Advertising Agreement ( Amazon.com and Liquid Audio )

Exhibit 10.42



Amazon.com/Liquid Audio

Advertising Agreement





This Agreement is entered into as of this 9th day of June, 1999 by and between Liquid Audio, Inc., a California corporation with a principal place of business at 810 Winslow Street Redwood City, CA 94063 ("Liquid Audio"), and Amazon.com, Inc., a Washington corporation with a principal place of business at 1200 Twelfth Avenue South, Suite 1200, Seattle, Washington, 98144 ("Amazon.com").



A. The parties are interested in performing certain cooperative marketing



B. In consideration of those activities, Liquid Audio is willing to grant to

Amazon.com certain rights to purchase shares of its Common Stock.



NOW, THEREFORE, for good and valuable consideration, the receipt of which is the hereby acknowledged, the parties hereby agree as follows:



1. The parties will each perform cooperative marketing activities as follows:



(a) Relationship/Sarah McLachlan promotion: Within 30 days of the date

hereof, the parties will issue a mutually acceptable press release

stating that they have entered into a year-long promotional

relationship, and that the initial activity in connection with such

relationship shall be a promotion related to Sarah McLachlan.



(b) Liquid Artist Program: During the 30 day period commencing on the date

hereof (or such other period as the parties may agree upon), the

parties will negotiate in good faith the terms of an agreement under

which Amazon.com will implement Liquid Audio's Liquid Artist program on

the Amazon.com site; provided, that neither party shall have any

liability by reason of any failure or refusal to enter into any such

agreement for any reason.



2. Liquid Audio will grant Amazon net exercise warrants ("Warrants") to purchase up to 381,203 shares of the Common Stock of Liquid Audio, currently comprising two and one-half percent (2.5%) of the fully-diluted capital stock of Liquid Audio. The forms of the Warrants are set forth as Exhibits A and B attached hereto. The exercise price will be $6.56 per share. The Warrants will be exercisable for five years from the date hereof, and shall be subject to the conditions on exercise set forth herein. The Warrants will be allocated as follows:



. Relationship/Sarah McLachlan promotion - 66 2/3% of the total or 254,135

. Liquid Artist - 33 1/3% of the total or 127,068



3. The Warrants set forth on Exhibit A shall be exercisable immediately as set forth therein. Amazon.com agrees not to transfer the shares issued on exercise of the warrant for one year as to the date of exercise. The Warrants set forth on Exhibit B shall be subject to conditions on exercisability as follows. Unless these conditions are met, the applicable Warrant will not be exercisable.

(a) Exhibit B Warrant: The Warrant set forth on Exhibit B shall first

become exercisable as to one-half of the shares at the time of the

signing of a definitive agreement (if any) between Amazon.com and

Liquid Audio concerning the implementation of the Liquid Artist program

on the Amazon.com site. The remaining Warrants set forth on Exhibit B

will be exercisable with respect to one-twelfth thereof for each month

during the first year of the program commencing on the date the Liquid

Artist program is available on the Amazon.com site, for so long as

Amazon.com continues to maintain the Liquid Artist program on its site

subject to the terms negotiated in the definitive agreement (if any).



4. Liquid Audio will offer Amazon.com most favored customer pricing on applicable products and services for a period of one year from the date hereof, or for the term of the Liquid Artist agreement, whichever is greater.



5. Subject to the terms and conditions of this Agreement, each party (the "Indemnifying Party") agrees to indemnify, defend and hold the other party (the "Indemnified Party") harmless against any liabilities and expenses (including reasonable attorneys' fees), actually paid by a party in settlement of, or held against a party arising out of, a claim that the use or embodiment of the Indemnifying Party's contribution to any of the activities described herein infringes any right of any third party when used as contemplated under this Agreement; provided that the Indemnified Party agrees that the Indemnifying Party shall be released from the foregoing obligations to the extent it is prejudiced by any failure by the Indemnified Party to provide the Indemnifying Party with (i) prompt written notice of the claim, (ii) full control over the defense or settlement of such claim (except that the Indemnifying Party shall not enter into or acquiesce to any settlement which contains any admission of or stipulation to any guilt, fault, liability or wrongdoing on the part of the Indemnified Party without the Indemnified Party's prior written consent), and (iii) reasonable assistance in connection with the defense or settlement of such claim. Subject to the foregoing, the Indemnified Party shall be entitled to participate in the defense and settlement of any such claim, at its own expense, with counsel of its own choosing.



