PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
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MediaBay, Inc.
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MediaBay, Inc.
2 Ridgedale Avenue - Suite 300
Cedar Knolls, New Jersey 07927
November 16, 2004
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
MediaBay, Inc. (the "Company") which will be held on December 15, 2004 at 9:00
A.M. local time at the Company's offices located at 2 Ridgedale Avenue - Suite
300, Cedar Knolls, New Jersey 07927.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the meeting.
Your Board of Directors unanimously believes that the election of the
nominees specified in the Proxy Statement as directors, the proposal to approve
the 2004 Stock Incentive Plan, the proposal to amend the Company's Articles of
Incorporation to change the Company's name to Soundbytes Media Corporation and
the proposal to amend the Company's Articles of Incorporation to effect a
reverse split of the Company's issued and outstanding shares of common stock are
in the best interests of the Company and its shareholders and, accordingly,
recommends a vote "FOR" the election of the nominees and the proposals on the
enclosed proxy card.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, may I urge you to complete, sign, date and
return the enclosed proxy card in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Transfer Agent,
Continental Stock Transfer & Trust Company, in writing, at 17 Battery Place, New
York, New York, 10004.
Your vote is very important, and we will appreciate a prompt return of
your signed proxy card. We hope to see you at the meeting and appreciate your
continued support.
Sincerely yours,
Joseph R. Rosetti
Chairman
MEDIABAY, INC.
2 RIDGEDALE AVENUE - SUITE 300
CEDAR KNOLLS, NEW JERSEY 07927
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 15, 2004
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To the Shareholders of MEDIABAY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting ("Annual Meeting") of
Shareholders of MediaBay, Inc. (the "Company") will be held on December 15,
2004, at 9:00 A.M. local time at the Company's offices located at 2 Ridgedale
Avenue - Suite 300 Cedar Knolls, New Jersey 07927, for the following purposes:
1. TO ELECT THREE CLASS I DIRECTORS TO HOLD OFFICE UNTIL THE 2007 ANNUAL
MEETING OF SHAREHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS HAVE BEEN DULY
ELECTED AND QUALIFIED;
2. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE THE COMPANY'S 2004
STOCK INCENTIVE PLAN;
3. TO CONSIDER AND VOTE UPON A PROPOSED AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME TO SOUNDBYTES MEDIA
CORPORATION;
4. TO CONSIDER AND VOTE UPON A PROPOSED AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION TO EFFECT A REVERSE SPLIT OF THE COMPANY'S ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK; AND
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
Only shareholders of record at the close of business on November 1, 2004
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
By Order of the Board of Directors,
Joseph R. Rosetti
Chairman
November 16, 2004
MEDIABAY, INC.
2 RIDGEDALE AVENUE - SUITE 300
CEDAR KNOLLS, NEW JERSEY 07927
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 15, 2004
This proxy statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by the Board of Directors of MediaBay, Inc.
(the "Company") for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Wednesday, December 15, 2004 including any adjournment
or adjournments thereof, for the purposes set forth in the accompanying Notice
of Meeting.
Management intends to mail this proxy statement and the accompanying form
of proxy to shareholders on or about November 18, 2004.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the shareholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
The address and telephone number of the principal executive offices of the
Company are: 2 Ridgedale Avenue - Suite 300, Cedar Knolls, New Jersey 07927,
Telephone No.: (973) 539-9528.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on November 1, 2004
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, there were issued and outstanding 22,288,624 shares of
the Company's Common Stock, no par value (the "Common Stock"), 25,000 shares of
the Company's Series A Preferred Stock, no par value (the "Series A Preferred
Shares"), 3,350 shares of Series B Preferred Stock, no par value (the "Series B
Preferred Shares") and 43,527 shares of Series C Preferred Stock, no par value
(the "Series C Preferred Stock"). Each share of Common Stock entitles the holder
to one vote on each matter submitted to a vote at the Annual Meeting, each
Series A Preferred Share entitles the holder to approximately 57.14 votes on
each matter submitted to a vote at the Annual Meeting and each Series C
Preferred Share entitles the holder to approximately 128.21 votes on each matter
submitted for a vote at the Annual Meeting. Accordingly, the holders of the
Series A Preferred Shares are entitled to an aggregate of 1,428,571 votes and
the Series C Preferred Shares are entitled to an aggregate of 5,580,384 votes.
Holders of the Series A Preferred Shares and Series C Preferred Shares vote
together with the holders of the Common Stock as a single class on all actions
to be voted on by the Company's shareholders. The holders of Series B Shares do
not have any vote rights, except as required by law, and, accordingly, are not
entitled to vote on the election of directors on the Proposal.
VOTING PROCEDURES AND PROXY INFORMATION
The Class I directors will be elected by the affirmative vote of a
plurality of the votes represented by the shares of Common Stock, Series A
Preferred Shares and Series C Preferred Shares present in person or represented
by proxy at the Annual Meeting voting as a single class, provided a quorum
exists. A quorum is established if, as of the Record Date, at least a majority
of the outstanding shares of Common Stock, Series A Preferred Shares and Series
C Preferred Shares are present in person or represented by proxy at the Annual
Meeting. The proposed amendments to the Company's Articles of Incorporation
(Proposals II and III) will be decided by the affirmative vote of a majority of
(i) the shares of Common Stock outstanding on the Record Date and (ii) a
majority of the votes represented by outstanding shares of Common Stock, Series
A Preferred Shares and Series C Preferred Shares on the Record Date. All other
matters at the meeting, including, but not limited to, the proposal to approve
the Company's 2004 Stock Incentive Plan, will be decided by the affirmative vote
of a majority of the shares of Common Stock, Series A Preferred Shares and
Series C Preferred Shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter voting as a single class,
provided a quorum exists. Votes will be counted and certified by one or more
Inspectors of Election who are expected to be employees of Continental Stock
Transfer & Trust Company, the Company's transfer agent.
In accordance with Florida law, abstentions and "broker non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum. For purposes of determining approval of a
matter presented at the meeting, abstentions will be deemed present and entitled
to vote and will, therefore, have the same legal effect as a vote "against" a
matter presented at the meeting. Broker non-votes will be deemed not entitled to
vote on the subject matter as to which the non-vote is indicated. Broker
non-votes will have no legal effect on the election of directors and Proposal I,
but will have the same legal effect as a vote "against" Proposals II and III.
The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all shares represented by such proxy will be
voted as instructed. Proxies may be revoked as noted above.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the proxy and any
additional soliciting material furnished to shareholders, will be borne by the
Company. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy materials to the beneficial
owners of stock, and such persons may be reimbursed for their expenses by the
Company.
The Company has retained Innisfree M&A Incorporated to aid in the
solicitation of proxies and to verify records relating to the solicitors.
Innisfree will receive an engagement fee of $6,500 and reimbursement of
expenses.
Proxies may also be solicited by directors, officers or employees of the
Company in person or by telephone, telegram or other means. No additional
compensation will be paid to such individuals for these services.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board of Directors of the Company
is divided into three classes (Class I, Class II and Class III). At each Annual
Meeting of Shareholders, directors constituting one class are elected for a
three-year term. At this year's Annual Meeting of Shareholders, three (3) Class
I directors will be elected to hold office for a term expiring at the Annual
Meeting of Shareholders to be held in 2007. It is the intention of the Board of
Directors to nominate Joseph R. Rosetti, Paul Ehrlich and Stephen Yarvis as
Class I directors. Each director will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
At this year's Annual Meeting of Shareholders, the proxies granted by
shareholders will be voted individually for the election, as directors of the
Company, of the persons listed below, unless a proxy specifies that it is not to
be voted in favor of a nominee for director. In the event either or both of the
nominees listed below shall be unable to serve, it is intended that the proxy
will be voted for such other nominees as are designated by the Board of
Directors. Each of the persons named below has indicated to the Board of
Directors that he will be available to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES SPECIFIED BELOW.
-2-
The following information is with respect to the nominees for election at
this Annual Meeting of Shareholders:
CLASS I DIRECTORS
(To be Elected)
(New Term Expires in 2007)
Joseph Rosetti, 70, was appointed Chairman of the Board of Directors of
the Company in August 2004. Mr. Rosetti has been a director of the Company since
December 2002. Mr. Rosetti is President of SafirRosetti, an investigative and
security firm owned by Omnicom Group, Inc. Prior to forming SafirRosetti, Joseph
R. Rosetti was the Vice Chairman of Kroll Associates. As Vice Chairman, he had
responsibility for Corporate Security/Crisis Management, which provides industry
and professional organizations with preventive measures to combat corporate and
financial crimes. From 1971 to 1987 he had worldwide responsibility at IBM for
security programs in physical security, investigations, personnel security,
trade secret protection, information asset security, real and movable and
financial asset security and Department of Defense Security. Mr. Rosetti was a
member of the U.S. National Chamber of Commerce Crime Reduction Panel and was
Staff Director for the Conference of the National Commission on Criminal Justice
Standards and Goals, a member of the private Security Task Force to the National
Advisory Committee on Criminal Justice Standards and Goals and Chairman of the
American Management Association's Council on Crimes against Business. Prior to
joining IBM, Mr. Rosetti was the Northeast Director for the Law Enforcement
Assistance Administration of the U.S. Department of Justice and a Special Agent,
Group Supervisor, and Special Assistant to the Assistant Commissioner for
Compliance in the Intelligence Division, U.S. Treasury Department. Prior to
joining the Treasury Department, Mr. Rosetti held the position of Chief
Accountant at Marriott Corporation. Mr. Rosetti is a director of GVI Security
Solutions, Inc., a publicly-traded company.
Paul Ehrlich, 61, has been a director of the Company since May 2001. Since
August 2000, Mr. Ehrlich has been a partner in Edwards & Topple, LLP, a
certified public accounting firm. From 1981 until August 1, 2000, Mr. Ehrlich
was shareholder, Tax Specialist, Director of Personal Finance Services at
Feldman Sherb & Co., P.C. Mr. Ehrlich has served on the Board of Directors of
several companies and is a member of the American Institute of Certified Public
Accountants, the New York Society of Certified Public Accountants (appointed
committee member), and the International Association of Financial Planning. Mr.
Ehrlich received his B.A., a degree in accounting from Queens College and his
MBA from Pace University.
Stephen Yarvis, 67, has been a director of the Company since June 2004.
Mr. Yarvis was Senior Vice-President, Government Sales of Revlon Government
Sales Inc. from 1995 through 1999. From 1985 through 1995, Mr. Yarvis was
employed by the Mennen Division of Colgate-Palmolive Company, most recently as
Vice President, Sales Special Markets. From 1983 through 1985, Mr. Yarvis was
Vice-President sales, private label wipe products for Nice-Pak Products Prior to
joining Nice-Pak, Mr. Yarvis held various positions with Warner Lambert Company
and was market research supervisor at Pepsico, Inc. Mr. Yarvis holds an MBA from
New York University, and a BA from Hobart College.
