OEM AGREEMENT WITH SANYO ELECTRIC CO.

EXHIBIT 10.41



OEM AGREEMENT

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WHEREAS Liquid Audio, Inc., a California corporation, with offices at 810 Winslow Street, Redwood City, California 94063 (hereinafter referred to as "Liquid Audio") has developed a specification (referred herein as the "Secured Portable Player Protocol" or "SP-3") to download audio to be written to and playable on consumer electronics devices; and



WHEREAS Sanyo Electric Co., Ltd., a Japanese corporation with offices at 1- 1, Sanyo-cho, Daito City, Osaka 574-8534, Japan hereinafter referred to as "OEM", wishes to build a consumer electronics device utilizing the Secured Portable Player Protocol;



NOW THEREFORE THE PARTIES HEREBY AGREE AS OF THIS 2nd DAY OF JUNE 1999 ("EFFECTIVE DATE") AS FOLLOWS:



DELIVERABLES: Described in Attachment 2



DELIVERABLE SCHEDULE: Described in Attachment 2



EFFECTIVE DATE: June 2,1999



TERM: Two years from Effective Date



OEM PRODUCTS: Described in Attachment 3



ROYALTY FEE: [***]



NRE FEE: [***]



SHIP DATE OF DEVICE: September 1999



This Agreement (the "Agreement") consists of this cover page and Attachments 1, 2, 3, 4 and 5 hereto and all Schedules thereto.



IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the date first above written.



FOR LIQUID AUDIO FOR SANYO ELECTRIC CO., LTD.



BY: /s/ Mr. Robert Flynn BY: /s/ Mr. Tatsuo Tanaka

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

Mr. Robert Flynn Mr. Tatsuo Tanaka



TITLE: Vice President TITLE: Senior Manager



DATE: June 2, 1999 DATE: June 2, 1999





*Some material in this Exhibit has been omitted pursuant to a request for confidential treatment. Such material has been filed separately with the Securities and Exchange Commission.

ATTACHMENT 1

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OEM AGREEMENT TERMS AND CONDITIONS

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Annexed to and made part of that certain OEM Agreement ("Agreement") dated as of _____________________________________________________,1999, between Liquid Audio, Inc. "Liquid Audio") and __________ ("OEM").



I. Definitions

-----------



"Deliverables" means Liquid Audio deliverables referred to in the cover page of this Agreement.



"Devices" means a consumer electronic product developed based on Hardware Designs incorporating OEM Software into the OEM Products.



"Hardware Designs" means the designs, specifications [and compliance test bench] that will be used to build and manufacture the Device.



"Invention" means any innovation or feature, whether or not patentable or registerable, made by or on behalf of either or both of the parties hereto, which is made in the course of the performance of this Agreement and which directly results from or directly arises out of the work pursuant to this Agreement.



"Liquid Audio Products" means the Liquid Audio Player Software and Liquid Audio Reference Software.



"Liquid Audio Player Software" means the object code version of Liquid Audio's then current Player Software that Liquid Audio distributes to Liquid Audio's customers.



"Liquid Audio Reference Software" means the specifications and/or the C level source and object code version of Liquid Audio's SP-3 device module software that enables interface protocol for authentication and data transfer, file format parsing and content decryption.



"Patent Right" means any patent, utility model, registration, and/or design patent, excluding trademarks, trade names, or copyrights, for any innovation, discovery, improvement or feature issued in any country and/or filed prior to one (1) year after termination or expiration of this Agreement.



"OEM Reference Design" means the Hardware Design and OEM Software.



"OEM Products" means OEM's consumer electronic products referred to on the cover page of this Agreement.



"OEM Software" means versions of Liquid Audio Reference Software as modified for OEM Products.



"Territory" means all countries and territories worldwide.



"Tools" means OEM's tools necessary or desirable to enable Liquid Audio to provide technical engineering assistance to OEM hereunder.



II. Software License

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



(a) Liquid Audio License Grant. Subject to all the terms and conditions of

-------------------------- this Agreement, Liquid Audio hereby grants to OEM under Liquid Audio's patents, copyrights, and trade secrets, during the Term, a non-exclusive, royalty-free, nontransferable, non-sublicensable license in the Territory: (i) to use, copy, modify and make derivative works of Liquid Audio Reference Software, including source code thereof, to develop the OEM software; (ii) to incorporate OEM Software, in object code only, into OEM Products to create Devices; (iii) to copy Liquid Audio Player Software; (iv) to copy OEM Software, by embedding it in Devices; and (v) to distribute in the Territory the Liquid Audio Player Software and the OEM Software only on a bundled basis in connection with OEM's distribution of Devices in the ordinary course of OEM's business.



