Software Development Agreement

As Amended)



This Agreement (this "Agreement") is entered into as of November 4, 1998, (the "Effective Date"), as amended, April 22, 1999 and June 14, 1999, by and between MICROSOFT CORPORATION, a Washington corporation with principal offices at One Microsoft Way, Redmond, Washington 98052 (hereinafter "Microsoft"), and AUDIBLE, INC., a Delaware corporation with principal offices at 65 Willowbrook Boulevard, Wayne, New Jersey 07040 (hereinafter "Au dible").



WHEREAS, Audible is the creator and provider of an Internet-based service that permits customers to use a computer with an Internet browser to select and download spoken word audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information in a secure Audible-proprietary file format, via the World Wide Web (currently using the URL "http://www.audible.com"), and to play back such Content using Audible's proprietary software or transfer to other devices (such as the Audible Mobile Player) for portable playback;



WHEREAS, Microsoft develops, markets and licenses computer software, including operating systems software and applications;



WHEREAS, Audible and Microsoft both desire for Audible to undertake certain development work with respect to Audible's proprietary software, pursuant to the terms and conditions of this Agreement;



WHEREAS, Microsoft desires to license the versions of Audible's software developed pu rsuant to this Agreement for inclusion in certain Microsoft products, and Audible desires to license said software to Microsoft, pursuant to the terms and conditions of this Agreement;



WHEREAS, Audible and Microsoft both desire that Microsoft shall become an authorized distributor of said software pursuant to the terms and conditions of this Agreement; and



WHEREAS, Audible and Microsoft desire to work together to integrate Audible's Content portfolio and security technology to operate with hardw are and software designed by or for Microsoft for "electronic books" capable of visually displaying text and simultaneously delivering an audio reading of the displayed text.



NOW THEREFORE, in consideration of the premises stated above, the mutual covenants of the parties and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:



-----------



For purposes of this Agreement, in addition to the capitalized terms defined elsewhere herein, the following terms shall have the meanings described below:



_______________ *** Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





Affiliate means (a) an entity that controls, is controlled by, or is under

--------- common control with a party; or (b) an entity that shall purchase or succeed to all or substantially all of the assets of that party. "Control" means ownership, directly or indirectly, of more tha n fifty percent (50%) of the outstanding shares or securities (representing the right to vote for the election of directors or other managing authority), or if the entity does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, "control" means more than fifty percent (50%) of the ownership interest representing the right to make the decisions for such corporation, company or other entity. A corporation, company or other entity shall be deemed to be an Affiliate only so long as such control.



ASF means Microsoft's Active Streaming Format version 1.0.

---



Audible Software for Windows CE means the version of the Client Software to

------------------------------- be de veloped by Audible under Section 1.2 of this Agreement to run on Windows CE enabling playback of audio content, and which is capable of running as a component of Windows CE for the Palm-size PC and Windows CE for the AutoPC. The Audible Software for Wind ows CE shall include reasonable documentation for such software, including complete source code and design documentation.



audible.com means the Internet-based service controlled or sponsored by

----------- Audible which permits customers to use a computer with an Internet browser to select, download and license copies of Content, for pay, in an Audible- proprietary file format, via a World Wide Web site currently using the URL "http://www.audible.com"



Audible Media Player Filter means a Direct Show filter to be developed by

--------------------------- Audible under Section 1.1 of this Agreement to enable the Windows Media Player on Windows and current Windows NT platforms to access the Content. The Audible Media Player Filter shall incl ude reasonable documentation for such software, including complete source code and design documentation.



Audible Mobile Players means the portable playback device available to End

---------------------- Users from Audible for the purpose of downloading Content and playing it under certain terms and conditions promulgated by Audible.



AudibleReady means the "AudibleReady" mark adopted by Audible to signify

------------ that designated equipment and software may be used to access Audible's Content, which designated equipment and software must meet the standards promulgated by Audible.



Windows CE for the AutoPC means the version of Windows CE, including the

------------------------- user interface and associated applications, developed by Microsoft for a computing device designed for use specifically in vehicles such as automobiles.



Client Software means Audible's proprietary software that is used as of the

--------------- Effective Date to download and play back the Content.





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





CODEC means the software implementation of a compressor/decompressor

----- algorithm, which enables computing devices to play audio stored in a compatible compression format.



Confidential Information shall have the meaning set forth in the Non-

------------------------ Disclosure Agreement referenced in Section 15.1.



Content means Spoken Word Audio files consisting of licensed and original

------- literary, business, and entertainment works and other types of spoken word information which Audible has the right to distribute via the World Wide Web to be accessed by computing devices.