The following information is with respect to incumbent directors in Class
II and Class III of the Board of Directors who are not nominees for election at
this Annual Meeting of Shareholders:
CLASS II DIRECTORS
(Term Expires in 2005)
Jeffrey Dittus, 38, has been Chief Executive Officer and a director of the
Company since January 2004. From 1995 through 1998, Mr. Dittus was a senior
executive with one of the world's largest direct response marketers, National
Media Corporation. While at National Media, Mr. Dittus had direct responsibility
for over 300 staff in two different countries, and built a process that
streamlined the marketing process in concert with building direct marketing
systems that quickly evaluated the profitability of new product launches. After
leaving National Media, Mr. Dittus founded IT Capital Limited, a public company
based in New Zealand, serving as its Chief Executive Officer until November
2001. Mr. Dittus returned to the United States and, in November 2001 founded a
merchant banking firm Kauri Capital, serving as its managing director until
January 2004. Mr. Dittus earned a B.S. degree from Pennsylvania State University
in Finance and began his career with Philadelphia Bank.
-3-
Paul Neuwirth, 68, has been a director of the Company since June 2004. Mr.
Neuwirth is a consultant on client issues and on litigation cases to the
international accounting firm Grant Thornton, LLP, where he was a partner from
1969 until his retirement from the firm in 2001. He was Managing Partner of the
Philadelphia Office of Grant Thornton from 1976 to 1991 and in charge of service
to clients and Litigation Support Services from 1991 to 2001. Mr. Neuwirth was
Interim Director of Internal Audit of the Board of Pensions of the Presbyterian
Church (U.S.A.) from 2001 through 2003. Since 1979, Mr. Neuwirth has been on the
faculty of The Wharton School of the University of Pennsylvania where he teaches
graduate and undergraduate courses in Auditing and in International Accounting.
A member of the American Institute of CPAs, Mr. Neuwirth was a member and
chairman of its Insurance Trust Committee for 12 years. He is a member of the
Pennsylvania Institute of CPAs and holds a Bachelor of Business Administration
degree from Baruch College of The City University of New York. Mr. Neuwirth is
an investor in residential and commercial real estate and a principal in medical
service businesses.
CLASS III DIRECTORS
(Term Expires in 2006)
John Levy, 49, has been Vice Chairman of the Company since August 2004,
Chief Financial Officer of the Company since January 1998 and an employee of the
Company since November 1997. Prior to joining the Company, Mr. Levy was Senior
Vice President of Tamarix Capital Corporation and had previously served as Chief
Financial Officer of both public and private entertainment and consumer goods
companies. Mr. Levy is a Certified Public Accountant with nine years experience
with the national public accounting firms of Ernst & Young, Laventhol & Horwath
and Grant Thornton.
Richard J. Berman, 61, became a director in June 2003. Mr. Berman has over
30 years of experience in venture capital and mergers and acquisitions. He is
currently a Director of International Microcomputer Software, Inc. a publicly
traded software company, the Internet Commerce Corporation, a publicly traded
Internet supply chain company, NexMed, a publicly traded life sciences company,
GVI Security Solutions, Inc., a publicly traded company, and is currently
Chairman of the KnowledgeCube Group, a venture capital firm, and Candidate
Resources Inc., a leading manager of human resource websites. Mr. Berman started
and managed the mergers and acquisitions and private equity groups of Bankers
Trust as Senior Vice President. Mr. Berman has also invested in and managed over
20 companies including as Chairman of Prestolite Battery, Inc., Boston Proper
and Internet Commerce Corporation. Mr. Berman received his B.S. and M.B. A. in
Finance from New York University, a J.D. from Boston College Law School and a
degree in International Law from Hague Academy of International Law
EXECUTIVE OFFICER
The following is information with respect to a Company officer who is not
a director or nominee for a director:
Robert Toro, 40, has been Senior Vice President of Finance of the Company
since July 1999, Chief Financial Officer of the Company's Audio Book Club
division since November 2001 and an employee since April 1999. Prior to joining
the Company, Mr. Toro was Senior Vice President of AM Cosmetics Co. and had
previously served in senior financial positions in both public and private
entertainment and publishing companies. From 1992 through early 1997, Mr. Toro
served in various senior financial positions with Marvel Entertainment Group,
Inc., a publicly traded youth entertainment company. Mr. Toro is a Certified
Public Accountant with six years of progressive experience with Arthur Andersen
where he was employed immediately prior to joining Marvel Entertainment Group.
BOARD MEETINGS
The Board of Directors held three meetings during the fiscal year ended
December 31, 2003. The Board also took action by unanimous written consent in
lieu of meetings.
The Company reimburses directors for reasonable travel expenses incurred
in connection with their activities on the Company's behalf, but the Company
does not pay directors any fees for Board participation.
-4-
Messrs. Neuwirth and Yarvis each receive $1,250 per quarter for attending Board
meetings and $1,250 per quarter for attending committee meetings. Paul Ehrlich
receives $7,500 per year for serving as a director.
DIRECTOR INDEPENDENCE
The Board has determined that Messrs. Berman, Ehrlich, Neuwirth and Yarvis
meet the director independence requirements of the Marketplace Rules of the
National Association of Securities Dealers, Inc. ("NASD") applicable to NASDAQ
listed companies.
CODE OF ETHICS AND BUSINESS CONDUCT
The Company has adopted a Code of Ethics and Business Conduct that applies
to its employees, including its senior management, including its Chief Executive
Officer, Chief Financial Officer, Controller and persons performing similar
functions. Copies of the Code of Ethics and Business Conduct can be obtained,
without charge, upon written request, addressed to: Corporate Secretary,
MediaBay, Inc., 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927.
COMMUNICATIONS WITH THE BOARD
The Board of Directors, through its Nominating Committee, has established
a process for shareholders to send communications to the Board of Directors.
Shareholders may communicate with the Board of Directors individually or as a
group by writing to: The Board of Directors of MediaBay, Inc., c/o Corporate
Secretary, 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927. Shareholders
should identify their communication as being from a shareholder of the Company.
The Corporate Secretary may require reasonable evidence that the communication
or other submission is made by a shareholder of the Company before transmitting
the communication to the Board of Directors.
CONSIDERATION OF DIRECTOR NOMINEES
Shareholders of the Company wishing to recommend director candidates to
the Nominating Committee must submit their recommendations in writing to the
Nominating Committee, c/o Corporate Secretary, 2 Ridgedale Avenue, Cedar Knolls,
New Jersey 07927.
The Nominating Committee will consider nominees recommended by the
Company's shareholders provided that the recommendation contains sufficient
information for the Nominating Committee to assess the suitability of the
candidate, including the candidate's qualifications. Candidates recommended by
shareholders that comply with these procedures will receive the same
consideration that candidates recommended by the Committee receive. The
recommendations must also state the name of the shareholder who is submitting
the recommendation. In addition, it must include information regarding the
recommended candidate relevant to a determination of whether the recommended
candidate would be barred from being considered independent under NASD
Marketplace Rule 4200, or, alternatively, a statement that the recommended
candidate would not be so barred. Each nomination is also required to set forth
a representation that the shareholder making the nomination is a holder of
record of capital stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to vote for the person or
persons nominated; a description of all arrangements and understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination was made by the shareholder
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission ("SEC") had the nominee
been nominated by the Board of Directors; and the consent of each nominee to
serve as a director of the Company if so elected. A nomination which does not
comply with the above requirements or that is note received by the deadline
referred to below will not be considered.
The qualities and skills sought in prospective members of the board are
determined by the Nominating Committee. The Nominating Committee generally
requires that director candidates be qualified individuals who, if added to the
Board, would require the mix of director characteristics, experience,
perspectives and skills appropriate for the Company. Criteria for selection of
candidates will include, but not be limited to: (i) business and financial
acumen, as determined by the Committee in its discretion; (ii) qualities
reflecting a proven record of accomplishment and ability to work with others;
(iii) knowledge of the Company's industry; (iv) relevant experience and
knowledge of corporate governance practices; and (v) expertise in an area
relevant to the Company. Such persons should not have commitments that would
conflict with the time commitments of a Director of the Company.
-5-
DEADLINE AND PROCEDURES FOR SUBMITTING BOARD NOMINATIONS
A shareholder wishing to nominate a candidate for election to the Board at
the Annual Meeting of Shareholders to be held in 2005 is required to give
written notice containing the required information specified above addressed to
the Nominating Committee, c/o Secretary of the Company, MediaBay, Inc., 2
Ridgedale Avenue, Cedar Knolls, New Jersey 07927 of his or her intention to make
such a nomination. The notice of nomination and other required information must
be received by the Company's Secretary no later than the latest date upon which
shareholder proposals must be submitted to the Company for inclusion in the
Company's proxy statement relating to such meeting pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, or other applicable rules or
regulations under the federal securities laws or, if no such rules apply, at
least 90 days prior to the date one year from the date of the immediately
preceding annual meeting of shareholders.
With respect to the deadlines discussed above, if the date of the Annual
Meeting of Shareholders to be held in 2005 is advanced by more than thirty days
or delayed (other than as a result of adjournment) by more than thirty days from
the anniversary of the Annual Meeting held in 2004, a stockholder must submit
any such proposal to the Company no later than the close of business on the
sixtieth day prior to the date of the 2005 Annual Meeting.
BOARD COMMITTEES
Audit Committee
The Company has an Audit Committee of the Board, which is comprised of
Messrs. Ehrlich (Chairman), Neuwirth and Yarvis. The Board has determined that
each member of the Audit Committee is an "independent director" under the
Marketplace Rule of the NASD applicable to NASDAQ listed companies. The Board
has determined that Mr. Ehrlich is the Company's financial expert under
applicable SEC rules and NASD Marketplace Rules. The Audit Committee is
responsible for overseeing the accounting and financial reporting processes of
the Company and the audit of the financial statements of the Company and making
decisions regarding the engagement of compensation, retention and oversight of
independent public accountants for audit and permitted non-audit services. The
Audit Committee's specific responsibilities are set forth in its written charter
filed as Exhibit A. Mr. Ehrlich received a cash fee of $7,500 for serving as
Chairman of the Audit Committee in 2003.
The Company has a Nominating Committee of the Board which is comprised of
Messrs. Yarvis (Chairman) and Berman. The Nominating Committee, among other
things, assists the Board in identifying individuals qualified to become Board
members and recommends director nominees to the Board for selection. A copy of
the charter of the Nominating Committee is attached hereto as Exhibit B.
The Company has a Compensation Committee of the Board which is comprised
of Messrs. Berman (Chairman), Neuwirth and Yarvis. The Compensation Committee is
responsible for developing and making recommendations to the Board of Directors
with respect to compensation of the Company's executive offices.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2004, none of the executive officers of the Company served on the
board of directors or the compensation committee of any other entity, any of
whose officers serves on the Company's Board of Directors or Compensation
Committee.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table discloses for the fiscal years ended December 31,
2001, 2002 and 2003, compensation paid to Hakan Lindskog and Ronald Celmer, the
Company's Chief Executive Officers during 2003, and the next four highly
compensated executive officers of the Company whose salary together with any
bonus was in excess of $100,000 during the fiscal year ended December 31, 2003
(the "Named Executives").
