and any person authorised by him may request an extract from
the Register in relation to his holding of Contingent Value Rights upon
payment of a reasonable charge.
7.5 The Purchaser shall recognise the registered holder of the Contingent
Value Rights as the absolute owner of his Contingent Value Rights and
shall not (except as ordered by a court of competent jurisdiction) be
bound to take notice or see to the execution of any trust, whether
express, implied or constructive, to which the Contingent Value Rights may
be subject.
51
APPENDIX III
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
June 22, 2004, is entered into by and among Loudeye Corp., a Delaware
corporation (the "COMPANY"), and each Holder (as defined below).
WHEREAS, pursuant to the private offer made by the Company to
acquire all of the issued and to be issued ordinary share capital of On Demand
Distribution Limited (the "OFFER") on the terms set forth in the Offer Document
(as defined below), the Company will issue to the Holders shares of its common
stock, par value $0.001 per share ("COMMON STOCK"); and
WHEREAS, the Company intends to provide certain registration rights
with respect to the shares of Common Stock issued, or to be issued, by it to the
Holders pursuant to the Offer as set forth herein.
In consideration of the foregoing, the Company and the Holders
hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"BUSINESS DAY" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York City, New York, or London, England are
not required to be opened.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMMON STOCK" has the meaning set forth in the preamble.
"COMPANY" has the meaning set forth in the preamble and shall
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"COMPLETION DATE" means the date on which the Company acquires 100%
of the OD2 Shares.
"CONTROLLING PERSONS" has the meaning set forth in Section 6(a).
"DAMAGES" has the meaning set forth in Section 6(a).
"DEFERRED LOUDEYE SHARES" means shares of Common Stock potentially
issuable to Holders, at the election of the Company, on November 30, 2004, May
31, 2005 and November 30, 2005 pursuant to paragraph 2(ii) of the Company's
letter included in the Offer Document.
"FURTHER LOUDEYE SHARES" shall have the meaning set forth in the
Offer Document.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended from time to time, or any successor statute, and the rules and
regulations of the Commission promulgated thereunder.
"HOLDER" means each Person receiving Registrable Securities from the
Company pursuant to the Offer, and each other holder, from time to time, of
Registrable Securities executing a signature page hereto.
"INITIAL LOUDEYE SHARES" shall have the meaning set forth in the
Offer Document.
52
"NASD" means the National Association of Securities Dealers, Inc.
"OD2" means On Demand Distribution Limited with registered office
address at Box Hill, Mill Lane, Corsham, Wiltshire SN13 8PN, England.
"OD2 SHARES" shall have the meaning set forth in the Offer Document.
"OFFER DOCUMENT" means the Recommended Offer by the Company for On
Demand Distribution Limited dated as of June 22, 2004, as such document may be
amended, modified or supplemented from time to time, together with any exhibits,
schedules or other attachments thereto.
"OTHER LOUDEYE SHARES" means shares of Common Stock potentially
issuable to Holders, at the election of the Company, on January 31, 2005
pursuant to paragraph 2(i)(b) of the Company's letter included in the Offer
Document.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or other agency, or any political
subdivision thereof, or any other entity of whatever nature.
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments and supplements
to the prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
prospectus.
"REGISTRABLE SECURITIES" means the Shares; provided, however, that
any Shares shall cease to be Registrable Securities when (i) they have been
disposed of pursuant to an effective Registration Statement, (ii) they have been
transferred to any other Person pursuant to Rule 144 or are eligible for resale
pursuant to Rule 144, or (iii) such Shares shall have ceased to be outstanding.
"REGISTRATION STATEMENT" means a registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including in each case the Prospectus, and all amendments and
supplements to any such registration statement or Prospectus.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, and any
successor rule hereafter adopted by the Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended
from time to time, or any successor statute, and the rules and regulations of
the Commission promulgated thereunder.
"SHARES" means the Initial Loudeye Shares, the Other Loudeye Shares
(if any are issued), the Deferred Loudeye Shares (if any are issued), and the
Further Loudeye Shares (if any are issued), and all shares of Common Stock
directly or indirectly issued or issuable in respect of such Shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation, or other reorganization.
SECTION 2. REGISTRATION OBLIGATIONS.
(a) Subject to the terms and conditions of this Agreement, the
Company shall use commercially reasonable best efforts to prepare and file with
the Commission one or more Registration Statements on Form S-3 (or, if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, such other appropriate form), covering the resale of:
53
(i) the Initial Loudeye Shares, on or prior to the date that
is the later to occur of: (A) 45 days following the date
of the Offer; (B) 15 days following the Completion Date;
and (C) ten Business Days following the date of receipt
by the Company of all audited and interim financial
statements and pro forma financial information of OD2
(in final agreed form) required to be filed by the
Company under Form 8-K;
(ii) the Other Loudeye Shares, not later than February 15,
2005;
(iii) any Deferred Loudeye Shares which are Registrable
Securities, not later than 45 days following each
applicable date of their issuance to Holders by the
Company, and
(iv) any Further Loudeye Shares which are Registrable
Securities, not later than 60 days following each
applicable date of their issuance to Holders by the
Company.
Each Registration Statement required to be filed hereunder shall contain a "Plan
of Distribution" section encompassing the selling Holders' intended methods of
distribution of the Registrable Securities included therein which has been
provided to the Company pursuant to Section 4(a) (except to the extent the
Company determines that modifications thereto are required by applicable law or
to satisfy comments of the Commission).
(b) The Company shall use commercially reasonable best efforts to
cause each such Registration Statement to be declared effective by the
Commission as soon as practicable after the date it is filed.
(c) The Company shall use commercially reasonable efforts to keep
each such Registration Statement continuously effective from the date on which
it is declared effective until the earlier of (i) the date which is twelve (12)
months following such effective date, (ii) all Registrable Securities covered
thereby have been sold or disposed of, or (iii) all Registrable Securities
covered thereby cease to be Registrable Securities.
SECTION 3. REGISTRATION PROCEDURES.