(b) Limitations. Notwithstanding any other provision of this Agreement,

----------- OEM shall not reproduce or have reproduced the OEM Software except in connection with the production of Devices, nor shall OEM distribute any OEM Software except as part of a Device or Liquid Audio Player Software except in connection with the distribution of Devices.



(c) Reservation of Rights. Liquid Audio hereby reserves to itself all

--------------------- rights to the Liquid Audio Products not expressly granted to OEM herein. OEM shall have no rights in or to the Liquid Audio Products except as expressly granted herein.



(d) Player End-User License Agreements. OEM shall distribute each Device

---------------------------------- with an end-user license agreement substantially in the form attached hereto as Attachment 4.



(e) No Reverse Engineering. OEM shall not, and shall not permit any third

---------------------- party to, alter, modify, adapt, translate, prepare derivative works from, decompile, reverse engineer, disassemble, or otherwise attempt to derive computer source code from, as applicable, the Liquid Audio Products, except as may be expressly permitted by applicable local law or Section II(a) herein.



(f) Licensing Relationship. The Liquid Audio Products are licensed, not

---------------------- sold, by Liquid Audio to OEM and distributed by OEM to its customers, and nothing in this Agreement shall be interpreted or construed as a sale or purchase of the Liquid Audio Products.





(g) Proprietary Rights Notices. OEM shall neither alter nor remove any

-------------------------- copyright notice or other proprietary rights notices which may appear on any Liquid Audio Product. In addition, OEM agrees that any reproduction of any Liquid Audio Product (or any portion thereof) authorized by Liquid Audio shall include such copyright and other proprietary rights notices as are currently contained on each such Liquid Audio Product or as may be reasonably specified from time to time by Liquid Audio. All promotional material relating to any Device shall also contain a reference, in such form as Liquid Audio shall reasonably prescribe, to Liquid Audio's proprietary rights in the Liquid Audio Products.



(h) Best Efforts. OEM shall use its best efforts to promote the marketing

------------ and distribution of Devices to realize the maximum sales potential for the Devices in the Territory. OEM agrees that it will bundle the Liquid Audio Player Software with Device for so long as Devices incorporate the OEM software. OEM agrees that it will make the Liquid Audio Player Software available for download from all appropriate Web sites that it operates or controls.



(i) OEM-branded Liquid Audio Player Software. OEM will provide graphics

---------------------------------------- for a co-branded to be included with the Liquid Audio Player Software to be distributed hereunder with the Device. OEM hereby grants to Liquid Audio a non- exclusive, non-sublicensable, non-assignable license to use trademarks provided by OEM on such faceplate.



III. Use of Liquid Audio Trademarks and Liquid Audio Trademark License

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(a) Grant. Liquid Audio hereby grants to OEM a non-exclusive, non-

----- sublicensable, non-assignable license to use the Licensed Trademarks in the Territory during the Term solely in connection with the packaging, labeling, promotion, advertising, and distribution of Devices. All such use shall be strictly in accordance with any trademark guidelines that may be supplied by Liquid Audio from time to time.



(b) Other Marks. OEM shall not use any mark confusingly similar to any of

----------- the Licensed Trademarks at any time.



(c) Quality Control. OEM shall deliver to Liquid Audio, at no cost to

--------------- Liquid Audio, from time to time as reasonably requested by them, representative samples of any and all items bearing any of the Licensed Trademarks. If, at any time, any item made or assembled by OEM and bearing any of the Licensed Trademarks shall, in the sole opinion of Liquid Audio, fail to conform to the standards of quality set by Liquid Audio, OEM immediately shall take such steps as are necessary to conform all such items to Liquid Audio's standard of quality.



(d) Policing. OEM shall aid Liquid Audio in policing the use of the

-------- Licensed Trademarks and shall otherwise provide Liquid Audio with all reasonable cooperation in protecting the Licensed Trademarks. OEM shall immediately notify Liquid Audio of any apparent infringement of any of the Licensed Trademarks that comes to OEMs attention.



(e) Branding. OEM shall place the Licensed Trademark (or otherwise

-------- provided by Liquid Audio) in a placement and prominence reasonably approved by Liquid Audio on the product chassis and packaging for all Devices sold by OEM.