-6-
Summary Compensation Table
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- ----------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SAR'S (#) COMPENSATION
--------------------------- ---- ------ ------ ---------------------- ------------
Ronald Celmer 2003 $ 85,608 $ -- 1,500,000 $ --
Former Chief Executive Officer (1)
Hakan Lindskog 2003 230,091 25,000 -- $ 131,250
Former Chief Executive Officer (2) 2002 317,187 45,000 200,000 --
2001 264,063 50,000 175,000 --
John F. Levy 2003 190,000 35,705 60,241 --
Executive Vice President and Chief 2002 181,414 17,500 50,000 --
Financial Officer 2001 180,000 17,500 -- --
Steven M. McLaughlin 2003 140,417 10,000 40,000 41,250
Former Executive Vice President and 2002 188,684 -- 10,000 --
Chief Technology Officer (3) 2001 178,750 -- -- --
Robert Toro 2003 185,000 5,223 216,145 --
Senior Vice President Finance 2002 176,752 18,500 -- --
2001 159,087 17,500 50,000 --
Howard Herrick 2003 175,000 12,500 117,000 --
Executive Vice President (4) 2002 154,167 15,000 100,000 --
2001 150,000 30,00 100,000 --
Carl T. Wolf 2003 135,000 -- 585,000 --
Chairman (5) 2002 15,688 -- 645,000 --
2001 -- -- 35,000 --
(1) Ronald Celmer was employed as Chief Executive Officer of MediaBay, Inc.
from August 15, 2003 through January 5, 2004. In connection with the
termination of his employment, we paid severance of $56,250 in six
semi-monthly payments commencing January 15, 2004.
(2) Hakan Lindskog was employed as Chief Executive Officer of MediaBay, Inc.
from January 1, 2003 through August 13, 2003. In connection with the
termination of his employment, we agreed to pay severance of $145,833 in
semi-monthly payments from August 15, 2003 through January 15, 2004.
(3) Stephen McLaughlin resigned as Executive Vice President and Chief
Technology Officer of MediaBay, Inc. on September 15, 2003. In connection
with the termination of his employment, we paid severance of $146,667.
(4) Howard Herrick resigned as Executive Vice President on April 27, 2004.
(5) Carl Wolf became Co-Chairman on November 15, 2002, was named Chairman on
May 1, 2003 and resigned on May 27, 2004.
EMPLOYMENT AGREEMENTS
On January 29, 2004, the Company entered into a 27-month employment
agreement with Jeffrey Dittus. The agreement provides for a base annual salary
of $250,000 per year. Pursuant to the agreement, the Company granted to Mr.
Dittus options to purchase 1,500,000 shares of Common Stock, which have exercise
prices and vest as follows:
-7-
Options to Purchase Exercise Price Vesting Date
250,000 shares $0.99 04/30/2004
250,000 shares $0.99 07/30/2004
250,000 shares $1.55 01/30/2005
250,000 shares $1.55 07/30/2005
250,000 shares $1.86 01/30/2006
250,000 shares $1.86 04/30/2006
The Company entered into a two-year employment agreement with Joseph
Rosetti effective August 2004. This agreement provides for a monthly salary of
$7,500. Pursuant to the agreement, Mr. Rosetti was granted options to purchase
400,000 shares of Common Stock at an exercise price of $0.33 per share.
The Company entered into a two-year employment agreement with John Levy
effective August 2004. The agreement provides for an annual base salary of
$190,000, in the first year of the agreement and an annual base compensation of
$210,000 in the second year of the agreement, in each case, subject to a 10%
increase upon the Company obtaining an aggregate of $12 million of debt or
equity financing following the date of the agreement. In the event of
termination of employment under circumstances described in the employment
agreement, including as a result of a change in control, the Company will be
required to provide severance pay equal to the annual salary then in effect for
a period of 12 months.
OPTION GRANTS FOR FISCAL 2003
The following table discloses options granted during the fiscal year ended
December 31, 2003 to the Named Executives:
OPTION/SAR GRANTS IN FISCAL YEAR ENDING DECEMBER 31, 2003:
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SHARES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ------- ----------- --------- ---- ------- -------
Ronald Celmer (1) 250,000 8% $0.80 02/10/2009 $ 48,566 $121,297
250,000 8% 0.80 08/10/2009 54,618 136,597
250,000 8% 1.00 02/10/2010 10,984 103,426
250,000 8% 1.00 08/10/2010 17,349 120,256
250,000 8% 1.25 02/10/2011 -- 76,269
250,000 8% 1.25 08/10/2011 -- 94,782
Hakan Lindskog -- -- -- -- -- --
John F. Levy 60,241 2% 0.85 09/15/2008 14,147 31,261
Howard Herrick 39,000 1% 1.39 12/01/2009 18,800 42,787
39,000 1% 1.39 12/01/2009 22,450 52,486
39,000 1% 1.39 12/01/2009 26,283 63,156
Steven M. McLaughlin(2) 20,000 1% 1.50 02/15/2009 -- 5,077
20,000 1% 1.50 02/15/2010 -- 8,585
10,000 -- 1.00 02/15/2005 -- --
Robert Toro 40,000 1% 1.50 02/15/2005 -- --
36,145 1% 0.85 09/15/2008 6,182 15,846
60,000 2% 1.02 11/14/2009 14,381 38,716
60,000 2% 1.02 11/14/2010 18,160 48,708
Carl Wolf 60,000 2% 1.02 11/14/2011 22,128 59,698
285,000 9% 0.73 08/11/2003 51,158 111,786
300,000 9% 1.36 12/04/2008 112,723 249,088
----------
(1) Mr. Celmer's options were cancelled January 5, 2004.
(2) Mr. McLaughlin resigned September 15, 2003. The 40,000 options scheduled
to expire on February 15, 2009 and February 15, 2010 expired on December
15, 2003, 90 days after his resignation.
-8-
OPTION EXERCISES AND VALUES FOR FISCAL 2003
The following table sets forth information concerning the number of
options owned by these executives and the value of any in-the-money unexercised
options as of December 31, 2003:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT DECEMBER 31, 2003 OPTIONS AT DECEMBER 31, 2003
------------------------------ ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Ronald Celmer (1) -- 1,500,000 -- --
Hakan Lindskog -- -- -- --
Steven McLaughlin 58,000 -- 8,100 --
John F. Levy (2) 150,241 117,000 16,760 --
Howard Herrick (3) 600,000 205,000 66,000 --
Robert Toro 131,145 285,000 14,036 19,400
Carl T. Wolf (4) 1,022,500 -- 108,950 --
----------
(1) Mr. Celmer's options were cancelled January 4, 2004.
(2) 10,000 of Mr. Levy's options expired on January 1, 2004.
(3) 50,000 of Mr. Herrick's options expired on February 9, 2004.
(4) 7,500 of Mr. Wolf's options expired on March 18, 2004.
The year-end values for unexercised in-the-money options represent the
positive difference between the exercise price of such options and the fiscal
year-end market value of the common stock. An option is "in-the-money" if the
fiscal year-end fair market value of the common stock exceeds the option
exercise price. The closing sale price of our common stock on December 31, 2003
as $1.10.
STOCK PLANS
The Company's 1997 Stock Option Plan provides for the grant of stock
options to purchase up to 2,000,000 shares. As of the Record Date, options to
purchase an aggregate of 1,993,000 shares of its Common Stock have been granted
under the 1997 plan.
-9-
The Company's 1999 Stock Incentive Plan provides for the grant of any or
all of the following types of awards: (1) stock options, which may be either
incentive stock options or non-qualified stock options, (2) restricted stock,
(3) deferred stock and (4) other stock-based awards. A total of 2,500,000 shares
of common stock have been reserved for distribution pursuant to the 1999 Plan.
As of the Record Date, options to purchase an aggregate of 2,369,843 shares of
Common Stock have been granted under the 1999 Plan.
The Company's 2000 Stock Incentive Plan provides for the grant of any or
all of the following types of awards: (1) stock options, which may be either
incentive stock options or non-qualified stock options, (2) restricted stock,
(3) deferred stock and (4) other stock-based awards. A total of 3,500,000 shares
of Common Stock have been reserved for distribution pursuant to the 2000 Plan.
As of the Record Date, options to purchase an aggregate of 3,123,250 shares of
Common Stock have been granted under the 2000 Plan.
The Company's 2001 Stock Incentive Plan provides for the grant of any or
all of the following types of awards: (1) stock options, which may be either
incentive stock options or non-qualified stock options, (2) restricted stock,
(3) deferred stock and (4) other stock-based awards. A total of 3,500,000 shares
of Common Stock have been reserved for distribution pursuant to the 2001 plan.
As of the Record Date, options to purchase 3,417,000 shares of Common Stock have
been granted under the 2001 plan.
As of the Record Date, of the options granted under the plans, options to
purchase approximately 4,671,000 shares of Common Stock have been granted to the
Company's current officers and directors as follows: Joseph Rosetti - 565,000
shares; Jeffrey Dittus - 2,250,000 shares; John F. Levy - 1,010,241 shares;
Robert Toro - 336,145 shares; Richard Berman - 200,000 shares; Paul D. Ehrlich -
160,000 shares; Paul Neuwirth 75,000 shares; and Stephen Yarvis - 75,000 shares.
REPORT ON EXECUTIVE COMPENSATION
Except as set forth below, compensation of the Company's executive
officers for the fiscal year ended December 31, 2003 was determined by the Board
of Directors. There is no formal compensation policy for the Company's executive
officers.
Total compensation for executive officers consists of a combination of
salaries and stock option awards. The base salary of Hakan Lindskog and Ronald
Celmer, each of whom served as Chief Executive Officer of the Company during
2003, was fixed annually by the terms of his employment agreement with the
Company. Base salary of other executive officers during 2003 is based on the
Company's financial performance and the executive's individual performance and
level of responsibility. Bonus compensation in excess of minimum amounts agreed
to in employment agreements, if any, to executive officers is based generally
upon the Company's financial performance and the availability of resources as
well as the executive officer's individual performance and level of
responsibility. Stock option awards under the Company's stock option plans and
stock incentive plan are intended to attract, motivate and retain senior
management personnel by affording them an opportunity to receive additional
compensation based upon the performance of the Company's Common Stock. During
2003, options to purchase 1,500,000 shares were granted to Mr. Celmer; options
to purchase 60,241 shares were granted to Mr. Levy and options to purchase
216,145 shares were granted to Mr. Toro.
On August 12, 2004, the Board of Directors formed the Compensation
Committee which is comprised of Paul Ehrlich, and Joseph Rosetti.
Board of Directors
Joseph R. Rosetti
Richard Berman
Jeffrey A. Dittus
Paul Ehrlich
John F. Levy
Paul D. Neuwirth
Stephen Yarvis
-10-
PERFORMANCE GRAPH
The following line graph compares from December 31, 1998 through December
31, 2003, the cumulative total shareholder return on the Company's Common Stock
with the cumulative total return on the stock comprising the Nasdaq Market Value
Index and an index of issuers classified under the Retail-Catalog and Mail Order
Houses Standard Industrial Classification ("SIC") number. This comparison
assumes $100.00 was invested on December 31, 1998 in the Company's common stock
and in each of the foregoing indices and assumes reinvestment of all cash
dividends, if any, paid on such securities.
The Company has not paid any dividends and, therefore, the cumulative
total return calculation for the Company is based solely upon the fluctuations
in the stock price. The Historical stock price is not necessarily indicative of
future stock price performance.
[LINE CHART OMITTED.]