(a) The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments to each Registration
Statement required to be filed hereunder as may be necessary to keep such
Registration Statement effective for the period specified in Section 2(c)
hereof; shall cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act; and shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all Registrable Securities
covered thereby during the applicable period(s).
(b) The Company shall promptly furnish to any Holder of
Registrable Securities included in a Registration Statement, such number of
conformed copies of such Registration Statement and any post-effective amendment
thereto and such number of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, as any such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities covered thereby.
(c) The Company shall, on or prior to the date on which a
Registration Statement is declared effective, use commercially reasonable
efforts to register or qualify the Registrable Securities covered by such
Registration Statement under the securities or "blue sky" laws of such United
States jurisdictions as the Holders may reasonably request, or obtain
appropriate exemptions
54
therefrom; provided, however, that the Company shall not be required (i) to
qualify to do business in any jurisdiction where it would not otherwise be
required to so qualify but for this paragraph or (ii) to file any general
consent to service of process in any such jurisdiction.
(d) The Company shall promptly notify each Holder of Registrable
Securities included in a Registration Statement: (i) when such Registration
Statement or a Prospectus or any post-effective amendment or any Prospectus
supplement has been filed and, with respect to such Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any state securities authority for amendments and
supplements to such Registration Statement and Prospectus after such
Registration Statement has become effective; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such Registration
Statement or the initiation or threatening of any proceedings for that purpose;
and (iv) of the issuance by any state securities commission or other regulatory
authority of any order suspending the registration or qualification or exemption
from registration or qualification of any such Registrable Securities under
state securities or "blue sky" laws or the initiation of any proceedings for
that purpose.
(e) The Company shall use commercially reasonable efforts to
prevent the issuance of any order suspending the effectiveness of a Registration
Statement, and, if any such order suspending the effectiveness of a Registration
Statement is issued, shall use commercially reasonable efforts to obtain the
withdrawal of such order at the earliest practicable date.
(f) At any time when a Prospectus relating to the Registrable
Shares is required to be delivered under the Securities Act, the Company shall
promptly notify each Holder of Registrable Securities included in a Registration
Statement of the happening of any event of which the Company has knowledge which
makes any statement of a material fact made in such Registration Statement or
related Prospectus untrue or which requires the making of any changes in such
Registration Statement or Prospectus so that such Registration Statement or
Prospectus will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company shall, as promptly as practicable thereafter,
prepare and file an amendment to such Registration Statement with the Commission
and furnish to any such Holders a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such Registrable
Securities, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(g) The Company shall use commercially reasonable efforts to cause
the Registrable Securities included in a Registration Statement to be listed on
Nasdaq or such other national securities exchange or automated inter-dealer
quotation system, if any, on which the same type of securities issued by the
Company are then listed or traded, by the date of first sale of Registrable
Shares pursuant to the Registration Statement.
(h) The Company shall, if requested by the Holders, cooperate with
the Holders of Registrable Securities included in a Registration Statement to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities sold under such Registration Statement to the purchasers
thereof, and enable such Registrable Securities to be in such denominations and
registered in such names as such Holders may reasonably request.
(i) The Company shall provide a transfer agent and registrar and a
CUSIP number for all Registrable Securities covered by a Registration Statement,
in each case not later than the effective date of such Registration Statement.
55
SECTION 4. HOLDERS' OBLIGATIONS.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 3 with respect to the Registrable
Securities of any selling Holder that such Holder shall timely furnish to the
Company all information regarding itself, the Registrable Securities held by it,
and such Holder's intended method of disposition of such Registrable Securities,
as may be requested by the Company in order to effect the registration and
disposition of such Registrable Securities pursuant to such Registration
Statement.
(b) Each Holder shall comply with any conditions reasonably
requested by the Company in order to comply with all applicable federal and
state laws, including, without limitation, compliance with all prospectus
delivery requirements of the Securities Act and with all anti-stabilization,
anti-manipulation and similar provisions of the Exchange Act and any rules
promulgated thereunder by the Commission, and to furnish to the Company
information about sales made in any offering.
(c) Each Holder of Registrable Securities included in a
Registration Statement, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f), shall immediately
discontinue disposition of the Registrable Securities pursuant to such
Registration Statement until such Holder's receipt of copies of the supplemented
or amended Prospectus contemplated by Section 3(f) or until such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and such Holder has received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus; and, if so directed by
the Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. The Company may provide appropriate stop orders to enforce this
paragraph.
(d) Each Holder shall cooperate with, and take such action as may
be reasonably requested by, the Company in order to carry out the provisions and
purposes of this Agreement and the transactions contemplated hereby.
SECTION 5. REGISTRATION EXPENSES.
(a) The Company shall bear all costs and expenses incident to the
Company's performance of its registration obligations under this Agreement,
including, without limitation, all registration and filing fees of the
Commission, Nasdaq or the NASD, fees and expenses incurred in connection with
complying with state securities or "blue sky" laws, fees of transfer agents and
registrars, printing expenses, and fees and disbursements of counsel and
independent public accountants for the Company.
(b) All selling expenses including, without limitation,
underwriting discounts, selling commissions and brokers' fees, transfer taxes
(if any), and fees and disbursements of counsel to the Holders, incurred in
connection with the sale or other disposition of the Shares shall be borne by
the selling Holders.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify and hold harmless, to the extent
permitted by law, each Holder and each Person, if any, who controls such Holder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (collectively, the "Controlling Persons"), from and against all
losses, claims, damages and liabilities (joint or several) (collectively,
"Damages") to which they may become subject under the Securities Act, the
Exchange Act or other federal or state
56
law, insofar as such Damages (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations (each, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement, including any related Prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law;
provided, however, that the Company shall not be liable for Damages to any
Holder or Controlling Person under this Section 6(a) to the extent that any such
Damages (i) were paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), (ii) arise out of or are
based upon any such untrue statement or omission which is based upon information
relating to such Holder furnished to the Company by such Holder for use in any
Registration Statement or Prospectus (or amendment or supplement thereto); or
(iii) were caused by the fact that such Holder sold Registrable Securities to a
Person who was not sent or given, or deemed sent or given, at the time of or
prior to the written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented, if the Company has previously furnished copies of such
amended or supplemented Prospectus to such Holder and such Damages were caused
by any untrue statement or omission or alleged untrue statement or omission
contained in the Prospectus so delivered which was corrected in such amended or
supplemented Prospectus.