THE FOREGOING STATES EACH PARTY'S ENTIRE LIABILITY AND OBLIGATION (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) WITH RESPECT TO INTELLECTUAL PROPERTY INFRINGEMENT OR CLAIMS THEREFOR. EXCEPT TO THE EXTENT THE SAME ARE AWARDED IN CONNECTION WITH ANY THIRD PARTY CLAIM AGAINST WHICH A PARTY IS OBLIGATED TO INDEMNIFY THE OTHER PARTY PURSUANT TO THIS SECTION 5, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOST PROFITS, LOSS OF DATA, COST OF PROCUREMENT OF GOODS AND SERVICES OR FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING UNDER ANY CAUSE OF ACTION AND IN ANY WAY OUT OF THIS AGREEMENT OR THE DESIGNS, PRODUCTS, INFORMATION OR OTHER TECHNOLOGY PROVIDED PURSUANT TO THIS AGREEMENT. THE PROVISIONS OF THIS SECTION SHALL APPLY NOTWITHSTANDING THE FAILURE OF ANY LIMITED REMEDIES HERE UNDER.



6. Each party acknowledges that the cooperative marketing efforts to be undertaken hereunder are speculative in nature and that there is no guarantee that the materials contributed by either party shall be sufficient or error free. THEREFORE, EACH PARTY PROVIDES INFORMATION TO THE OTHER PARTY "AS IS," AND NEITHER PARTY MAKES ANY

WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO TECHNICAL INFORMATION, AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.



7. Nothing contained herein shall be construed to imply a joint venture or principal and agent relationship between the parties, and neither party shall have any right, power or authority to create any obligation, express or implied, with respect to any third party in connection with their performance hereunder.



8. General.



(a) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without reference to conflict of law principles.



(b) Arbitration. Any dispute or claim arising out of or in connection with this Agreement shall be finally settled by binding arbitration in San Jose, California (if arbitration is initiated by Amazon.com) or Seattle, Washington (if arbitration is initiated by Liquid Audio) under the rules of arbitration of the American Arbitration Association by one arbitrator appointed in accordance with said rules. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for injunctive relief without breach of this arbitration provision.



(c) Force Majeure. If the performance of this Agreement or any obligations hereunder is prevented, restricted or interfered with by reason of fire or other casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, ordinance, demand or requirement of any government agency, or any other act or condition beyond the control of the parties hereto, the party so affected upon giving prompt notice to the other party shall be excused from such performance during such prevention, restriction or interference for a period of up to ninety (90) days.



(d) Assignment. Neither party may assign or delegate this Agreement or any of its licenses, rights or duties under this Agreement without the prior written consent of the other, except (i) to a person or entity into which it has merged or which has otherwise succeeded to all or substantially all of its business and assets, and which has assumed in writing or by operation of law its obligations under this Agreement, or (ii) to any entity that controls or is controlled by or under common control with a party hereto or of which a party beneficially owns at least 50% of the equity interest therein.



(e) Authority. Each party represents that all corporate action necessary for the authorization, execution and delivery of this Agreement by such party and the performance of its obligations hereunder has been taken.



(f) Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand, by messenger or by telecommunication, addressed to the addresses first set forth above or at such other address furnished with a notice in the manner set forth herein. Such notices shall be deemed to have been served when delivered or, if delivery is not accomplished by reason of some fault of the addressee, when tendered.



(g) Partial Invalidity. If any paragraph, provision, or clause thereof in this Agreement shall be found or be held to be invalid or unenforceable in any jurisdiction in which this

Agreement is being performed, the remainder of this Agreement shall be valid and enforceable. The waiver of one breach or default hereunder shall not constitute the waiver of any subsequent breach or default.



(h) Entire Agreement. This Agreement and the Exhibits hereto represent and constitute the entire agreement between the parties, may only be amended in writing signed by both parties, and supersede all prior agreements and understandings with respect to the matters covered by this Agreement. The parties acknowledge that they have not relied upon any representations other than the representations set forth herein.