IV. Development and Delivery

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



(a) Liquid Audio Deliverables. Liquid Audio will use reasonable commercial

------------------------- efforts to deliver Deliverables to OEM promptly after development thereof in accordance with the Deliverable Schedule set forth in Attachment 2 hereof.



(b) Title to Liquid Audio Deliverables. Title to Deliverables shall not

---------------------------------- pass from Liquid Audio to OEM or third parties, and Deliverables shall at all' times remain the sole and exclusive property of Liquid Audio.



(c) Delivery of Tools. OEM shall deliver three (3) copies of Tools to

----------------- Liquid Audio within thirty (30) days of the Effective Date.



(d) Title to Tools. Title to the Tools shall not pass from OEM to Liquid

-------------- Audio, and the Tools shall at all times remain the sole and exclusive property of OEM.



(e) Engineering Support. OEM will develop the OEM Reference Design for the

------------------- Device. Except as otherwise provided in this Agreement, each party will bear its own expenses in connection with carrying out the development and any other obligation set forth in this Agreement. During the development of Deliverables, OEM shall evaluate the Deliverables and shall provide reasonable feedback to Liquid Audio. Liquid Audio shall provide reasonable engineering support to OEM in connection with OEM's development of the OEM Software. OEM will use reasonable commercial efforts to commence sale of the Devices in commercial quantities in accordance with the product launch date set forth in the cover page of this Agreement.



V. Compensation and Reporting

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(a) Compensation. The Parties' sole compensation under this Agreement

------------ shall be the mutual benefit derived from offering the OEM Software on the Device and each party shall retain all revenues derived from their respective activities.



(b) Licensing Statement. On or before the thirtieth (30th) day following

------------------- the end of every calendar quarter; OEM shall deliver to Liquid Audio a written statement showing the number of Devices distributed by OEM during the immediately preceding calendar quarter.



VI. Support

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(a) End User Support. As between the parties, OEM will have the sole

---------------- responsibility to provide end user technical support to customers of Devices.





VII. Marketing and Production Costs

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(a) Joint Marketing of Device. Liquid Audio and OEM will collaborate on

------------------------- a joint press release and launch plan including appropriate marketing promotions and program, including, without limitation, press release, promotion with major content providers, coupons, direct marketing to OEM customer base, and any other appropriate promotions. All of Liquid Audio's promotions regarding devices incorporating SP3 device module software shall describe OEM as one of Liquid Audio's preferred partners for consumer products utilizing the Liquid Audio Reference Software. All OEM's marketing promotion of the Device will refer to Liquid Audio and SP-3 as one of the OEM's preferred technology partners. OEM will aggressively promote (using its full complement of advertising/promotional means) the Device and Liquid Audio's involvement therein.



(b) Production Costs. OEM shall be solely responsible for the cost of

---------------- (i) reproduction of the Liquid Audio Player Software and OEM Software, including the cost for the media onto which such software is reproduced; (ii) manufacture of any packaging or labeling in connection with the distribution of the Device; and (iii) any other marketing and distribution costs related to its sale of Devices.



(c) Press Release. Liquid Audio and OEM will collaborate to issue a

------------- joint press release announcing the relationship contemplated by this Agreement.



VIII. Miscellaneous Terms

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(a) Liquid Music Network Agreement. During the Term of this Agreement,

------------------------------ Liquid Audio, at OEM's option, shall license OEM as a syndication affiliate of the Liquid Music Network subject to the Liquid Music Network Syndication License Agreement set forth in Attachment 5.



(b) Major Music Providers. Liquid Audio will collaborate with OEM to

--------------------- access the major global providers of musical content to provide content for sale from designated Web Sites using the Device. If any such content is procured, Liquid Audio will use reasonable efforts to license any required software to OEM.



IX. Representations, Warranties, Disclaimers, Etc.

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(a) Warranty Disclaimer. THE LIQUID AUDIO PRODUCTS, AND ANY OTHER ITEMS

------------------- OR GOODS LICENSED OR DELIVERED TO OEM HEREUNDER ARE LICENSED OR DELIVERED TO OEM "AS IS," AND WITHOUT WARRANTY OF ANY KIND. LIQUID AUDIO HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES IN CONNECTION WITH THE LIQUID AUDIO PRODUCTS AND THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF NON- INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. LIQUID AUDIO MAKES NO, AND HEREBY EXPRESSLY DISCLAIMS ANY, WARRANTY (1) OF CONTINUOUS OR UNINTERRUPTED OPERATION OF LIQUID AUDIO PRODUCTS, (2) THAT THE LIQUID AUDIO PRODUCTS WILL RUN PROPERLY ON ALL HARDWARE OR COMBINATIONS THEREOF, OR (3) THAT THE LIQUID AUDIO PRODUCTS WILL MEET OEM'S REQUIREMENTS OR THE REQUIREMENTS OF ANY OF OEM'S CUSTOMERS.