(b) INDEMNIFICATION BY THE HOLDERS.
In connection with any Registration Statement in which a Holder is
participating, each such Holder agrees to indemnify and hold harmless, to the
extent permitted by law, the Company, its directors and officers and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act from and against all
Damages to which any of the foregoing persons may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
Damages arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with information furnished by such Holder for use in connection with
such Registration Statement; provided, however, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld. In no event shall the liability of any Holder hereunder be greater in
amount than the dollar amount of the proceeds (net of underwriting discounts,
selling commissions and broker's fees, if any) received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation, except in the case of willful fraud by such Holder.
(c) INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the reasonable fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to
57
the indemnified party under this Section 6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 7.
The indemnifying party shall not be liable for any settlement of any action
effected without its written consent (which consent shall not be unreasonably
withheld) but, if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify each indemnified party
from and against any loss or liability by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of any
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which such
indemnified party is a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding with no payment by such indemnified party of
consideration.
(d) CONTRIBUTION.
If the indemnification from the indemnifying party provided for in
this Section 6 is found, pursuant to a final judicial determination not subject
to appeal, to be unavailable to an indemnified party hereunder in respect of any
Damages referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Damages in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
the indemnified parties in connection with the actions that resulted in such
Damages, as well as any other relevant equitable considerations; provided, that
in no event shall any contribution by a Holder under this Section 6(d) exceed
the net proceeds from the offering received by such Holder, except in the case
of willful fraud by such Holder. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. Each Holder's
obligation to contribute pursuant to this Section 6(d) is several and not joint
and shall be determined by reference to the proportion that the net proceeds of
the offering received by such Holder bears to the total net proceeds of the
offering received by all the Holders.
(e) SURVIVAL.
The indemnities and obligations provided in this Section 6 shall
survive the completion of any offering of Registrable Shares and the transfer of
any Registrable Shares by the Holders.
SECTION 7. BLACK-OUT PERIODS.
Notwithstanding any other provision of this Agreement, the Company
shall be entitled to suspend or withdraw any Registration Statement for a period
(each a "BLACK-OUT PERIOD") not to exceed sixty (60) consecutive days and ninety
(90) days in the aggregate during any one-year period, at any time and from time
to time when the Company, in its good faith judgment, determines that the
continued offering of Registrable Shares would be detrimental to the Company.
Immediately upon the completion of a Black-Out Period, or such earlier date as
the Company determines in good faith that sales of Registrable Shares may
continue, it shall notify the Holders and take all steps reasonably necessary to
permit the Holders to resume sales under the applicable Registration Statement.
58
SECTION 8. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders which are affected by such
amendment, modification, supplement, waiver or consent.
(b) NOTICES.
Any notice or other communication required to be given under this
Agreement or in connection with the matters contemplated by it shall, except
where otherwise specifically provided, be in writing in the English language and
shall be addressed to the parties at their respective addresses set forth on the
signature pages hereto and may be:
(i) personally delivered, in which case it shall be deemed
to have been given upon delivery at the relevant
address; or
(ii) if within the United Kingdom, sent by first class
pre-paid post, in which case it shall be deemed to have
been given two Business Days after the date of posting;
or
(iii) if from or to any place outside the United Kingdom, sent
by pre-paid airmail or by air courier, in which case it
shall be deemed to have been given seven Business Days
after the date of posting in the case of airmail or two
Business Days after delivery to the courier in the case
of air courier; or
(iv) sent by fax, in which case it shall be deemed to have
been given when despatched, subject to confirmation of
uninterrupted transmission by a transmission report
provided that any notice despatched by fax after 17:00
hours (at the place where such fax is to be received) on
any day shall be deemed to have been received at 09:00
on the next Business Day.
Any party to this Agreement may notify the other parties of any
change to its address provided that such notification shall only be effective on
the date specified in such notice or five Business Days after the notice is
given, whichever is later.
(c) SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of each of the parties, including, without
limitation, subsequent Holders; provided, however, that no Holder shall be
entitled to assign its rights or obligations hereunder except in connection with
a transfer of at least 100,000 Shares to each such subsequent holder. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(d) EXECUTION AND COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. In the event that any
59
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
(e) HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW.
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in Seattle, Washington. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Seattle, Washington for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by delivering a copy thereof via overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
(g) SEVERABILITY.
In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby.
(h) ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final expression of
their agreement and is intended to be the complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
(i) REMEDIES.
In the event of a breach or a threatened breach by any party to this
Agreement of its obligations under this Agreement, any party injured or to be
injured by such breach will be entitled to specific performance of its rights
under this Agreement or to injunctive relief, in addition to being
60
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that remedies at law for violations
hereof including monetary damages, are inadequate and that the right to object
in any action for specific performance or injunctive relief hereunder on the
basis that a remedy at law would be adequate is waived. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
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APPENDIX IV
PROMISSORY NOTES - SUMMARY TERMS
The Promissory Notes will be issued by Loudeye and will constitute unsecured
obligations of Loudeye. The Promissory Notes will not contain any restrictions
on borrowing, disposals or charging of assets by any member of the Loudeye
Group.
There are three classes of Promissory Notes: Series A Notes, Series B Notes and
Series C Notes. Each class is summarised below.
SERIES A NOTES
Each note issued will bear interest at a fixed rate of 5 per cent. per annum.
The Series A Notes are redeemable in four stages. For tax planning reasons,
Series A Notes will not be redeemable in respect of that tranche until 30
December 2004; thereafter the Series A Notes are redeemable on each date on
which accepting OD2 shareholders would have been paid the corresponding amount
of cash consideration which they would otherwise have been entitled under the
Offer had they not elected for Notes, subject always to the share redemption
mechanism detailed below.