COMPARATIVE CUMULATIVE TOTAL RETURN AMONG THE COMPANY, NASDAQ MARKET
INDEX AND THE RETAIL-CATALOG AND MAIL ORDER HOUSES SIC NUMBER INDEX
At December 31,
---------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
MediaBay, Inc. .... $ 100.00 $ 96.24 $ 13.98 $ 5.33 $ 10.31 $ 9.46
SIC Number Index .. 100.00 86.40 31.65 43.98 33.56 62.61
Nasdaq Index ...... 100.00 176.37 110.86 88.37 61.64 92.68
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers,
directors, and persons who own more than 10% of a registered class of its equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors, and greater than 10%
shareholders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all forms that they file pursuant to Section
16(a).
Based solely upon the Company's review of the copies of such forms that
the Company received, the Company believes that, during the year ended December
31, 2003, all filing requirements applicable to its officers, directors, and
greater than 10% shareholders were fulfilled on a timely basis.
AUDIT COMMITTEE REPORT
The Audit Committee met with management to review and discuss the audited
financial statements. The Audit Committee conducted discussions with its
independent auditors, Amper Politzner & Mattia, P.C., regarding the matters
required by the Statement on Auditing Standards ("SAS") No. 61. As required by
Independence Standards Board Standard No. 1, "Independence Discussion with Audit
Committees," the Audit Committee has discussed with, and received the required
written disclosures and confirming letter from, Amper Politzner & Mattia, P.C.
regarding its independence. The Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
Paul Ehrlich
Joseph Rosetti
-11-
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table details information regarding our existing equity
compensation plans as of December 31, 2003:
Number of securities
remaining available for
(a) (b) future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a)
------------------------------------ ------------------------ -------------------- -------------------------
Equity compensation plans
approved by security holders........ 7,810,881 $ 2.92 3,689,119
Equity compensation plans not
approved by security holders........ 1,291,690 4.29 --
--------- ----- ---------
Total............................... 9,102,571 $3.11 3,689,119
========= ===== =========
The following table sets forth certain information as of the Record Date
relating to the beneficial ownership of shares of Common Stock by (i) each
person or entity who is known by the Company to own beneficially 5% or more of
the outstanding Common Stock according to Schedules 13G and 13D filed with the
SEC, (ii) each of the Company's directors and nominees for director, (iii) each
of the Named Executives, and (iv) all directors and executive officers of the
Company as a group.
Number of Shares Percentage of
Beneficially Shares
Owned Beneficially
Name and Address of Beneficial Owner(1)(2) Owned
------------------------------------------------------------- ---------------- ------------
Norton Herrick(3) 36,466,203 65.4
c/o The Herrick Company, Inc.
2 Ridgedale Avenue
Cedar Knolls, NJ 07927
Carl T. Wolf(4) 1,928,908 8.0
627 Inwood Lane
South Orange, NJ 07079
ABC Investments, L.L.C.(5) 1,656,918 7.1
c/o Jaffe, Raitt, Heuer & Weiss, P.C.
27777 Franklin Road - Suite 2500
Southfield, Michigan 48034
Jeffrey Dittus(6) 700,000 3.0
Joseph Rosetti(7) 527,500 2.3
John F. Levy(8) 437,215 1.9
Robert Toro(9) 216,145 *
Richard J. Berman(10) 147,500 *
Paul D. Ehrlich(11) 117,500 *
Paul Neuwirth(12) 75,000 *
Stephen Yarvis(12) 75,000 *
All directors and executive officers as a group (12 persons) 2,295,860 9.3
----------
* Less than 1%
-12-
1. Unless otherwise indicated the address of each beneficial owner is c/o
MediaBay, Inc., 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927. Unless
otherwise indicated, the Company's believes that all persons named in the
following table have sole voting and investment power with respect to all shares
of Common Stock that they beneficially own.
2. For purposes of this table, a person is deemed to be the beneficial
owner of the securities if that person has the right to acquire such securities
within 60 days of the Record date upon the exercise of options, warrants or
other convertible securities. In determining the percentage ownership of the
persons in the table below, we assumed in each case that the person exercised
and converted all options, warrants or convertible securities which are
currently held by that person and which are currently exercisable, but that
options, warrants or other convertible securities held by all other persons were
not exercised or converted.
3. Represents (i) 3,004,250 shares of Common Stock, (ii) 1,500,000 shares
of Common Stock issuable upon exercise of options, (iii) 4,436,160 shares of
Common Stock issuable upon convertible notes held by Mr. Herrick, (iv) 5,978,900
shares of Common Stock issuable upon conversion of convertible preferred stock
held by Mr. Herrick, (v) 3,029,230 shares of Common Stock issuble upon exercise
of warrants held by Mr. Herrick, (vi) 5,892,856 shares of Common Stock issuable
upon conversion of convertible notes held by Huntingdon Corporation
("Huntingdon"), (vii) 4,065,769 shares of Common Stock issuable upon conversion
of convertible preferred stock held by Huntingdon and (viii) 8,559,038 shares of
Common Stock issuable upon exercise of warrants held by Huntingdon. Mr. Herrick
is the sole stockholder of Huntingdon and his voting and dispositive power over
the securities held by Huntingdon.
4. Represents (i) 247,090 shares of Common Stock, (ii) 181,818 shares of
Common Stock issuable upon conversion of convertible preferred stock, (iii)
1,500,000 shares of Common Stock issuable upon exercise of options.
5. Represents (i) 456,918 shares of Common Stock and (ii) 1,200,000 shares
of Common Stock issuable upon conversion of a convertible note.
6. Represents shares of Common Stock issuable upon exercise of options.
Does not include 1,550,000 shares of Common Stock issuable upon exercise of
options which become exercisable more than 60 days after the Record Date.
7. Represents shares of Common Stock issuable upon exercise of options.
Does not include 37,500 shares of Common Stock issuable upon exercise of options
which become exercisable more than 60 days after the Record Date.
8. Represents (i) 1,000 shares of Common Stock, (ii) 25,974 shares of
Common Stock issuable upon conversion of convertible preferred stock and (iii)
410,241 shares of common stock issuable upon exercise of options. Does not
include 600,000 shares of Common Stock issuable upon exercise of options which
become exercisable more than 60 days after the Record Date.
9. Represents shares of Common Stock issuable upon exercise of options.
Does not include 120,000 shares of Common Stock issuable upon exercise of
options which become exercisable more than 60 days after the Record Date.
-13-
10. Represents shares of Common Stock issuable upon exercise of options.
Does not include 52,500 shares of Common Stock issuable upon exercise of options
which become exercisable more than 60 days after the Record Date.
11. Represents shares of Common Stock issuable upon exercise of options.
Does not include 37,500 shares of Common Stock issuable upon exercise of options
which become exercisable more than 60 days after the Record Date.
12. Represents shares of Common Stock issuable upon exercise of options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Companies wholly owned by Norton Herrick, a principal shareholder of the
Company, have in the past provided accounting, administrative, legal and general
office services to us at cost since our inception. Companies wholly owned by
Norton Herrick have also assisted us in obtaining insurance coverage without
remuneration. The Company paid or accrued to these entities $292,000 for these
service during the year ended December 31, 2003. As of December 31, 2003 the
Company owed to Mr. Herrick and his affiliates $826,000 for reimbursement of
such expenses and services. From January 1, 2004 through April 27, 2004, the
Company repaid approximately $187,000 of this amount and, on April 28, 2004, in
connection with the agreements described below, agreed to repay the remaining
approximately $639,000 as follows: (i) $40,500 per month on the first of each
month from May 2004 through and including July 2005 and (ii) $31,410 on August
1, 2005.
On May 1, 2003, the Company entered into a two-year consulting agreement
with XNH Consulting Services, Inc. ("XNH"), a company wholly-owned by Norton
Herrick. The agreement provided, among other things that XNH will provide
consulting and advisory services to us and that XNH will be under the direct
supervision of the Board of Directors. For its services, the Company agreed to
pay XNH a fee of $8,000 per month and to provide Mr. Herrick with health
insurance and other benefits applicable to Company officers to the extent such
benefits may be provided under Company benefit plans. The consulting agreement
provided that the indemnification agreement with Mr. Herrick entered into on
November 15, 2002 pursuant to which, the Company agreed to indemnify Mr. Herrick
to the maximum extent permitted by the corporate laws of the State of Florida
or, if more favorable, our Articles of Incorporation and By-Laws in effect at
the time the agreement was executed against all claims (as defined in the
agreement) arising from or out of or related to Mr. Herrick's services as an
officer, director, employee, consultant or agent of the Company or any
subsidiary or in any other capacity shall remain in full force and effect and to
also indemnify XNH on the same basis. Mr. Herrick resigned as our Chairman
effective May 1, 2003 and Mr. Herrick and the Company terminated the employment
agreement signed as of November 2, 2002 on May 1, 2003.
Effective December 31, 2003, the Company agreed with Norton Herrick to
terminate the two-year consulting agreement with XNH, the Company agreed to pay
XNH a fee of $7,500 per month for 16 months commencing on January 1, 2004 and to
provide Mr. Herrick with health insurance and other benefits applicable to our
officers to the extent such benefits may be provided under our benefit plans.
The termination agreement provides that the indemnification agreement with Mr.
Herrick entered into on November 15, 2002 shall remain in full force and effect
and to also indemnify XNH on the same basis. In connection with the termination
agreement, the non-competition and nondisclosure covenants of the XNH consulting
agreement were extended until December 31, 2006. This termination agreement was
terminated on April 28, 2004.
On May 7, 2003, the Company sold 3,350 shares of a newly created Series B
Convertible Preferred Stock with a liquidation preference of $100 per share for
$335,000. Of the total sold, 1,400 shares ($140,000), were purchased by Carl
Wolf, former Chairman and a director of MediaBay, and 200 shares ($20,000) were
purchased by John Levy, Vice Chairman and Chief Financial Officer of the
Company. The holders of shares of Series B Convertible Preferred Stock receive
dividends at the rate of $9.00 per share, payable quarterly, in arrears, in cash
on each March 31, June 30, September 30 and December 31; provided that payment
will accrue until the Company is permitted to make such payment in cash under
its Credit Agreement.
The Series B Convertible Preferred Stock is convertible into shares of
Common Stock at a conversion rate equal to a fraction, (i) the numerator of
which is equal to the number of Series B Convertible Preferred Stock times $100
plus accrued and unpaid dividends though the date of conversion and (ii) the
denominator is $0.77, the average of the high and low prices of the Common Stock
on May 6, 2003.
-14-
In the event of a liquidation, dissolution or winding up of MediaBay, the
holders of Series B Convertible Preferred Stock shall be entitled to receive out
of our assets, a sum in cash equal to $100.00 per share before any amounts are
paid to the holders of our common stock and on a pari passu basis with the
holders of the Series A Convertible Preferred Stock and Series C Convertible
Preferred Stock. The holders of Series B Convertible Preferred Stock have no
voting rights, except as required by law and except that the vote or consent of
the holders of a majority of the outstanding shares of Series B Convertible
Preferred Stock, voting separately as a class is required for any amendment,
alteration or repeal of the terms of the Series B Convertible Preferred Stock
that adversely effects the rights, preferences or privileges of the Series B
Convertible Preferred Stock.