AGREED AS OF THE DATE SET FORTH ABOVE:



LIQUID AUDIO, INC. AMAZON.COM, INC.



By: /s/ Robert Flynn By:

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



Print Name:Robert Flynn Print Name:

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



Title:VP Business Development Title:

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

Agreement is being performed, the remainder of this Agreement shall be valid and enforceable. The waiver of one breach or default hereunder shall not constitute the waiver of any subsequent breach or default.



(h) Entire Agreement. This Agreement and the Exhibits hereto represent and constitute the entire agreement between the parties, may only be amended in writing signed by both parties, and supersede all prior agreements and understandings with respect to the matters covered by this Agreement. The parties acknowledge that they have not relied upon any representations other than the representations set forth herein.





AGREED AS OF THE DATE SET FORTH ABOVE:



LIQUID AUDIO, INC. AMAZON.COM, INC.



By: By: /s/ Alan Ciph

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



Print Name: Print Name: Alan Ciph

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



Title: Title: VP

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

COMMON STOCK PURCHASE WARRANT







THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.



No. W-A Void after June 9, 2004







LIQUID AUDIO, INC.







WARRANT TO PURCHASE 254,135 SHARES OF COMMON STOCK







THIS CERTIFIES THAT, for value received, Amazon.com, Inc. (the "Holder") is entitled to subscribe for and purchase from Liquid Audio, Inc., a California corporation (the "Company"), 254,135 shares (as adjusted pursuant to Section 3 hereof) of the fully paid and nonassessable Common Stock, no par value (the "Shares"), of the Company at the price of $6.56 per share (the "Exercise Price") (as adjusted pursuant to Section 3 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth.



This Warrant is subject to the following terms and conditions:



1. Method of Exercise; Payment.

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



(a) Cash Exercise. The purchase rights represented by this Warrant may

------------- be exercised by the Holder, in whole or in part, from time to time by the surrender of this Warrant (with the notice of exercise form (the "Notice of Exercise") attached hereto as Exhibit A duly executed) at the principal office

--------- of the Company, and by the payment to the Company of an amount equal to the

Exercise Price multiplied by the number of the Shares being purchased, which amount may be paid, at the election of the Holder, by wire transfer or certified check payable to the order of the Company. The person or persons in whose name(s) any certificate(s) representing Shares shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.



(b) Net Issue Exercise. In lieu of exercising this warrant pursuant to

------------------ Section l(a) hereof, the Holder may elect to receive a number of Shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with Notice of Exercise in which alternative No. 1 is initiated by the Holder. In such event, the Company shall issue to the Holder a number of Shares computed using the following formula:



X = Y (A-B)

-------



Where X = the number of Shares to be issued to the Holder.



Y = the number of Shares subject to this warrant.



A = the fair market value of one share of the Company's Common Stock.



B = the Exercise Price (as adjusted to the date of such calculation).



(c) Fair market Value. For purposes of this Section 1, the fair market

----------------- value of the Company's Common Stock shall mean:



(i) The average of the closing bid and asked prices of the Company's Common Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street

--------------- Journal for the ten trading days prior to the date of determination of fair - ------- market value;



(ii) If the Company's Common Stock is not traded Over-The- Counter or on an exchange, fair market value of the Common Stock per share shall be the price per share as determined by the Company's Board of Directors. Receipt and acknowledgment of this warrant by the Holder shall be definitely deemed to be an acknowledgment and acceptance of any such fair market value determination by the Company's Board of Directors as the final and binding determination of such value for purposes of this Agreement.



(d) Stock Certificates. In the event of any exercise of the

------------------ rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the

Holder within 30 days of such exercise and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.



2. Stock Fully Paid; Reservation of Shares. All of the Shares

--------------------------------------- issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.