Content Payments means (a) payments made by Audible to third parties for

---------------- the use or licensing or other distribution rights for specific Content items whether (i) calculated on the basis of usage of the specific Content items, or (ii) on the basis of a flat fee, advance or other sum not derived from usage of the Content, which shall be attributable to specific items within the Content on an amortized basis over a reasonable period of time, and (b) costs incurred by Audible in the creation of original Content directly or through its agents and contractors.



Customized Software means the Audible Media Player Filter, the Audible

------------------- Software for Windows CE, and any other software developed by Audible as a result of or in connection with the Development Work.



Dedicated Reading Machines means a new class of hardware devices under

-------------------------- development by Microsoft and its development partners and by other third parties that both (a) ar e designed and marketed to be used mainly for the purpose of both reading text from and listening to spoken word audio and (b) are capable of simultaneously displaying the text that corresponds with the audio that is playing, provided that neither (i) per s onal computers (PCs), laptop computers and general-purpose Windows CE based devices which are primarily designed for other purposes, nor (ii) audio-only devices, such as the Audible Mobile Player, shall qualify as Dedicated Reading Machines even if such d evices satisfy the requirements of (a) and (b) above.



Development Work means the work to be performed by Audible and its agents

---------------- under Section 1 of this Agreement.



End User means a current or prospective customer to whom Audible or its

-------- distributors offer to license Content for such customer's own use and not for resale or redistribution.



First Option Payment means the sum of One Million Five Hundred Thousand

-------------------- Dollars to be paid by Microsoft to Audible under Section 7.1 of this Agreement.



Gross Content Revenue means the amount of actual gross cash receipts

--------------------- derived by Audible from the licensing of Content by Audible to End Users who access the Content through a version of the Customized Software distributed directly or indirectly by Microsoft.



Integrated E-book Title means a single file that contains both text and

----------------------- audio renditions of the same work and is readable by a Dedicated Reading Machine.





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





Integration means the combination of a version of the Customized Software with

----------- Microsoft Products for distribution by Microsoft as permitted under this Agreement.



Intellectual Property means any copyrights, moral rights, maskworks, patents

--------------------- (including patent improvements), patent applications, patent rights, trade secrets, trademarks, trade names, service marks or other intellectual property rights under applicable law of any applicable country.



Manager shall mean someone in the management chain of the applicable party who

------- is a senior executive in terms of responsibility, and who is familiar with the administration of this Agreement.



Microsoft Products means computer hardware and/or software products developed,

------------------ licensed, and/or marketed by or for Microsoft.



Net Content Revenue means the Gross Content Revenues, less (a) any Content

------------------- Payments, (b) Revenue Sharing Payments, (c) sales or use taxes, excise taxes, value-added taxes, and duties, and (d) any payments made by Audible to Microsoft for digit al rights management, in each case attributable to the licensing of Content by Audible to End Users who access the Content through a Microsoft- distributed version of the Customized Software.



Windows NT Media Services means Microsoft's computer software currently titled

------------------------- "Windows NT Media Services" and its successors, which enables computer servers to distribute streaming audio and video.



NRE Expenditures means the costs incurred by Audible in connection with

------------- --- Audible's development work pursuant to Sections 1.2, 1.3 and 1.4(a)(i) of this Agreement which shall consist of (a) the time spent by individuals on behalf of Audible in performing the work at a reasonable labor charge, including any overtime compens a tion and including direct program management, (b) an allocation for Audible's administrative expenses attributable to the implementation and management of the work, fixed at [* * *]% of labor charges under subsection (a), (c) the cost of calls, faxes, cop y ing, media, meals and local transportation outside of regular business hours, and other third party charges incurred by Audible in relation to the work, (d) the cost of materials, equipment, supplies, and licenses directly used in connection with the work , (e) reasonable travel and living expenses of Audible's staff and agents when away from their normal place of business to perform the work, and (f) other reasonable expenses incurred by Audible directly to perform the work.



OEMs means Microsoft-approved original equipment manufacturers of computing

---- equipment distributed with Microsoft Products.



Windows CE for Palm-size PC means the version of Windows CE, including the

-------------- ------------ user interface and associated applications, developed by Microsoft for a palm size computing device.



Plus! means Microsoft's collection of add-on software applications for

----- Microsoft's Windows 98 operating system and/or Microsoft's Windows NT 5.x operating system.





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





Revenue Sharing Payments means payments (other than Content Payments)

------------------------ made by Audible to third parties with respect to obtaining distribution rights, OEM rights, promotion, and licensing of Client Software and Content in conjunction with Microsoft Products.



Sample Windows Media Content means five sample titles or portions of

---------------------------- titles of non-secured promotional Content of Audible's choice in the ASF format compatible with Windows NT Media Services to be provided by Audible on audible.com for access and use by End Users.



Secure or secured means encrypted or protected by any other method

----------------- designed to prevent unauthorized use.