On July 31, 2003, Norton Herrick exercised options to purchase 300,000
shares of our common stock at an exercise price of $.50 per share pursuant to an
Option Agreement dated November 23, 2001. The options were exercised on a
"cashless" basis and the closing stock price on July 31, 2003 was $.78.
Accordingly, the Company issued to Mr. Herrick a certificate for 107,692 shares
of our common stock.
In the third quarter of 2003, Norton Herrick provided a $100,000 guarantee
to a vendor. The Company subsequently paid the vendor and the guarantee expired.
Mr. Herrick received no compensation and did not profit from the transaction.
In the third quarter of 2003, Norton Herrick loaned the Company $100,000.
The loan was subsequently converted into an investment by Huntingdon
Corporation, a company wholly owned by Mr. Herrick, in a $1,065,000 bridge
financing completed on October 1, 2003. Carl Wolf also purchased a $100,000 note
in this financing. In consideration, the Company issued to each of Huntingdon
and Mr. Wolf a $100,000 principal amount note due October 1, 2004. The notes are
identical to all other notes issued in the financing and bear interest at the
rate of 18% per annum, payable at maturity. In connection with the issuance of
the notes, the Company agreed, subject to receipt of shareholder approval, to
issue to each of Huntingdon and Mr. Wolf warrants to purchase 25,000 shares of
Common Stock at an exercise price of $.80 and agreed to issue to each of them
warrants to purchase an additional 25,000 shares of Common Stock if the notes
are not repaid on April 1, 2004 at an exercise price per share equal to the
closing sale price of Common Stock on March 31, 2004. The notes were repaid
together with accrued and unpaid interest on April 28, 2004. Mr. Herrick and Mr.
Wolf agreed not to accept the additional warrants.
The Company entered into an agreement with Norton Herrick dated November
7, 2003 (the "November Agreement") whereby Mr. Herrick agreed to pay amounts
owed to us under Section 16(b) of the Securities Exchange Act of 1934 as a
result of various transactions which are attributable to Mr. Herrick occurring
within less than six months of each other that involved our securities. Mr.
Herrick agreed to pay us the sum of $1,742,149, (the "Payment") by delivering to
the Company for cancellation within ten (10) days of the date of the November
Agreement, shares of Common Stock and/or warrants to purchase shares of Common
Stock with an aggregate value equal to the Payment. Under the November
Agreement, the value of each share of Common Stock delivered under the Agreement
is equal to the last sale price of Common Stock on the trading day immediately
prior to the date on which the shares of Common Stock were delivered (the
"Market Price"). The value of any warrant delivered under the November Agreement
is equal to the Market Price of the underlying shares less the exercise price of
the warrant. Mr. Herrick delivered the shares of Common Stock and warrants
pursuant to the November Agreement on Monday, November 17, 2003, with the value
of the securities based on the Market Price on November 14, 2003 of $.94 per
share of Common Stock. As part of the Payment, Mr. Herrick returned to us
1,095,372 shares of Common Stock. Based on the Market Price, the aggregate value
of these shares is $1,029,650. Also, as part of the Payment, Mr. Herrick
deposited warrants to purchase 1,875,000 shares of Common Stock. Based on the
Market Price ($.94) less the exercise price of the warrants ($.56), the
aggregate value of these warrants was $712,500. Of the 1,875,000 warrants
deposited, 1,650,000 became exercisable May 14, 2001 and 225,000 became
exercisable February 22, 2002.
In 2003, Norton Herrick advanced $360,000 to certain vendors and
professional firms as payment of amounts owed by the Company to them. As the
Company made payments to these vendors, the vendors repaid the amounts advanced
to them by Mr. Herrick. Mr. Herrick received no interest or other compensation
for advancing the monies. As of the Record Date, none of the advances were
outstanding.
-15-
On January 29, 2004, the Company issued $4,000,000 aggregate principal
amount of promissory notes (the "2004 Notes") and warrants to purchase 2,352,946
shares of Common Stock to 13 institutional and accredited investors. In
connection with this offering, Norton Herrick and Huntingdon entered into a
letter agreement with the purchasers of the 2004 Notes pursuant to which they
granted to the holders of the 2004 Notes in the event of an Event of Default (as
defined in the 2004 Notes) the rights to receive payment under certain secured
indebtedness owed by the Company to Norton Herrick and Huntingdon and to
exercise their rights under security agreements securing such secured
indebtedness. Pursuant to the letter agreement, Norton Herrick and Huntingdon
also executed Powers-of-Attorney in favor of a representative of the 2004 Note
holders pursuant to which such representative may, following an Event of
Default, take actions necessary to enforce the 2004 Note holders rights under
the letter agreement, including enforcing Norton Herrick's and Huntingdon's
rights under the security agreements. On April 12, 2004, the notes were
converted into Common Stock. In consideration for Huntingdon's consent to the
Financing and execution of the letter agreement upon receipt of shareholders'
approval, the Company agreed to reduce the conversion price of $1,150,000
principal amount of convertible promissory notes held by Huntingdon from $2.00
to $1.27 and $500,000 principal amount of convertible promissory notes held by
Huntingdon from $1.82 to $1.27.
On April 28, 2004, the Company entered into a new credit agreement. Norton
Herrick, Huntingdon and N. Herrick Irrevocable ABC Trust (the "Trust"), of which
Norton Herrick was the beneficiary, consented to the new credit agreement and
the other transactions described above and entered into a subordination
agreement with Zohar. The new credit agreement required the aggregate amount of
principal and interest owed by MediaBay to Herrick, Huntingdon and the Trust be
reduced to $6,800,000 ("Permissible Debt") by June 1, 2004, and that the
Permissible Debt be further reduced by up to an additional $1,800,000 if
MediaBay does not raise at least $2,000,000 in additional equity in each of the
two calendar years following the execution of the new credit agreement. As of
the Record Date, the Company has raised $900,000 of additional equity. MediaBay
received a fairness opinion in connection with this transaction.
Pursuant to an agreement dated April 28, 2004, on May 25, 2004, Norton
Herrick exchanged accrued and unpaid interest and dividends (including accrued
and unpaid interest distributed by the Trust to Herrick) owed to Herrick
aggregating $1,181,419 into (i) 11,814 shares of Series C Convertible Preferred
Stock with a liquidation preference of $100 per share convertible into an
aggregate of 1,514,615 shares of Common Stock at an effective conversion price
of $0.78, and (ii) warrants to purchase 3,029,230 shares of Common Stock. The
warrants are exercisable until April 28, 2014 at an exercise price of $0.53.
Pursuant to an agreement dated April 28, 2004, on May 25, 2004, Huntingdon
exchanged the principal of the $500,000 principal amount note, $1,000,000
principal amount note, $150,000 principal amount note and $350,000 principal
amount note held by Huntingdon, plus accrued and unpaid interest owed to
Huntingdon aggregating $1,171,278 into (i) 31,713 shares of Series C Convertible
Preferred Stock convertible into an aggregate of 4,065,768 shares of Common
Stock at an effective conversion price of $0.78, and (ii) warrants to purchase
an aggregate of 8,131,538 shares of Common Stock. The warrants are exercisable
until April 28, 2014 at an exercise price of $0.53. If the amount of the
Permissible Debt is required to be reduced due to the Company's failure to raise
the requisite additional equity, such reduction will automatically occur by the
exchange of Permissible Debt held by Huntingdon for additional shares of Series
C Convertible Preferred Stock in an aggregate liquidation preference equal to
the amount of debt exchanged and warrants to purchase a number of shares of
Common Stock equal to two times the number of shares of Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock.
Herrick and Huntingdon agreed not to demand repayment of their debt until
the earlier of (i) the repayment of the New Credit Agreement or (ii) June 28,
2007. The remaining promissory notes held by Herrick, Huntingdon and the Trust
are guaranteed by certain subsidiaries of the Company and secured by a lien on
the assets of the Company and certain subsidiaries of the Company.
On April 28, 2004, the Company repaid $1.6 million principal amount of the
$3.2 million principal amount convertible note issued to ABC Investments,
L.L.C., a principal shareholder of the Company. We issued a new $1.6 million
note (the "New ABC Note") for the remaining principal amount. The New ABC Note
extends the maturity date from December 31, 2004 to July 29, 2007. In exchange
for extending the maturity date, the conversion price of the New ABC Note was
reduced to $0.50. The closing sale price of our common stock on the closing date
was $0.48. During October 2004, ABC Investments, L.L.C. converted $1,000,000
principal amount of the New ABC into shares of Common Stock pursuant to the
terms of the note.
-16-
PROPOSAL I
APPROVAL OF 2004 STOCK INCENTIVE PLAN
At the Annual Meeting, the Company's shareholders will be asked to approve
the adoption of the Company's 2004 Stock Incentive Plan (the "2004 Plan").
On October , 2004, the Board of Directors approved resolutions
recommending adoption by shareholders of the 2004 Plan. The Board believes that,
to enable the Company to continue to attract and retain personnel of the highest
caliber, provide incentive for officers, directors, employees and other key
persons and to promote the well-being of the Company, it is in the best interest
of the Company and its shareholders to provide to officers, directors,
employees, consultants and other independent contractors who perform services
for the Company, through the granting of stock options, restricted stock,
deferred stock or other stock-based awards, the opportunity to participate in
the value and/or appreciation in value of the Company's Common Stock. The Board
has found that the grant of options under its 1997 Stock Option Plan, 1999 Stock
Incentive Plan, 2000 Stock Incentive Plan and 2001 Stock Incentive Plan has
proven to be a valuable tool in attracting, retaining and motivating key
employees and consultants. Accordingly, the Board believes that the 2004 Plan,
which provides the Board greater flexibility with respect to certain terms under
which awards that may be granted, (a) will provide the Company with significant
means to attract and retain talented personnel, (b) will result in saving cash,
which otherwise would be required to maintain current employees and adequately
attract and reward personnel and others who perform services for the Company,
and (c) consequently, will prove beneficial to the Company's ability to be
competitive. The Company believes that there is not a sufficient amount of
options and stock awards available for future grant under the Company's 1997
Stock Option Plan, 1999 Stock Incentive Plan, 2000 Stock Incentive Plan and 2001
Stock Incentive Plan. The last sale price of the Common Stock on November 15,
2004 was $0.65.
To date, no options or other awards have been granted under the 2004 Plan.
If the 2004 Plan is approved by the shareholders, options or stock awards may be
granted under the 2004 Plan, the timing, amounts and specific terms of which
have not been determined at this time.
The following summary of the 2004 Plan does not purport to be complete,
and is subject to and qualified in its entirety by reference to the full text of
the 2004 Plan, set forth as Exhibit C to this Proxy Statement.