On any redemption date, Loudeye may elect to redeem the relevant portion of the
Series A Notes then due and payable together with accrued interest into a cash
equivalent number of Loudeye Shares based on the applicable Loudeye Share Price
determined in accordance with paragraph 2 of the Loudeye Letter.
Because the terms of the Offer do not include interest on Deferred
Consideration, the aggregate principal amount of the Series A Notes upon issue
will be discounted by an amount equal to the interest which will accrue during
its term. Holders of Series A Notes will be eligible to receive (subject to any
tax on the interest (see the letter from OD2)) the same amount of cash or
Loudeye Shares (at Loudeye's option) as if no election for Promissory Notes had
been made. Definitive numbers will be included in the relevant Promissory Notes,
however, purely by way of illustration, if a Shareholder would receive cash of
(pound)10,000 six months after issue of the Promissory Notes, that Shareholder
(having elected to receive Promissory Notes) would receive Series A Notes with a
principal amount of (pound)9,756. On redemption of these Series A Notes,
interest of (pound)244 would have accrued so that the redemption amount is
(pound)10,000.
No Series A Notes may be transferred except to personal representatives on the
death of the noteholder. Holders of Series A Notes shall not be entitled to
mortgage, charge, pledge or otherwise encumber the Series A Notes without the
prior written consent of Loudeye.
The Series A Notes are expected to be non Qualifying Corporate Bonds for CGT
purposes.
SERIES B NOTES
The aggregate principal amount of Series B Notes to be issued will be calculated
at the time the relevant amounts are determined in respect of the First Earn-out
Period, the Second Earn-out Period, the Third Earn-out Period and the Fourth
Earn-out Period (as such terms are defined in Appendix II of this document).
The Series B Notes will be issued only after the above amounts have been
determined.
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The Series B Notes are repayable on the first Business Day falling on or
immediately after the date falling six months and one day from the date of
issue.
Each Series B Note issued will bear interest at a fixed rate of 5 per cent. per
annum.
No Series B Notes may be transferred except to personal representatives on the
death of the noteholder. Holders of Series B Notes shall not be entitled to
mortgage, charge, pledge or otherwise encumber the Series B Notes without the
prior written consent of Loudeye.
The Series B Notes are expected to be Qualifying Corporate Bonds for CGT
purposes.
SERIES C NOTES
The Series C Notes are identical to the Series B Notes in all respects, save
that the Series C Notes are expected to be non Qualifying Corporate Bonds for
CGT purposes.
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APPENDIX VII
OPTIONHOLDER ALTERNATIVE
The following provisions of this Appendix VII shall apply with respect to
Optionholders electing to participate in the Optionholder Alternative:
1. An election to participate in the Optionholder Alternative by completion
of: (i) Box 7 of the Form of Acceptance and Election; and (ii) the
National Insurance Joint Election at schedule 5 of the Form of Acceptance
and Election, by AN OPTIONHOLDER HOLDING OD2 OPTIONS GRANTED UNDER THE
UNAPPROVED PLAN shall constitute the agreement of the relevant
Optionholder with the Company and Loudeye to the terms of the Option
Exchange Agreement set out in EXHIBIT A to this Appendix VII.
2. An election to participate in the Optionholder Alternative by completion
of: (i) Box 7 of the Form of Acceptance and Election; and (ii) the
National Insurance Joint Election at schedule 6 of the Form of Acceptance
and Election, by AN OPTIONHOLDER HOLDING NON-EXECUTIVE OPTIONS shall
constitute the agreement of the relevant Optionholder with the Company and
Loudeye to the terms of the Option Exchange Agreement set out in EXHIBIT B
to this Appendix VII.
3. Following receipt by Loudeye of a completed Form of Acceptance and
Election and National Insurance Joint Election and Completion of the Offer
Loudeye will prepare and send to each relevant Optionholder a conformed
copy of the relevant Option Exchange Agreement for reference.
4. Each Optionholder electing to participate in the Optionholder Alternative
agrees that OD2 may enforce the terms of the Option Exchange Agreement set
out in Exhibit A or Exhibit B (as appropriate) which are expressed to be
for its benefit subject to and in accordance with the provisions of the
Contracts (Rights of Third Parties) Act 1999.
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EXHIBIT A
ON DEMAND DISTRIBUTION LIMITED EMPLOYEE SHARE OPTION PLAN
(ADOPTED IN 2001 AND AS AMENDED IN 2001 AND 2003) (the "PLAN")
OPTION EXCHANGE AGREEMENT (the "AGREEMENT")
WHEREAS
A. The Optionholder was granted option(s) (the "OLD OPTION") over Shares in
On Demand Distribution Limited ("OD2") under the Plan and pursuant to an
option agreement effecting the Old Option (the "OLD OPTION AGREEMENT").
B. Loudeye Corp. of 1130 Rainier Avenue South Seattle, Washington 98144, USA
("LOUDEYE") has made an offer (the "OFFER") to acquire all of the issued
and to be issued ordinary share capital of OD2, pursuant to an offer
document dated 22 June 2004 (the "OFFER DOCUMENT")
C. This Agreement is conditional upon and shall have no effect until the
Offer becomes unconditional in all respects (the "EFFECTIVE DATE").
D. Pursuant to the terms of clause 2.6 of the Old Option Agreement and rule 6
of the Plan, the Optionholder has agreed to release the Old Option in
consideration of the grant to him/her of the Exchanged Option (as defined
in clause 1).
E. The capitalised terms in this Agreement that are not defined within the
Agreement have the meaning assigned to them in the Plan.
F. The Exchanged Option will be governed by the Plan, as amended by this
Agreement except to the extent that this Agreement contains provisions
that conflicts with the Plan, in which case the terms of this Agreement
will apply and take priority over the Plan.