Spoken Word Audio means recorded or broadcast spoken word audio content for

----------------- sale in the form of audio book distribution, text based audio programming, time shifted conference proceedings, soundtracks from television broadcasts, audio business programming, and/or time shifted radio distribution.



SiteBuilder Network means Microsoft's web-based information service to

------------------- assist web developers located at the URL www.microsoft.com/sitebuilder.



Term means an initial period of five years from the Effective Date and any

---- renewals and extensions of this Agreement.



Update shall mean a significant error correction, maintenance release,

------ major upgrade, improvement, extension and successor or replacement version of a computer software product. Updates shall be in source code and object code form.



Windows 9x means Microsoft Windows 95 and 98 operating systems.

----------



Windows CE means the 32 bit operating system and successor versions,

---------- designed for use with embedded, portable and mobile computing devices and designated by Microsoft as the Windows CE operating system.



Windows Media Player means Microsoft's software for the playback of

-------------------- streaming media on Windows 9x and Windows NT-based computers.



Windows NT means Microsoft's Windows NT operating systems for workstations.

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1. INTEGRATION OF PRODUCTS - AUDIBLE'S ROLE

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1.1 The Media Player. Audible, with the assistance and development tools

---------------- from Microsoft described in Article 2 below, shall develop the Audible Media Player Filter. As part of that effort, Audible shall:



a. develop the Audible Media Player Filter in accordance with written

specifications mutually agreed to by both parties and consistent with

Windows Media Player APIs to download and securely play back Audible

Content on Windows and Windows NT desktops; and





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





b. create an HTML-based web page that will, when accessed by a user

of Windows Media Player dynamically assemble an application from Microsoft-

provided components and other software components, which application, when

combined with the Audible Media Player Filter and other required user

interface elements, facilitates Windows Media Player-based playback of

Content. Audible shall use and make secure one or more Microsoft-provided

CODECs, as necessary to decode the Audible Content using the Windows Media

Player through the Web page described in the preceding sentence.



1.2. The Windows CE Platform. Audible, with the assistance and

----------------------- development tools from Microsoft described in Article 2 below , shall develop the Audible Software for Windows CE in accordance with written specifications mutually agreed to by both parties. The Audible Software for Windows CE shall initially be designed for Windows CE for the Palm-size PC and Windows CE for the A utoPC. Other versions of Windows CE may be added to this Development Work as determined by mutual written agreement of Microsoft and Audible, including agreement regarding any compensation to be paid to Audible for its additional development effort.



1.3. Synchronize Sound With Text. Audible shall exercise reasonable

--------------------------- efforts, jointly with Microsoft, to evaluate and implement the use of the ASF file format, or such other formats as agreed to by the parties, to sy nchronize sound content with text for use in then-current versions of Windows 9x, Windows NT and Windows CE. Prior to commencement of Development Work under this Section 1.4, the parties shall agree to a reasonable project statement that will guide the d i rection and scope of the efforts. The parties expect that this project will result in a design document, a specification, and finally an implementation of the specification, all of which shall be owned by Microsoft (except that any Intellectual Property o f Audible, preexisting as of the commencement of Development Work under Section 1.3 or created by Audible outside of any development work for Microsoft, applied in the performance of the work shall continue to be the property of Audible for all purposes a nd shall only be deemed licensed to Microsoft for the purposes of using the work product created under this Section).



1.4. The Electronic Book Platform. (a) Within one hundred eighty (180)

---------------------------- days of Microsoft requesting a port and providing file format specifications Audible shall port Content from Audible's portfolio that Audible has rights to port:



(i) to the ASF file format or, in the alternative, to any such

single file format that Microsoft reasonably determines to utilize for

Electronic Books content;



(ii) at Microsoft's request, to other file formats, provided

Microsoft and Audible shall first agree upon reasonable compensation and

terms for Audible performing such work; and



(iii) at Microsoft's request, to future versions of the ASF file

format released during the Term as mutually agreed to by the parties and,

if mutually agreed, subject to





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





Microsoft's payment of reasonable amounts to Audible to reimburse the costs

of porting to such future versions;



In any case stated in (i), (ii) or (iii), a s long as such file format reasonably provides adequate security for Audible's Content and generally meets Audible's business and technical needs, Audible shall port as much of its Content portfolio as Microsoft requests and for which Microsoft agrees to p ay NRE Expenditures pursuant to Section 8.3. Audible shall offer such ported Content to End Users on substantially similar terms and conditions, and through substantially similar distribution channels (including without limitation audible.com), as Audibl e offers its other Content to End Users. If Audible determines in good faith that, given then-existing Audible resources, the Microsoft requested porting cannot be finished in one hundred eighty (180) days, then parties will discuss in good faith whether Microsoft will fund the acquisition of additional resources as part of the NRE Expenditure reimbursement, or whether the parties will extend the period for completing the porting.