SUMMARY OF THE 2004 PLAN
The 2004 Plan provides for the grant of any or all of the following types
of awards (collectively, "Awards"): (a) stock options, (b) restricted stock, (c)
deferred stock and (d) other stock-based awards. Awards may be granted singly,
in combination, or in tandem, as determined by the Board of Directors or the
Committee (as defined below). Subject to anti-dilution adjustments as provided
in the 2004 Plan, (i) a total of 7,500,000 shares of Common Stock (subject to
adjustment if Proposal III is adopted by the shareholders and a reverse split of
the Common Stock is effected) have been reserved for distribution pursuant to
the 2004 Plan, any or all of which may be issued pursuant to the exercise of
Incentive Stock Options (as defined below), and (ii) the maximum number of
shares of Common Stock that may be issued to any individual participant under
the 2004 Plan may not exceed 1,500,000 shares (subject to adjustment if Proposal
III is adopted by the shareholders and a reverse split of the Common Stock is
effected) during the term of the 2004 Plan. If Proposal III is adopted by the
shareholders and a one-for-three share reverse split is effected, (1) a total of
2,500,000 shares of Common Stock shall be reserved for distribution pursuant to
the 2004 Plan and (ii) the maximum number of shares of Common Stock that may be
issued to any individual participant under the 2004 Plan may not exceed 500,000
shares during the term of the 2004 Plan.
The 2004 Plan may be administered by the Board of Directors (the "Board")
or a Committee (the "Committee") consisting solely of two or more members of the
Board of Directors appointed by the Board who meet the definitions of "outside
director" under Section 162(m) of the Code (as defined below), and "non-employee
director" under Section 16 of the Exchange Act. The Board or the Committee will
determine, among other things, the persons to whom Awards will be granted, the
type of Awards to be granted, the number of shares subject to each Award and the
share price. The Board or the Committee will also determine the term of each
Award, the restrictions or limitations thereon, and the manner in which each
such Award may be exercised or, if applicable, the extent and circumstances
under which Common Stock and other amounts payable with respect to an Award will
be deferred. The 2004 Plan will become effective upon its approval and adoption
at the Annual Meeting (the "Effective Date") and no Award shall be granted
pursuant to the 2004 Plan on or after the tenth anniversary of the Effective
Date.
-17-
Stock Options. The 2004 Plan provides for the grant of "incentive stock options"
("Incentive Stock Options"), as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and for options not qualifying as
Incentive Stock Options ("Non-Qualified Stock Options"). The Board or the
Committee, as the case may be, shall determine those persons to whom stock
options may be granted.
Incentive Stock Options granted pursuant to the 2004 Plan are
nontransferable by the optionee during his lifetime. Options granted pursuant to
the 2004 Plan will expire if not exercised within 10 years of the grant (five
years in the case of Incentive Stock Options granted to an eligible employee
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or a parent or subsidiary of the Company
immediately before the grant ("10% Shareholder")), and under certain
circumstances set forth in the 2004 Plan, may be exercised within three (3)
months following termination of employment (one year in the event of death,
retirement or disability of the optionee), unless the term of the option,
pursuant to the stock option agreement, expires earlier. Options may be granted
to optionees in such amounts and at such prices as may be determined, from time
to time, by the Board or the Committee. The exercise price of an Incentive Stock
Option will not be less than the fair market value of the shares underlying the
option on the date the option is granted, provided, however, that the exercise
price of an Incentive Stock Option granted to a 10% Shareholder may not be less
than 110% of such fair market value. The exercise price of a Non-Qualified Stock
Option may be less than such fair market value on the date of grant.
Under the 2004 Plan, the Company may not, in the aggregate, grant
Incentive Stock Options that are first exercisable by any optionee during any
calendar year (under all such plans of the optionee's employer corporation and
its "parent" and "subsidiary" corporations, as those terms are defined in
Section 424 of the Code) to the extent that the aggregate fair market value of
the underlying stock (determined at the time the option is granted) exceeds
$100,000.
The 2004 Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to Awards
which expire without being exercised or which are cancelled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued upon the exercise of any option granted under
the 2004 Plan until the full option price has been paid by the optionee. The
Board of Directors or the Committee may grant individual options under the 2004
Plan with more stringent provisions than those specified in the 2004 Plan.
Options become exercisable in such amounts, at such intervals and upon
such terms and conditions as the Board of Directors or the Committee provides.
Stock options granted under the 2004 Plan are exercisable until the earlier of
(i) a date set by the Board of Directors or Committee at the time of grant or
(ii) the close of business on the day before the tenth anniversary of the stock
option's date of grant (the day before the fifth anniversary in the case of an
Incentive Stock Option granted to a 10% Shareholder). The 2004 Plan will remain
in effect until all stock options are exercised or terminated. Notwithstanding
the foregoing, no options may be granted on or after the tenth anniversary of
the Effective Date.
Restricted and Deferred Stock Awards. Under the 2004 Plan, the Board or the
Committee may grant shares of restricted Common Stock either alone or in tandem
with other Awards. Restricted and Deferred Stock awards give the recipient the
right to receive a specified number of shares of Common Stock, subject to such
terms, conditions and restrictions as the Board or the Committee deems
appropriate. Restrictions may include limitations on the right to transfer the
stock until the expiration of a specified period of time and forfeiture of the
stock upon the occurrence of certain events such as the termination of
employment prior to expiration of a specified period of time.
Other Stock Based Awards. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance of the
Company or any parent or subsidiary of the Company, may be granted either alone
or in tandem with other Awards.
-18-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE 2004 PLAN
The following is a brief summary of the Federal income tax aspects of
Awards made under the 2004 Plan based upon statutes, regulations and
interpretations in effect on the date hereof. This summary is not intended to be
exhaustive, and does not describe state or local tax consequences.
1. INCENTIVE STOCK OPTIONS. The optionee will recognize no taxable income
upon the grant or exercise of an Incentive Stock Option. Upon a disposition of
the shares after the later of two years from the date of grant and one year
after the transfer of the shares to the optionee, (a) the optionee will
recognize the difference, if any, between the amount realized and the exercise
price as long-term capital gain or long-term capital loss (as the case may be)
if the shares are capital assets in his or her hands; and (b) the Company will
not qualify for any deduction in connection with the grant or exercise of the
options. The excess, if any, of the fair market value of the shares on the date
of exercise of an Incentive Stock Option over the exercise price will be treated
as an item of adjustment to the optionee for his or her taxable year in which
the exercise occurs and may result in an alternative minimum tax liability for
the optionee. In the case of a disposition of shares in the same taxable year as
the exercise where the amount realized on the disposition is less than the fair
market value of the shares on the date of exercise, there will be no adjustment
since the amount treated as an item of adjustment, for alternative minimum tax
purposes, is limited to the excess of the amount realized on such disposition
over the exercise price which is the same amount included in regular taxable
income.
If Common Stock acquired upon the exercise of an Incentive Stock Option is
disposed of prior to the expiration of the holding periods described above, (a)
the optionee will recognize ordinary compensation income in the taxable year of
disposition in an amount equal to the excess, if any, of the lesser of the fair
market value of the shares on the date of exercise or the amount realized on the
disposition of the shares, over the exercise price paid for such shares; and (b)
the Company will qualify for a deduction equal to any such amount recognized,
subject to the requirements that the compensation be reasonable and not limited
under Section 162(m) of the Code. The optionee will recognize the excess, if
any, of the amount realized over the fair market value of the shares on the date
of exercise, if the shares are capital assets in his or her hands, as short-term
or long-term capital gain, depending on the length of time that the optionee
held the shares, and the Company will not qualify for a deduction with respect
to such excess.
Subject to certain exceptions for disability or death, if an Incentive
Stock Option is exercised more than three months following the termination of
the optionee's employment, the option will generally be taxed as a Non-Qualified
Stock Option. See "Non-Qualified Stock Options."
2. NON-QUALIFIED STOCK OPTIONS. With respect to Non-Qualified Stock
Options, (a) upon grant of the option, the optionee will recognize no income;
(b) upon exercise of the option (if the shares are not subject to a substantial
risk of forfeiture), the optionee will recognize ordinary compensation income in
an amount equal to the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price, and the Company will qualify for a
deduction in the same amount, subject to the requirements that the compensation
be reasonable and not limited under Section 162(m) of the Code; (c) the Company
will be required to comply with applicable Federal income tax withholding
requirements with respect to the amount of ordinary compensation income
recognized by the optionee; and (d) on a sale of the shares, the optionee will
recognize gain or loss equal to the difference, if any, between the amount
realized and the sum of the exercise price and the ordinary compensation income
recognized. Such gain or loss will be treated as short-term or long-term capital
gain or loss if the shares are capital assets in the optionee's hands depending
upon the length of time that the optionee held the shares. If the optionee's
shares acquired upon exercise are subject to a substantial risk of forfeiture,
the optionee will have an election to treat the exercise as a taxable event or
defer the Federal income tax consequences according to the rules described below
in "Stock Awards."
3. STOCK AWARDS. Unless a participant otherwise elects to be taxed upon
receipt of shares of restricted or deferred stock under the 2004 Plan, the
participant must include in his or her taxable income the difference between the
fair market value of the shares and the amount paid, if any, for the shares, as
of the first date the participant's interest in the shares is no longer subject
to a substantial risk of forfeiture or such shares become transferable. A
participant's rights in stock awarded under the 2004 Plan are subject to a
substantial risk of forfeiture if the rights to full enjoyment of the shares are
conditioned, directly or indirectly, upon the future performance of substantial
services by the participant. Where shares of stock received under the 2004 Plan
are subject to a substantial risk of forfeiture, the participant may elect to
report the difference between the fair market value of the shares on the date of
receipt and the amount paid, if any, for the stock as ordinary income in the
taxable year of receipt. To be effective, the election must be filed with the
Internal Revenue Service within 30 days after the date the shares are
transferred to the participant. The Company is entitled to a Federal income tax
deduction equal in amount to the amount includable as compensation in the gross
income of the participant, subject to the requirements that the compensation be
reasonable and not limited under Section 162(m) of the Code. The amount of
taxable gain arising from a participant's sale of shares of restricted stock
acquired pursuant to the 2004 Plan is equal to the excess of the amount realized
on such sale over the sum of the amount paid, if any, for the stock and the
compensation element included by the participant in taxable income.
-19-
4. OTHER TAX MATTERS. If unmatured installments of Awards are accelerated
as a result of a Change of Control (as defined in the 2004 Plan), any amounts
received from the exercise by a participant of a stock option, the lapse of
restrictions on restricted stock or the deemed satisfaction of conditions of
performance-based awards may be included in determining whether or not a
participant has received an "excess parachute payment" under Section 280G of the
Code, which could result in (a) the imposition of a 20% Federal excise tax (in
addition to Federal income tax) payable by the participant on certain payments
of Common Stock or cash resulting from such exercise or deemed satisfaction of
conditions of performance awards from such exercise or deemed satisfaction of
conditions of performance awards or, in the case of restricted stock, on all or
a portion of the fair market value of the shares on the date the restrictions
lapse and (b) the loss by the Company of a compensation deduction.
RECOMMENDATION
The Board of Directors unanimously recommends that shareholders vote "FOR"
this proposal.
PROPOSAL II
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO CHANGE THE COMPANY'S NAME TO "SOUNDBYTES MEDIA CORPORATION"
The Board of Directors has adopted a resolution proposing that the Company
amend its Articles of Incorporation to change the name of the Company to
"Soundbytes Media Corporation."