THE PARTIES AGREE AS FOLLOWS:-
1. DETAILS OF THE EXCHANGED OPTION
DETAILS OF VESTING: the Exchanged Option will be fully vested
and exercisable on the Effective Date, but
will not be vested or exercisable to any
extent until then
DESCRIPTION OF SHARES UNDER EXCHANGED shares of Common Stock, par value USD0.001
OPTION: per share, of Loudeye Corp ("LOUDEYE
SHARES")
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MAXIMUM NUMBER OF LOUDEYE SHARES A = 0.8706 x B; where:
UNDER EXCHANGED OPTION:
A = number of Loudeye Shares under
the Exchanged Option; and
B = number of OD2 Shares under the
Old Option
Price at which each Loudeye Share can USD0.001
be purchased on exercise of the Exchanged
Option ("NEW EXERCISE PRICE"):
EXPIRATION DATE Unless the Exchanged Option expires or
lapses earlier pursuant to this
Agreement or the Plan, the Exchanged
Option shall expire on and not be
exercisable after the day before the
tenth anniversary of the date of grant
of the Old Option.
2. RELEASE OF THE OLD OPTION
As of the Effective Date (i) the Optionholder releases the Old Option by
releasing OD2 from its obligations under the Old Option to issue OD2
Shares to the Optionholder under the terms of the Plan and the Old Option
Agreement; and (ii) the Optionholder agrees that he/she has no rights
whatsoever under or in respect of:
a. the Old Option; or
b. the Old Option Agreement.
3. GRANT OF THE EXCHANGED OPTION
3.1 As of the Effective Date, Loudeye hereby grants to the Optionholder the
Exchanged Option.
3.2 The Exchanged Option will be subject to the terms and conditions set out
or referred to in this Agreement and the Plan, as amended from time to
time.
3.3 If there are any inconsistencies or conflicts between the terms of the
Plan and the terms of this Agreement, the terms of this Agreement will
apply and take precedence over the terms of the Plan.
4. EXERCISE AND LAPSE OF THE EXCHANGED OPTION
4.1 The Exchanged Option will only be validly exercised if exercised in
accordance with this Agreement.
4.2 To exercise the Exchanged Option, the Optionholder must complete the
Notice of Exercise attached to this Agreement as the Exhibit.
4.3 Except as otherwise specified in the Plan (including rules 4.9 to 4.11 of
the Plan), on the date the Optionholder ceases to hold any office or
employment with OD2 or any other associated company, the Exchanged Option
will lapse.
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5. TAX AND NATIONAL INSURANCE CONTRIBUTIONS
5.1 All liability for any tax, or Employer's NICs (as defined in clause 5.5
below) or employee's National Insurance contributions (or their equivalent
in any non-UK jurisdiction) in respect of the grant or exercise of or
other dealing in the Exchanged Option or sale of the Loudeye Shares
("TAX") will be the responsibility of and borne by the Optionholder, or
where the Optionholder has died, his personal representatives (the
Optionholder and his personal representatives (where applicable) together
in this clause 5 referred to as the "OPTIONHOLDER").
5.2 Neither Loudeye nor OD2 makes any representation to the Optionholder with
regard to the Tax that may arise as a consequence of surrendering and
releasing the Old Option, the grant of the Exchanged Option or the
exercise of the Exchanged Option.
5.3 The Optionholder will indemnify and keep indemnified his or her employer,
Loudeye and OD2 from and against any liability for, or obligation to pay,
any Tax.
5.4 The Exchanged Option cannot be exercised until the Optionholder has
entered into an election with his/her employer (in a form approved by
Loudeye and the Inland Revenue) (an "ELECTION AGREEMENT") under which any
liability of that employer or Loudeye for Employer's NICs arising in
respect of the issuance, vesting, exercise of or other dealing in the
Exchanged Option is transferred to and met by the Optionholder.
5.5 "EMPLOYER'S NICS" means the amount of employer's National Insurance
contributions that arise upon the grant or exercise of or other dealing in
the Exchanged Option or sale of the Loudeye Shares less the amount of
employer's NICs that would have arisen had the Optionholder exercised his
options under the OD2 Plan at the fair market at 21 June 2004 (with 'fair
market value' per OD2 Share for this purpose (as determined by the OD2
Board) being 62.80p).
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS
6.1 Notwithstanding anything to the contrary in the Plan or otherwise, subject
to any required action by the stockholders of Loudeye, the number of
Loudeye Shares under the Exchanged Option and the New Exercise Price shall
be proportionately adjusted for any increase or decrease in the number of
Loudeye Shares resulting from a stock split, reverse stock split, stock
dividend, combination, recapitalization or reclassification of Loudeye
Shares, or any other increase or decrease in the number of issued Loudeye
Shares effected without receipt of consideration by Loudeye which occurs
after the Effective Date; provided, however, that conversion of any
convertible securities of Loudeye shall not be deemed to have been
"effected without receipt of consideration" and further provided that the
exercise price shall not be reduced below the par value per Loudeye Share.
Such adjustment shall be made by the Board of Loudeye, whose determination
in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by Loudeye 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 Loudeye Shares under the Exchanged
Option.
6.2 In the event of the dissolution or liquidation of Loudeye, the Exchanged
Option shall lapse and terminate immediately prior to the consummation of
such action, unless otherwise determined by the Board of Loudeye.
6.3 Notwithstanding anything to the contrary in the Plan or otherwise, in the
event of a Corporate Transaction (as defined below), the Exchanged Option
shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such
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successor corporation (the "SUCCESSOR CORPORATION"), unless the Successor
Corporation does not agree to assume the award or to substitute an
equivalent option, in which case the Exchanged Option shall lapse and
terminate upon the consummation of the transaction.
6.4 Notwithstanding the terms of clause 6.3, in the event of a Change in
Control (as defined below), if :
a. the Successor Corporation so agrees, the Exchanged Option may either
be:
(i) assumed or replaced with an equivalent option by the Successor
Corporation; or
(ii) replaced with a cash incentive program of the Successor
Corporation based on the value of the Exchanged Option at the
time of the consummation of the transaction.
b. the Exchanged Option is not being assumed or replaced with an
equivalent option by the Successor Corporation, then to the extent
that it is not exercised prior to consummation of a Change of
Control transaction, the Exchanged Option shall lapse and terminate
upon such consummation.