(b) Audible shall have no obligation to commence any Development Work under this Section 1.4 until such time as Microsoft has selected the file format under Section 1.4(a)(i) and provided Audible with specifications for the selected file format.



1.5. API Specifications. The Development Work under Section 1.1 shall be

------------------ consistent with Microsoft's Windows Media Player API specification.



1.6 Audible Branding. Audible shall, in a manner to be mutually agreed by

---------------- the parties and in compliance with Section 5.3(d) below, include Audible branding and promotional information in the Development Work under Sections 1.1 and 1.2.



1.7 Implementation Schedule. Time is of the essence in the performance of

----------------------- both parties under this Agreement. Audible's timely progress in the Development Work depends on the timely performance of Microsoft's obligations under this Agreement.



1.8 Media Player Timing. Audible shall release to the public from

------------------- audible.com the Audible Media Player Filter for Windows 98 and Windows NT 4.0, as set forth in this Agreement, no later than the last to occur of (a) [* * *] days after Audible releases similar software for any product or technology competitive with the Windows Medi a Player, or (b) [* * *] days after the commercial release of the Windows Media Player for Windows 98 and Windows NT 4.0.



1.9 Audible Software for Windows CE Timing. Audible shall provide to

-------------------------------------- Microsoft the Audible Software for Windows CE, as set forth in this Agreement, on a time schedule indicated by Microsoft and agreed by Audible as necessary for required testing and modification to be included in the commercial release of Windows CE for Palm-sized PC device and the AutoPC.



1.10 Non-Exclusivity. Subject to Section 9 below, the Development Work

--------------- will be performed by Audible on a non-exclusive basis and shall not affect the right of Audible to perform research and development efforts for others or on its own behalf with respect to the same





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





or similar technologies as are the subject of th is Agreement, provided that Audible shall take necessary steps to ensure that no Microsoft Intellectual Property is used or made available in connection with such other research or development efforts (unless such Intellectual Property is otherwise licens e d for the use). Except as stated in Sections 7.1, 9, and 16, Audible shall have the right to use, reproduce, modify and distribute, in its discretion, derivatives of the Development Work and to use, make, license and sell products based thereon, during an d after the Term of this Agreement. This shall include the right to permit the installation of the Customized Software or any portion thereof as an OEM and an after-market product for Windows-based equipment. Except as otherwise expressly provided herein, this Agreement does not grant to Microsoft any right or interest in and to any future developments by or on behalf of Audible or any new products and services offered by Audible.



1.11 Representatives; Meeting. Audible hereby agrees to have at least one

------------------------ Manager designated as the primary contact person on its behalf for matters relating to this Agreement and its implementation. Audible hereby further agrees that, at least semi-annually, during the period commencing on the Effective Date and ending on the termination or expiration of the Term, upon the written notice by Microsoft, it will meet, at a mutually agreeable time and location, to confidentially discuss the progress of work under this Agreement, product tren ds, implementation issues, areas of collaboration, and other related items. Audible will bear its own expenses regarding such meetings.



1.12 Sample Windows Media Content. Audible shall create the Sample

---------------------------- Windows Media Content in accordance with written technical specifications approved in advance by Microsoft, and shall deliver the Sample Windows Media Content as provided in Section 5.1.



2. INTEGRATION OF PRODUCTS - MICROSOFT'S ROLE

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



2.1. The Media Player. In connection with Audible's Development Work

---------------- under Section 1.1 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance and development tools to Audible for use solely in connection with the development of the Audible Media Player Filter for Windows 9x and Windows NT.



2.2. The Windows CE Platform. In connection with Audible's Development

----------------------- Work under Section 1.2 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance and development tools to Audible for use solely in c onnection with development of the Audible Software for Windows CE for Windows CE for Palm-size PC and Windows CE for AutoPC and such other Windows CE-based platforms as Microsoft and Audible may determine.



2.3. The Electronic Book Platform. In connection with Audible's

---------------------------- development obligations under Sections 1.3 and 1.4 above, Microsoft shall provide (as an express condition of such Audible Development Work) [* * *], reasonable design and technical assistance a nd development tools for use solely in connection with synchronization of sound with text under Section 1.3 and porting Content under Section 1.4. Without limitation to the foregoing,





_____________ ***Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.





Microsoft shall, with Audible's assistance, specify the interfaces, APIs, and other technical specifications necessary to synchronize Content with text content.



2.4. Other Software. In connection with all Development Work, Microsoft

-------------- shall provide, [* * * ], the Microsoft retail packaged software product set forth in Exhibit D.



2.5 Test Equipment. Microsoft shall provide to Audible [* * *], to the

-------------- extent available, production models of Auto PC and Palm-sized PC devices f ...