PURPOSE OF AMENDMENT
The Board of Directors and management of the Company believe that the
proposed change in the Company's name will enable the Company to establish an
image which both identifies and emphasizes the importance of the Company's new
digital media distribution strategy. In the event that the proposed amendment is
not approved at the Annual Meeting, the Company will not change its name. If the
corporate name is changed the Company intends to also change its common stock
trading symbol. The Board reserves the right to delay or cancel the name change
even if shareholder approval is obtained at the Annual Meeting.
RECOMMENDATION
The Board of Directors unanimously recommends the shareholders vote "FOR"
this proposal.
PROPOSAL III
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
OF THE OUTSTANDING COMMON STOCK
GENERAL
The Board of Directors of the Company has unanimously adopted a resolution
declaring the advisability of, and submits to the shareholders for approval, a
proposal to amend the Company's Certificate of Incorporation to effect a
combination (a "Reverse Split") of the Company's issued and outstanding Common
Stock so that each share of Common Stock outstanding immediately prior to the
Reverse Split will be combined into that number of shares as determined by the
Board of Directors immediately prior to effecting the Reverse Split. Although
the exact ratio of the combination of shares of Common Stock to be effected in
the Reverse Split has not been determined, if effected, the ratio is currently
not anticipated to be less than one (1) share after the Reverse Splits for every
two (2) shares outstanding or more than one (1) shares after the Reverse Splits
for every three (3) shares outstanding. However, the Board of Directors reserves
the right to implement the Reverse Split using a different ratio then specified
above. The proposal may be abandoned by the Board of Directors at any time
before or after the Annual Meeting and prior to the date and time at which the
Reverse Split becomes effective if for any reason the Board of Directors deems
it advisable to abandon the proposal. The Board may also delay effecting the
Reverse Split for up to three months from the date of shareholder approval
assuming that the same is obtained at this Annual Meeting. If the Board
determines to proceed with the Reverse Split, the Reverse Split will be effected
by an amendment to the Company's Articles of Incorporation (the "Reverse Split
Amendment").
-20-
The discussion set forth below assumes that the Reverse Split will be one
share for every three (3) shares outstanding. As noted above, the Board will
determine the actual ratio used in a Reverse Split.
If the authority to effect a Reverse Split is approved by the requisite
vote of the Company's shareholders, upon filing of the Reverse Split Amendment
with the Florida Department of State, a Reverse Split will be effected; an
exchange of stock certificates will be made; and each certificate representing
shares of Common Stock outstanding immediately prior to a Reverse Split will be
deemed to represent, after a Reverse Split, for all corporate purposes, one (1)
share of Common Stock for each three (3) (or such other number as determined by
the Board) shares of Common Stock represented by such certificate.
The number of shares of Common Stock authorized by the Articles of
Incorporation and the par value per share will not change as a result of a
Reverse Split.
PRINCIPAL EFFECTS OF THE PROPOSED REVERSE SPLIT
Assuming approval of the Reverse Split by the requisite vote of
shareholders at the Annual Meeting and that the Board of Directors does not
otherwise determine to abandon the Reverse Split, the Reverse Split Amendment
will be filed with the Florida Department of State as promptly as practicable
thereafter (but in any event, not more than three months after receipt of the
shareholder approval), and a Reverse Split will become effective upon the filing
and acceptance of the Company's Reverse Split Amendment with the Florida
Department of State (the "Effective Date"). Without further action on the part
of the Company or the shareholders, after a Reverse Split, the total number of
shares held by each shareholder will be automatically converted into a number of
whole shares of Common Stock determined by dividing the number of shares owned
by each shareholder of record immediately prior to a Reverse Split by three (3)
(or such other number as determined by the Board) and/or into cash based on the
Purchase Price (as defined below) in lieu of any fractional shares. See "Cash
Payment In Lieu of Fractional Shares."
If the Reverse Split is effected, the ownership interest in the Company
and proportional voting power of each holder of record of three (3) or more
shares (or such other number as determined by the Board) will remain unchanged,
except for minor differences resulting from the purchase of any fractional
shares. All other rights and privileges of such holder will be substantially
unaffected by a Reverse Split.
On the Effective Date, each holder of record of (i) fewer than three (3)
(or such lesser or greater number as determined by the Board) shares of Common
Stock or (ii) greater than three (3) (or such other number as determined by the
Board) shares of Common Stock, to the extent of the fractional shares which
would otherwise be issuable after a Reverse Split will have only the right to
receive cash based upon the Purchase Price in lieu of receiving a fractional
share. The interest of each such shareholder in the Company, to the extent of
such fractional shares, will thereby be eliminated, and such person will have no
right to vote as a shareholder or share in the assets or any future earnings of
the Company with respect to, and to the extent of, such eliminated interest.
At the Record Date, there were outstanding options, warrants and other
convertible securities to purchase an aggregate of approximately 48,386,441
shares of Common Stock. On the Effective Date, the exercise prices of all
outstanding options, warrants and other convertible securities will be
proportionately increased and the number of shares of Common Stock issuable upon
exercise thereof will be proportionately decreased to give effect to the Reverse
Split.
The Common Stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), and as a
result, the Company is subject to the periodic reporting and other requirements
of the Exchange Act. The effectuation of the Reverse Split will not affect the
registration of the Common Stock under the Exchange Act and the Company has no
present intention of terminating such registration under the Exchange Act in
order to become a "private" company.
-21-
If approved, a Reverse Split will result in some shareholders owning
"odd-lots" of less than 100 shares of Common Stock. Brokerage commissions and
other costs of transactions in odd-lots are generally higher than the costs of
transactions in "round-lots" of even multiples of 100 shares.
Shareholders have no right under Florida law or the Company's Certificate
of Incorporation or By-Laws to dissent from a Reverse Split or to dissent from
the payment of cash in lieu of issuing fractional shares.
CASH PAYMENT IN LIEU OF FRACTIONAL SHARES
In lieu of issuing fractional shares resulting from the Reverse Split, the
Company will value each outstanding share of Common Stock held immediately prior
to the Reverse Split at the average daily closing price per share of the Common
Stock on the over-the-counter market as obtained from The Nasdaq Stock Market,
Inc. ("Nasdaq") for the 10 trading days ending on the third trading day
preceding the Effective Date. Such per share price is sometimes hereinafter
referred to as the "Purchase Price." In lieu of fractional shares arising as a
result of a Reverse Split, holders of fewer than three (3)(or such other number
as determined by the Board) shares immediately prior to a Reverse Split will be
entitled to receive cash equal to the product of multiplying the Purchase Price
by the number of shares of Common Stock held immediately prior to the Reverse
Split. Holders of more than three (3) (or such lesser or greater number as
determined by the Board) shares immediately prior to the Reverse Split will be
entitled to receive cash equal to the product of multiplying the Purchase Price
by the number of shares of Common Stock held immediately prior to the Reverse
Split that were not evenly divisible by three (3) (or such other number as
determined by the Board), in lieu of fractional shares arising as a result of
the Reverse Split. No brokerage commission will be payable by holders who
receive cash in lieu of fractional shares.
Any shareholder owning fewer than three (3) (or such other number as
determined by the Board) shares who desires to retain an equity interest in the
Company after the Effective Date may do so by purchasing sufficient additional
shares of the Company's Common Stock in the open market to increase his
ownership to three (3) shares (or such other number resulting from the Board's
determination of the reverse split ratio) or more prior to the Effective Date.
Likewise, any shareholder owning more than three (3) shares who desires to
retain an equity interest in the Company after the Effective Date with respect
to any additional shares owned not evenly divisible by three (3) may do so by
purchasing sufficient additional shares of the Company's Common Stock in the
open market to increase his ownership to a multiple of three (3) (or such lesser
or greater number that may result from the Board's determination of the reverse
split ratio) prior to the Effective Date.
REASONS FOR THE REVERSE SPLIT
The reason for the Reverse Split is to increase the per share market price
of the Common Stock. The Company has been notified by Nasdaq that, based upon
their review of price data for the Company's Common Stock, the closing bid price
for the Company's Common Stock was less than $1.00 per share during the relevant
review period which was a requirement for continued inclusion of the Company's
securities on the NASDAQ National Market. Nasdaq has advised the Company that
the Common Stock will be delisted from trading on Nasdaq unless the closing bid
price of the Common Stock is above $1.00 per share for at least ten consecutive
trading days and thereafter continues to trade at or above the $1.00 bid price
level.
The Board of Directors believes that the current low per share market
price of the Common Stock has had a negative effect on the marketability of the
existing shares, the amount and percentage of transaction costs paid by
individual shareholders and the potential ability of the Company to raise
capital by issuing additional shares of Common Stock. The Board believes there
are several reasons for these effects:
First, certain institutional investors have internal policies preventing
the purchase of low-priced stocks. Moreover, a variety of policies and practices
of broker-dealers discourage individual brokers within those firms from dealing
in low-priced stocks.
Second, since the brokers' commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Company's Common Stock can result
in individual shareholders paying transaction costs (commissions, markups or
markdowns) which are a higher percentage of their total share value than would
be the case if the Company's share price were substantially higher. This factor
is also believed to limit the willingness of institutions to purchase the Common
Stock.
-22-
The Board of Directors anticipates that the Reverse Split will result in a
bid price for the Common Stock in excess of $1.00 per share. The Board also
believes that the decrease in the number of shares of Common Stock outstanding
as a consequence of the Reverse Split, and the anticipated increase in the price
of the Common Stock, could encourage interest in the Common Stock and possibly
promote greater liquidity for the Company's shareholders, although such
liquidity could be adversely affected by the reduced number of shares
outstanding after the Reverse Split. In addition, although any increase in the
market price of the Common Stock resulting from the Reverse Split may be
proportionately less than the decrease in the number of outstanding shares, the
Reverse Split could result in a market price for the shares that will be high
enough to overcome the reluctance, policies and practices of brokers and
investors referred to above and to diminish the adverse impact of trading
commissions on the market for the shares.
There can be no assurances, however, that the foregoing events will occur,
or that the market price of the Common Stock immediately after effecting the
Reverse Split will be maintained for any period of time. Moreover, there can be
no assurance that the market price of the Common Stock after effecting the
Reverse Split will adjust to reflect the conversion ratio (e.g.-if the market
price is $1.00 before the Reverse Split and the ratio is one (1) new share for
every three (3) shares outstanding there can be no assurance that the market
price immediately after the Reverse Split will be $3.00 (3 x $1.00), or that the
market price following the Reverse Split will either exceed or remain in excess
of the current market price. There can also be no assurance that the Company
will be able to maintain the listing of the Common Stock on Nasdaq even if the
Reverse Split results in a bid price for the Common Stock that exceeds $1.00.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
consequences which may apply to special classes of taxpayers (e.g., non-resident
aliens, broker/dealers or insurance companies). The state and local tax
consequences of a Reverse Stock split may vary significantly as to each
shareholder, depending upon the state in which such shareholder resides.
Shareholders are urged to consult their own tax advisors to determine the
particular consequences to them.
The conversion of shares of the Common Stock outstanding immediately prior
to the Reverse Split into a reduced number of shares of Common Stock after
giving effect to the Reverse Split will not result in the recognition of gain or
loss (except in the case of cash received for fractional shares as described
below). The holding period of the shares of Common Stock after giving effect to
the Reverse Split will include the shareholder's holding period for the shares
of Common Stock held immediately prior to the Reverse Split, provided that the
shares of Common Stock were held as a capital asset. The tax basis of the shares
of Common Stock after giving effect to a Reverse Split will be the same as the
tax basis of the shares of Common Stock immediately prior to giving effect to
the Reverse Split, reduced by the basis allocable to the receipt of cash in lieu
of fractional shares described below.