X. Limitation of Liability

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



(a) Total Liability. LIQUID AUDIO'S TOTAL LIABILITY TO OEM FOR ANY KIND

--------------- OF LOSS, EXPENSE, COST, CLAIM OR DAMAGE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, UNDER ANY THEORY OF LIABILITY, SHALL BE LIMITED TO THE AMOUNTS PAID TO LIQUID AUDIO BY OEM HEREUNDER, IF ANY, IN THE TWELVE (12)-MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT TO WHICH SUCH LOSS OR DAMAGE RELATES.



(b) Exclusion of Damages. IN NO EVENT SHALL LIQUID AUDIO BE LIABLE TO

-------------------- OEM FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY, OR OTHERWISE, AND WHETHER OR NOT LIQUID AUDIO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT WITH RESPECT TO OR IN CONNECTION WITH ANY PROPRIETARY OR INTELLECTUAL PROPERTY RIGHT OF LIQUID AUDIO, OEM SHALL NOT BE LIABLE TO LIQUID AUDIO FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY, OR OTHERWISE, AND WHETHER OR NOT OEM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.



XI. Term and Termination

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(a) Term. This Agreement shall commence on the Effective Date and shall

---- continue for the period set forth in the Main Agreement unless otherwise terminated earlier in accordance with the terms of this Section XI.



(b) Events of Default. Any of the following events shall be an "Event of

----------------- Default" for purposes of this Section XI:



(i) Insolvency Events: Either party shall cease conducting business

----------------- in the normal course; become insolvent or become unable to meet its obligations as they become due; make a general assignment for the benefit of creditors; petition, apply for, suffer or permit with or without its consent the appointment of a custodian, receiver, trustee in bankruptcy or similar officer for all or any substantial part of its business or assets; avail itself or become subject to any proceeding under the U.S. Bankruptcy Code or any similar state, federal or foreign statute relating to bankruptcy, insolvency, reorganization, receivership, arrangement,





adjustment of debts, dissolution or liquidation, which proceeding is not dismissed within one hundred twenty (120) days of commencement thereof; or



(ii) Material Defaults: Default shall be made by either party in

----------------- the observance or performance of any material term, warranty, representation, covenant or agreement contained in this Agreement for a period of thirty (30) days from the date of receipt of written notice from the other party advising of such default and the defaulting party has not cured such default and so notified the other party within such thirty (30) day period.



(c) Termination Upon Event of Default. In any Event of Default, the

--------------------------------- party which is not in default, upon written notice any time to the other party, may terminate this Agreement.



(d) Effect of Termination. Upon any expiration or termination of this

--------------------- Agreement, (a) all rights and licenses granted to OEM under this Agreement shall terminate. Except as expressly provided herein, all of Liquid Audio's proprietary rights and confidential information, if any, shall be promptly returned to Liquid Audio or destroyed by OEM, and certification of destruction shall be made in writing to Liquid Audio within ten (10) days after such return or destruction.



(e) Nonexclusive Remedies. The rights and remedies provided to the

--------------------- parties in this Section X shall not be exclusive and are in addition to all other rights and remedies provided by this Agreement or any other relevant written agreement or available by law or in equity.



(f) Survival. Notwithstanding anything to the contrary contained in this

-------- Agreement, Sections I, II (except Section If(a)), V (except Section V Co)), VI, X, IX, X, XI, XII and XIII shall survive any expiration or termination of this Agreement.