3. Adjustment of Exercise Price and Number of Shares. Subject to

------------------------------------------------- the provisions of Section 12 hereof, the number and kind of Shares purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:



(a) Reclassification, Consolidation or Merger. In case of any

----------------------------------------- reclassification of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger with another corporation in which the Company is a continuing corporation and in which the Company's stockholders immediately preceding such consolidation or merger own at least 50% of the voting securities of the Company following such consolidation or merger and which does not result in any reclassification of the Shares issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation as the case may be, shall execute a new Warrant, providing that the holder of this Warrant shall have the right to exercise such new Warrant, and procure upon such exercise and payment of the same aggregate Exercise Price, in lieu of the Shares of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, sale of all or substantially all of the Company's assets or merger by a holder of an equivalent number of shares of Common Stock. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subsection (a), subject to Section 12 hereof, shall similarly apply to successive reclassifications, consolidations, mergers, and the sale of all or substantially all of the Company's assets.



(b) Stock Splits, Dividends and Combinations. In the event that

---------------------------------------- the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such combination shall be

proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.



4. Notices.

-------



(a) Upon any adjustment of the Exercise Price and any increase or decrease in the number of Shares purchasable upon the exercise of this Warrant in accordance with Section 3 hereof, then, and in each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof to the Holder at the address of such Holder as shown on the books of the Company which notice shall state the Exercise Price as adjusted and, if applicable, the increased or decreased number of Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation of each.



(b) In the event that the Company shall propose at any time to effect a Public Offering, the Company shall send to the Holder at least thirty (30) days prior written notice of the date when the same is anticipated to take place.



(c) The Company shall send to the Holder not less than thirty (30) days before the expiration of this Warrant, a written notice of the date on which this Warrant will expire.



(d) Any written notice by the Company required or permitted hereunder shall be given by hand delivery or first class mail, postage prepaid, addressed to the Holder at the address shown on the books of the Company for the Holder.



5. Transfer of Warrant Except in accordance with the conditions

------------------- contained in Section 6 hereof, this Warrant and all rights hereunder are not transferable. In order to effect any transfer of all or a portion of this warrant or the Shares, the transferor shall deliver a completed and duly executed Notice of Transfer (attached hereto as Exhibit B).

---------



6. Condition of Exercise or Transfer of Warrant.

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



(a) Unless exercised pursuant to an effective registration statement under the Act which includes the Shares so exercised, it shall be a condition to any exercise or transfer of this Warrant that the Company shall have received, at the time of such exercise or transfer, a representation in writing from the recipient or transferee in the form attached hereto as Exhibit

------- A-1 or Exhibit B-1, respectively, that the Shares being issued upon exercise, or - --- ----------- this Warrant (or portion hereof) transferred, as the case may be, are being acquired for investment and not with a view to any sale or distribution thereof.



(b) It shall be a further condition to any transfer of this Warrant, or of any or all of the Shares issued upon exercise of this Warrant, other than a transfer registered under the Act, that the Holder shall have given written notice to the Company which shall describe the manner and circumstances of the proposed transfer and be accompanied by a written opinion of Holder's legal

counsel or a "no-action" letter reasonably satisfactory to the Company stating that such transfer is exempt from the registration and delivery requirements of the Act and applicable state securities laws.



(c) Each certificate evidencing the Shares issued upon exercise of this Warrant, or transfer of such shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall be stamped or imprinted with a legend substantially in the following form:



THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.



Subject to this Section 6, the Company may instruct its transfer agent not to register the transfer of all or a part of this Warrant, or any of the Shares, unless one of the conditions specified in the above legend is satisfied.



7. Removal of Legend. Upon request of a holder of a certificate

----------------- with the legend referred to in Section 6 hereof, the Company shall issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received either an opinion of counsel or a "no- action" letter referred to in Section 6(b) of this agreement to the effect that any transfer by such holder of the shares evidenced by such certificate will not violate the Act and applicable state securities laws; provided, however, that the Company shall not be obligated to remove any such legends prior to the closing date of the Public Offering.



8. Fractional Shares. No fractional shares of Common Stock will be

----------------- issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.



9. Representations and Warranties of the Company. The Company

--------------------------------------------- represents and warrants to the Holder as follows:



(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms;



(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable;

(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company's Certificate of Incorporation, a true and complete copy of which has been delivered to the original Holder of this Warrant; and



(d) The execution and del ...