6.5 For purposes of this clause 6.4, a Exchanged Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or
other consideration upon a Corporate Transaction or a Change of Control,
as the case may be, the Optionholder would be entitled to receive upon
exercise of the new award the same number and kind of shares of stock or
the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the
Optionholder had been, immediately prior to such transaction, the holder
of the number of Loudeye Shares covered by the award at such time (after
giving effect to any adjustments in the number of shares covered by the
Exchanged Option as provided for in this Agreement); provided that if such
consideration received in the transaction is not solely common stock of
the Successor Corporation, the Board of Loudeye may, with the consent of
the Successor Corporation, provide for the consideration to be received
upon exercise of the award to be solely common stock of the Successor
Corporation equal to the fair market value of the per share consideration
received by holders of the Loudeye's common stock in the transaction.
6.6 For purposes of this Agreement, "CHANGE OF CONTROL" means a sale of all or
substantially all of Loudeye's assets, or any merger or consolidation of
Loudeye with or into another corporation other than a merger or
consolidation in which the holders of more than 50% of the shares of
capital stock of Loudeye outstanding immediately prior to such transaction
continue to hold (either by the voting securities remaining outstanding or
by their being converted into voting securities of the surviving entity)
more than 50% of the total voting power represented by the voting
securities of Loudeye, or such surviving entity, outstanding immediately
after such transaction.
6.7 For purposes of this Agreement, "CORPORATE TRANSACTION" means a sale of
all or substantially all of Loudeye's assets, or a merger, consolidation
or other capital reorganization of Loudeye with or into another
corporation.
7. OPTIONHOLDER'S ACKNOWLEDGEMENT AND UNDERTAKING
7.1 The Optionholder acknowledges and agrees:
147
a. that nothing in this Agreement, nor in the Plan, shall confer upon
the Optionholder any right with respect to the continuation of
his/her employment or appointment as an officer by any OD2 or any
associated company; and
b. to accept as binding, conclusive and final all decisions or
interpretations made by or on behalf of Loudeye in respect of any
questions arising under the Plan.
8. MISCELLANEOUS
8.1 Notwithstanding anything to the contrary, the Optionholder agrees to
cooperate with Loudeye to further amend the Exchanged Option to the extent
Loudeye determines it is necessary or desirable in order to accommodate
United States legal or tax considerations or to conform such Exchanged
Option to the terms and conditions of the Loudeye 2000 Stock Option Plan
(titled the Loudeye Technologies, Inc. 2000 Stock Plan) and any form
option agreements thereunder, provided that any amendment which adversely
affects the rights of Employee Optionholders as a whole to a material
extent requires the prior consent of Employee Optionholder(s) holding
between them more than 50 per cent. of the outstanding Exchanged Options.
8.2 This Agreement is governed by and is to be construed in accordance with
the laws of the State of Delaware of the United States of America.
8.3 The Optionholder agrees that the Loudeye Shares issuable upon exercise of
the Exchanged Option shall be subject to the transfer restrictions set
forth in Part D of Appendix I of the Offer Document and, unless registered
under the Securities Act of 1933, as amended, will bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, REGULATION S PROMULGATED UNDER THE
ACT OR ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND, IN THE
CASE OF A TRANSACTION NOT SUBJECT TO SUCH REGISTRATION REQUIREMENTS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION
UNDER THE ACT. HEDGING TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
148
EXHIBIT
NOTICE OF EXERCISE
To: Loudeye Corp.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Exchanged Option
This is official notice that the undersigned ("OPTIONHOLDER")
intends to exercise Optionholder's option to purchase __________
shares of Loudeye Corp. Common Stock, under and pursuant to the On
Demand Distribution Limited Employee Share Option Plan and the
Option Exchange Agreement (the "AGREEMENT") dated _______________as
follows:
Grant Number: __________________________________
Date of Purchase: __________________________________
Number of Loudeye Shares: __________________________________
New Exercise Price per Loudeye Share:__________________________________
Method of Payment of
Purchase Price: __________________________________
Social Security No.: __________________________________
The shares should be issued as follows:
Name: ______________________________
Address: ______________________________
______________________________
______________________________
I agree:
(a) pursuant to clause 5 of the Agreement and rule 11 of the Plan to indemnify
Loudeye Corp. and any of its subsidiaries, including my employer in
respect of any Tax (as defined in clause 5.1 of the Option Exchange
Agreement) which arises as a result of the grant, exercise of or other
dealing in the Exchanged Option; and
149
(b) that the issue of these Loudeye Shares to me shall be conditional upon my
first making arrangements to the satisfaction of Loudeye Corp. to
discharge any such Tax, including the giving of an appropriate power of
attorney and (if required by Loudeye Corp.) entering into an election
pursuant to clause 5 of the Agreement to transfer the primary
responsibility to pay part of the employer's National Insurance
contributions to myself.
Signed: ______________________________ Date: ______________________________
Name: ______________________________
NOTES:
(1) This form must be accompanied by payment of the aggregate New Exercise
Price for the Loudeye Shares in respect of which the Exchanged Option is
exercised.
(2) IMPORTANT neither Loudeye nor OD2 gives any advice to you on the tax
consequences of exercising the Exchanged Option. If you are unsure of the
tax liabilities that may arise, you should take professional advice before
exercising the Exchanged Option.
150
EXHIBIT B
ON DEMAND DISTRIBUTION LIMITED NON-EXECUTIVE SHARE OPTION
OPTION EXCHANGE AGREEMENT (the "AGREEMENT")
WHEREAS
A. The Optionholder was granted option(s) (the "OLD OPTION") over ordinary
shares in On Demand Distribution Limited ("OD2") pursuant to a letter
agreement dated 24th April, 2003 effecting the Old Option (the "OLD OPTION
AGREEMENT").
B. Loudeye Corp. of 1130 Rainier Avenue South Seattle, Washington 98144, USA
("LOUDEYE") has made an offer (the "OFFER") to acquire all of the issued
and to be issued ordinary share capital of OD2, pursuant to an offer
document dated 22 June 2004 (the "OFFER DOCUMENT").
C. This Agreement is conditional upon and shall have no effect until the
Offer becomes unconditional in all respects (the "EFFECTIVE DATE").