XII. Confidential Information

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(a) Each party acknowledges that by reason of its relationship to the other party under this Agreement it will have access to certain information and materials concerning the other party's business, plans, customers, technology and products that are confidential and of substantial value to such party (referred to in this Section XII as "Confidential Information"), which value would be impaired if such Confidential Information were disclosed to third parties. The terms of this Agreement shall be deemed to constitute the Confidential Information of Liquid Audio. Each party agrees to maintain all Confidential Information received from the other, both orally and in writing, in confidence and agrees not to disclose or otherwise make available such Confidential Information to any third party without the prior written consent of the disclosing party. Each party further agrees to use the Confidential Information only for the purpose of performing this Agreement. No Confidential Information shall be deemed confidential unless so marked if given in writing or, if given orally, identified as confidential orally prior to disclosure and confirmed in writing within thirty (30) days; provided, however, that Licensor agrees that any Confidential Information in whatever form relating to the design, functionality, operational methods or coding of Liquid Audio software, including but not limited to any complete or partial source or object code versions of such software, shall be deemed Confidential Information of Liquid Audio regardless of the presence or absence of any confidential markings or identification.



(b) The parties' obligations under this Section XII shall not apply to Confidential Information which: (i) is or becomes a matter of public knowledge though no fault of or action by the receiving party; (ii) was rightfully in the receiving party's possession prior to disclosure by the disclosing party; (iii) subsequent to disclosure, is rightfully obtained by the receiving party from a third party who is lawfully in possession of such Confidential Information without restriction; (iv) is independently developed by the receiving party without resort to the disclosing party's Confidential Information; or (v) is required by law or judicial order, provided that prior written notice of such required disclosure is furnished to the disclosing party as soon as practicable in order to afford the disclosing party an opportunity to seek a protective order and that if such order cannot be obtained disclosure may be made without liability. Whenever requested by a disclosing party, a receiving party shall immediately return to the disclosing party all manifestations of the Confidential Information or, at the disclosing party's option, shall destroy all such Confidential Information as the disclosing party may designate. The receiving party's obligation of confidentiality shall survive this Agreement for a period of five (5) years from the date of its termination, and thereafter shall terminate and be of no further force or effect.



XIII. Other Provisions

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(a) Amendments. This Agreement may not in any way be modified, changed

---------- or amended except by a written instrument duly executed by the parties hereto. This Agreement, when executed, constitutes the entire, final, complete and exclusive agreement between the parties and supersedes any prior negotiations, understanding or agreements, whether oral or in writing, concerning the subject matter hereof.



(b) Governing Law. THIS AGREEMENT IS MADE IN ACCORDANCE WITH AND SHALL

------------- BE GOVERNED AND CONSTRUED UNDER. THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. IN NO EVENT SHALL THIS AGREEMENT BE GOVERNED BY THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.



(c) Jurisdiction. The State and federal courts in Santa Clara County,

------------ California shall have exclusive jurisdiction and venue over all controversies in connection herewith, and each party hereby irrevocably consents to such exclusive and personal jurisdiction and venue.





(d) Injunctive Relief. In the event of any breach of Section II, III,

----------------- VII or XII, either party may at any time apply to a court of competent jurisdiction for relief in the form of a temporary restraining order, preliminary injunction, or other provisional remedy.



(e) Assignments. OEM may not assign this Agreement or any right or

----------- obligation hereunder, directly, indirectly, by operation of law or otherwise, without Liquid Audio's prior written consent, and any attempt to do so shall be void and of no force or effect. Any change of control of OEM shall be considered an assignment. Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of each party.



(f) Severability. If any provision of this Agreement is held to be

------------ illegal, unenforceable or invalid, no other provision of this Agreement shall be affected thereby, and the remaining provisions of this Agreement shall be construed and reformed and shall continue with the same effect as if such illegal, unenforceable or invalid provision was not a part hereof; provided

-------- that, notwithstanding any other provision of this Agreement, if any limitation - ---- on the grant of any license to OEM hereunder is found to be illegal, unenforceable, or invalid, such license shall immediately terminate. The parties agree to renegotiate in good faith any term held illegal, unenforceable or invalid and to be bound by any mutually agreed substitute provision.



(g) Waiver. Any waiver (express or implied) by either party of any

------ default or breach of this Agreement shall not constitute a waiver of any other or subsequent default or breach.



(h) Notices. All notices or other communications required or permitted

------- to be given pursuant to this Agreement shall be in writing and shall be considered properly given or made if hand delivered, mailed first class mail, postage prepaid, sent by prepaid telegram (or telex or other facsimile transmission) or sent by express overnight courier service to the relevant addresses above or to such other address as either party hereto may designate by like notice sent to the other party hereto. All notices shall be deemed given when received. A mandatory copy of all notices delivered or sent to Liquid Audio shall be sent to Wilson Sonsini Goodrich & Rosati, 65 ...