D. Pursuant to the terms of paragraph 10 of the Old Option Agreement, the
Optionholder has agreed to release the Old Option in consideration of the
grant to him/her of the Exchanged Option (as defined in clause 1).
THE PARTIES AGREE AS FOLLOWS:-
1. DETAILS OF THE EXCHANGED OPTION
DETAILS OF VESTING: the Exchanged Option will be fully vested and exercisable on the
Effective Date, but will not be vested or exercisable to any
extent until then
DESCRIPTION OF SHARES UNDER EXCHANGED OPTION: shares of Common Stock, par value $0.001 per share, of Loudeye
Corp ("LOUDEYE SHARES")
MAXIMUM NUMBER OF LOUDEYE SHARES UNDER EXCHANGED A = 0.8706 x B; where:
OPTION:
A = number of Loudeye Shares under the Exchanged Option; and
B = number of OD2 Shares under the Old Option
Price at which each Loudeye Share can be purchased USD0.001
on exercise of the Exchanged Option ("NEW EXERCISE
PRICE"):
2. RELEASE OF THE OLD OPTION
As of the Effective Date (i) the Optionholder releases the Old Option by
releasing OD2 from its obligations under the Old Option to issue OD2
Shares to the Optionholder under the terms
151
of the Old Option Agreement; and (ii) the Optionholder agrees that he/she
has no rights whatsoever under or in respect of:
a. the Old Option; or
b. the Old Option Agreement.
3. GRANT OF THE EXCHANGED OPTION
3.1 As of the Effective Date, Loudeye hereby grants to the Optionholder the
Exchanged Option.
3.2 The Exchanged Option will be subject to the terms and conditions set out
or referred to in this Agreement, as amended from time to time.
4. EXERCISE AND LAPSE OF THE EXCHANGED OPTION
4.1 The Exchanged Option will only be validly exercised if exercised in
accordance with this Agreement.
4.2 To exercise the Exchanged Option, the Optionholder must complete the
Notice of Exercise attached to this Agreement as the Exhibit.
4.3 In the event that the Optionholder ceases to hold the office of
non-executive director of OD2, the Exchanged Option shall lapse three
months after the later to occur of:
a. the date on which you cease to hold the office of non-executive
director of OD2; or
b. the date on which you cease to hold any Loudeye Shares.
4.4 Subject to the other provisions of this Agreement, in the event of the
Optionholder's death, your personal representatives may exercise the
Exchanged Option during the period of 12 months after the date of death,
after which it shall lapse.
4.5 The Exchanged Option shall not under any circumstances be capable of
exercise later than 24 April 2013.
5. TAX AND NATIONAL INSURANCE CONTRIBUTIONS
5.1 All liability for any tax, or Employer's NICs (as defined in clause 5.5
below) or employee's National Insurance contributions (or their equivalent
in any non-UK jurisdiction) in respect of the grant or exercise of or
other dealing in the Exchanged Option or sale of the Loudeye Shares
("TAX") will be the responsibility of and borne by the Optionholder, or
where the Optionholder has died, his personal representatives (the
Optionholder and his personal representatives (where applicable) together
in this clause 5 referred to as the "OPTIONHOLDER").
5.2 Neither Loudeye nor OD2 makes any representation to the Optionholder with
regard to the Tax that may arise as a consequence of surrendering and
releasing the Old Option, the grant of the Exchanged Option or the
exercise of the Exchanged Option.
5.3 The Optionholder will indemnify and keep indemnified his or her employer,
Loudeye and OD2 from and against any liability for, or obligation to pay,
any Tax.
5.4 The Exchanged Option cannot be exercised until the Optionholder has
entered into an election with his/her employer (in a form approved by
Loudeye and the Inland Revenue) (an "ELECTION AGREEMENT") under which any
liability of that employer or Loudeye for Employer's NICs
152
arising in respect of the issuance, vesting, exercise of or other dealing
in the Exchanged Option is transferred to and met by the Optionholder.
5.5 "EMPLOYER'S NICS" means the amount of employer's National Insurance
contributions that arise upon the grant or exercise of or other dealing in
the Exchanged Option or sale of the Loudeye Shares less the amount of
employer's NICs that would have arisen had the Optionholder exercised his
Non-Executive Options at the fair market value at 21 June 2004 (with 'fair
market value' per OD2 Share for this purpose (as determined by the OD2
Board) being 62.80p).
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS
6.1 Subject to any required action by the stockholders of Loudeye, the number
of Loudeye Shares under the Exchanged Option and the New Exercise Price
shall be proportionately adjusted for any increase or decrease in the
number of Loudeye Shares resulting from a stock split, reverse stock
split, stock dividend, combination, recapitalization or reclassification
of Loudeye Shares, or any other increase or decrease in the number of
issued Loudeye Shares effected without receipt of consideration by Loudeye
which occurs after the Effective Date; provided, however, that conversion
of any convertible securities of Loudeye shall not be deemed to have been
"effected without receipt of consideration" and further provided that the
exercise price shall not be reduced below the par value per Loudeye Share.
Such adjustment shall be made by the Board of Loudeye, whose determination
in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by Loudeye 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 Loudeye Shares under the Exchanged
Option.
6.2 In the event of the dissolution or liquidation of Loudeye, the Exchanged
Option shall lapse and terminate immediately prior to the consummation of
such action, unless otherwise determined by the Board of Loudeye.
6.3 In the event of a Corporate Transaction (as defined below), the Exchanged
Option shall be assumed or an equivalent option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation (the "SUCCESSOR CORPORATION"), unless the Successor
Corporation does not agree to assume the award or to substitute an
equivalent option, in which case the Exchanged Option shall lapse and
terminate upon the consummation of the transaction.
6.4 Notwithstanding the terms of clause 6.3, in the event of a Change in
Control (as defined below), if :
a. the Successor Corporation so agrees, the Exchanged Option may either
be:
(i) assumed or replaced with an equivalent option by the Successor
Corporation; or
(ii) replaced with a cash incentive program of the Successor
Corporation based on the value of the Exchanged Option at the
time of the consummation of the transaction.
b. the Exchanged Option is not being assumed or replaced with an
equivalent option by the Successor Corporation, then to the extent
that it is not exercised prior to consummation of a Change of
Control transaction, the Exchanged Option shall lapse and terminate
upon such consummation.
153
6.5 For purposes of this clause 6.4, a Exchanged Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or
other consideration upon a Corporate Transaction or a Change of Control,
as the case may be, the Optionholder would be entitled to receive upon
exercise of the new award the same number and kind of shares of stock or
the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the
Optionholder had been, immediately prior to such transaction, the holder
of the number of Loudeye Shares covered by the award at such time (after
giving effect to any adjustments in the number of shares covered by the
Exchanged Option as provided for in this Agreement); provided that if such
consideration received in the transaction is not solely common stock of
the Successor Corporation, the Board of Loudeye may, with the consent of
the Successor Corporation, provide for the consideration to be received
upon exercise of the award to be solely common stock of the Successor
Corporation equal to the fair market value of the per share consideration
received by holders of the Loudeye's common stock in the transaction.
6.6 For purposes of this Agreement, "CHANGE OF CONTROL" means a sale of all or
substantially all of Loudeye's assets, or any merger or consolidation of
Loudeye with or into another corporation other than a merger or
consolidation in which the holders of more than 50% of the shares of
capital stock of Loudeye outstanding immediately prior to such transaction
continue to hold (either by the voting securities remaining outstanding or
by their being converted into voting securities of the surviving entity)
more than 50% of the total voting power represented by the voting
securities of Loudeye, or such surviving entity, outstanding immediately
after such transaction.
6.7 For purposes of this Agreement, "CORPORATE TRANSACTION" means a sale of
all or substantially all of Loudeye's assets, or a merger, consolidation
or other capital reorganization of Loudeye with or into another
corporation.
7. OPTIONHOLDER'S ACKNOWLEDGEMENT AND UNDERTAKING
7.1 The Optionholder acknowledges and agrees:
a. that nothing in this Agreement shall confer upon the Optionholder
any right with respect to the continuation of his/her employment or
appointment as an officer by any OD2 or any associated company;
b. the Exchanged Option does not form part of the terms of the
Optionholder's appointment to the office of non-executive director
of OD2 or in any way entitle the Optionholder to take into account
the Exchanged Option in calculating any compensation or damages on
the termination of his office which might otherwise be payable to
him; and
c. to accept as binding, conclusive and final all decisions or
interpretations made by or on behalf of Loudeye in respect of any
questions arising under this Agreement.
8. TRANSFER
The Exchanged Option is not transferable.
9. MISCELLANEOUS
9.1 Notwithstanding anything to the contrary, the Optionholder agrees to
cooperate with Loudeye to further amend the Exchanged Option to the extent
Loudeye determines it is necessary or desirable in order to accommodate
United States legal or tax considerations or to conform such Exchanged
Option to the terms and conditions of the Loudeye 2000 Stock option Plan
154
(titled the Loudeye Technologies, Inc. 2000 Stock Plan) and any form
option agreements thereunder, provided that any amendment which adversely
affects the rights of Employee Optionholders as a whole to a material
extent requires the prior consent of Employee Optionholder(s) holding
between them more than 50 per cent. of the outstanding Exchanged Options.
9.2 Any Notice to be given to the Optionholder in respect of the Exchanged
Option shall be delivered to the Optionholder in person or sent by first
class pre-paid post to you at your last known home address, according to
Loudeye's records, or at such other address as may appear to Loudeye to be
appropriate. Any notice so delivered or sent to the Optionholder will be
deemed to have been given on the date of delivery, or, as the case may be,
on the next following business day after the date of posting.
9.3 This Agreement is governed by and is to be construed in accordance with
the laws of the State of Delaware of the United States of America.
9.4 The Optionholder agrees that the Loudeye Shares issuable upon exercise of
the Exchanged Option shall be subject to the transfer restrictions set
forth in Part D of Appendix I of the Offer Document and, unless registered
under the Securities Act of 1933, as amended, will bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, REGULATION S PROMULGATED UNDER THE
ACT OR ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND, IN THE
CASE OF A TRANSACTION NOT SUBJECT TO SUCH REGISTRATION REQUIREMENTS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION
UNDER THE ACT. HEDGING TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
155
EXHIBIT
NOTICE OF EXERCISE
To: Loudeye Corp.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Exchanged Option
This is official notice that the undersigned ("OPTIONHOLDER")
intends to exercise Optionholder's option to purchase __________
shares of Loudeye Corp. Common Stock, under and pursuant to the
Option Exchange Agreement (the "AGREEMENT") dated _______________as
follows:
Grant Number: __________________________________
Date of Purchase: __________________________________
Number of Loudeye Shares: __________________________________
New Exercise Price per Loudeye Share:__________________________________
Method of Payment of
Purchase Price: __________________________________
Social Security No.: __________________________________
The shares should be issued as follows:
Name: ______________________________
Address: ______________________________
______________________________
______________________________
I agree:
(a) pursuant to clause 5 of the Agreement to indemnify Loudeye Corp. and any
of its subsidiaries, including my employer in respect of any Tax (as
defined in clause 5.1 of the Option Exchange Agreement) which arises as a
result of the grant, exercise of or other deaking in the Exchanged Option;
and
156
(b) that the issue of these Loudeye Shares to me shall be conditional upon my
first making arrangements to the satisfaction of Loudeye Corp. to
discharge any such Tax, including the giving of an appropriate power of
attorney and (if required by Loudeye Corp.) entering into an election
pursuant to clause 5 of the Agreement to transfer the primary
responsibility to pay employer's National Insurance contributions to
myself.
Signed:______________________________ Date: ______________________________
Name: ______________________________
NOTES:
(1) This form must be accompanied by payment of the aggregate New Exercise
Price for the Loudeye Shares in respect of which the Exchanged Option is
exercised.
(2) IMPORTANT neither Loudeye nor OD2 gives any advice to you on the tax
consequences of exercising the Exchanged Option. If you are unsure of the
tax liabilities that may arise, you should take professional advice before
exercising the Exchanged Option.
157