A shareholder who receives cash in lieu of fractional shares will be
treated as if the Company has issued fractional shares to such shareholder and
then immediately redeemed such shares for cash. Such shareholder should
recognize gain or loss, as the case may be, measured by the difference between
the amount of cash received and the basis of his Common Stock allocable to such
fractional shares, had they actually been issued. Such gain or loss will be a
capital gain or loss if such shareholder's Common Stock was held as a capital
asset and any such capital gain or loss will generally be long-term capital gain
or loss to the extent such shareholder's holding period for his Common Stock
exceeds 12 months.
The decrease in the number of outstanding shares of Common Stock as a
result of the Reverse Split will not produce any taxable income or gain or loss
to the Company.
-23-
RECOMMENDATION
The Board of Directors of the Company unanimously recommends that
shareholders vote FOR this proposal.
INDEPENDENT AUDITORS
Amper, Politziner & Mattia, P.C. ("Amper") reported on the financial
statements of the Company for the fiscal year ended December 31, 2003. A
representative of Amper is not expected to be present at the Annual Meeting.
On June 24, 2003, the Company dismissed Deloitte & Touche LLP ("D&T"), the
Company's former independent certified public accountants. During neither of the
past two years ended December 31, 2002 did the reports by D&T on the financial
statements of the Company contain an adverse opinion or a disclaimer of opinion,
or was qualified or modified as to uncertainty, audit scope, or accounting
principles. The decision to dismiss D&T as the Company's independent certified
public accountants was made by the Audit Committee of the Board of Directors of
the Company. During the Company's two most recent fiscal years and subsequent
period up to June 24, 2003, there were no disagreements with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
On June 24, 2003, the Company engaged Amper to serve as the Company's
independent certified public accountants.
FEES PAID TO INDEPENDENT AUDITORS
Audit Fees
The aggregate fees billed by Amper for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2003 and for the reviews of the financial statements included in
the Company's Quarterly Reports on Form 10-Q for that year were $108,000.
The aggregate fees billed by D&T for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2002 and for the reviews of the financial statements included in
the Company's Quarterly Reports on Form 10-Q for that year were $228,000.
Audit-Related Fees
There were no audit-related fees billed by Amper for the year ended
December 31, 2003, and that are not disclosed in the paragraph captions "Audit
Fees" above. There were no audit-related fees billed by D&T for the year ended
December 31, 2002, and that are not disclosed in the paragraph captions "Audit
Fees" above.
Tax Fees
There were no tax fees billed by Amper for the year ended December 31,
2003. There were no tax fees billed by D&T for the year ended December 31, 2002.
All Other Fees
There were no other fees billed by Amper for services rendered to the
Company for the fiscal year ended December 31, 2003.
The aggregate fees billed by D&T for services rendered to the Company,
other than the services described above under "Audit Fees," "Audited Related
Fees" and Tax Fees," for the fiscal year ended December 31, 2002 were $38,000,
which includes fees for accounting research and the filing of a registration
statement on Form S-3.
The Audit Committee has established its pre-approval policies and
procedures, pursuant to which the Audit Committee approved the foregoing audit
services provided by Amper in Fiscal 2004. Consistent with the Audit Committee's
responsibility for engaging the Company's independent auditors, all audit and
permitted non-audit services require pre-approval by the Audit Committee. The
full Audit Committee approves proposed services and fee estimates for these
services. The Audit Committee chairperson or his or her designee has been
designated by the Audit Committee to approve any services arising during the
year that were not pre-approved by the Audit Committee. Services approved by the
Audit Committee chairperson are communicated to the full Audit Committee at its
next regular meeting and the Audit Committee reviews services and fees for the
fiscal year at each such meeting. Pursuant to these procedures, the Audit
Committee approved all the foregoing audit services and permissible non-audit
services provided by Amper.
-24-
The Audit Committee has considered whether the provision of services
covered in the preceding two paragraphs is compatible with maintaining Amper's
independence.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
It is currently anticipated that the Company will hold its 2005 Annual
Meeting of Shareholders in May 2005. Therefore, shareholders who wish to present
proposals appropriate for consideration at the Company's Annual Meeting of
Shareholders to be held in the year 2005 must submit the proposal in proper form
to the Company at its address set forth on the first page of this Proxy
Statement not later than February 28, 2005 in order for the proposition to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such annual meeting. Such proposals must be presented in a manner
consistent with the Company's By-laws and applicable laws. Any such proposals,
as well as any questions related thereto, should be directed to the Secretary of
the Company. After the February 28, 2005 deadline, a shareholder may present a
proposal at the Company's 2005 Annual Meeting if it is submitted to the
Company's secretary at the address set forth above no later than April 16, 2005.
If timely submitted, the shareholder may present the proposal at the 2005 Annual
Meeting but the Company is not obligated to present the matter in its proxy
statement.
OTHER INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
2003 IS BEING FURNISHED HEREWITH TO EACH SHAREHOLDER OF RECORD AS OF THE CLOSE
OF BUSINESS ON NOVEMBER 1, 2004.
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
shareholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy to vote the proxy in
accordance with their judgment.
By order of the Board of Directors,
Joseph R. Rosetti
Chairman
November 16, 2004
-25-
EXHIBIT A
MEDIABAY, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
There shall be a committee of the board of directors (the "Board") to be
known as the audit committee. The audit committee's purpose is to:
(A) oversee the accounting and financial reporting processes of the
Company and the audits of the financial statements of the Company; and
(B) prepare an audit committee report as required by the SEC's rules to be
included in the Company's annual proxy statements, or, if the Company does not
file a proxy statement, in the Company's annual report filed on Form 10-K with
the SEC.
COMPOSITION
The audit committee shall have at least three (3) members, each of whom
must meet the following conditions: (i) be independent as defined under Rule
4200(a)(15) of The Nasdaq Stock Market (except as set forth in Rule 4350
(d)(2)(B)); (ii) meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Securities Exchange Act of 1934 (subject to the exemptions
provided in Rule 10A-3(c)); (iii) not have participated in the preparation of
the financial statements of the Company or any current subsidiary of the Company
at any time during the past three years; and (iv) be able to read and understand
fundamental financial statements, including a Company's balance sheet, income
statement, and cash flow statement. Additionally, at least one member of the
audit committee must have past employment experience in finance or accounting,
requisite professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The Board shall elect or appoint a chairperson of the audit committee (or,
if it does not do so, the audit committee members shall elect a chairperson by
vote of a majority of the full committee); the chairperson will have authority
to act on behalf of the audit committee between meetings.
SPECIFIC RESPONSIBILITIES AND AUTHORITY
The specific responsibilities and authority of the audit committee shall
be as follows:
(A) be directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm engaged
(including resolution of disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company, and
each such registered public accounting firm must report directly to the audit
committee.
(B) establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and (ii) the confidential, anonymous submissions
by Company employees of concerns regarding questionable accounting or auditing
matters;
(C) have the authority to engage independent counsel and other advisers,
as it determines necessary to carry out its duties;
(D) receive appropriate funding from the Company, as determined by the
audit committee in its capacity as a committee of the Board, for payment of: (i)
compensation to any registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit, review or attest
services for the Company; (ii) compensation to any advisers employed by the
audit committee; and (iii) ordinary administrative expenses of the audit
committee that are necessary or appropriate in carrying out its duties;
(E) ensure its receipt from the outside auditors of a formal written
statement delineating all relationships between the auditor and the Company,
consistent with Independence Standards Board Standard 1, and actively engaging
in a dialogue with the auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the auditor and for
taking, or recommending that the full Board take, appropriate action to oversee
the independence of the outside auditor;
(F) report regularly to the Board;
(G) make an annual performance evaluation of the audit committee;
(H) review and reassess the adequacy of the audit committee's charter
annually;
(I) comply with all preapproval requirements of Section 10A(i) of the
Securities Exchange Act of 1934 and all SEC rules relating to the administration
by the audit committee of the auditor engagement to the extent necessary to
maintain the independence of the auditor as set forth in 17 CFR Part
210.2-01(c)(7); and
(J) make such other recommendations to the Board on such matters, within
the scope of its function, as may come to its attention and which in its
discretion warrant consideration by the Board.
MEETINGS
The audit committee shall meet at least four times per year on a quarterly
basis, or more frequently as circumstances require. One or more meetings may be
conducted in whole or in part by telephone conference call or similar means if
it is impracticable to obtain the personal presence of each audit committee
member. The Company shall make available to the audit committee, at its meetings
and otherwise, such individuals and entities as may be designated from time to
time by the audit committee, such as members of management including (but not
limited to) the internal audit and accounting staff, the independent auditors,
inside and outside counsel, and other individuals or entities (whether or not
employed by the Company and including any corporate governance employees and
individuals or entities performing internal audit services as independent
contractors).
DELEGATION
Any duties and responsibilities of the audit committee, including, but not
limited to, the authority to preapprove all audit and permitted non-audit
services, may be delegated to one or more members of the audit committee or a
subcommittee of the audit committee.
LIMITATIONS
The audit committee is responsible for the duties and responsibilities set
forth in this charter, but its role is oversight and therefore it is not
responsible for either the preparation of the Company's financial statements or
the auditing of the Company's financial statements. The members of the audit
committee are not employees of the Company and may not be accountants or
auditors by profession or experts in accounting or auditing. Management has the
responsibility for preparing the financial statements and implementing internal
controls and the independent auditors have the responsibility for auditing the
financial statements and monitoring the effectiveness of the internal controls,
subject, in each case, to the oversight of the audit committee described in this
charter. The review of the financial statements by the audit committee is not of
the same character or quality as the audit performed by the independent
auditors. The oversight exercised by the audit committee is not a guarantee that
the financial statements will be free from mistake or fraud. In carrying out its
responsibilities, the audit committee believes its policies and procedures
should remain flexible in order to best react to a changing environment.
-2-
EXHIBIT B
MEDIABAY, INC.
NOMINATING COMMITTEE CHARTER
PURPOSE
The Nominating (the "Committee") is appointed by the Board to assist the
Board in carrying out the Board's responsibilities relating to (i) the
identification and selection of qualified individuals to become Board members
and members of Board committees; and (ii) the oversight of the evaluation of the
Board.
The Committee is also responsible for producing a report to enable the
Corporation to make the required disclosures in the Corporation's proxy
statement, in accordance with applicable rules and regulations, regarding the
nominations process and the work of this Committee.
COMPOSITION
The Committee will consist of no fewer than two members. All members of
the Committee must satisfy the independence requirements of Nasdaq and other
applicable regulatory requirements.
The Board of Directors shall appoint the members of the Committee. Subject
to earlier removal by the Board of Directors, each member shall serve until he
or she is no longer a director of the Corporation, and until his or her
successor shall have been duly elected and qualified. A Committee member may be
removed by Board of Directors at any time in its discretion, whereupon the
resulting vacancy shall be filled by the Board of Directors. The Committee
members shall elect a chairperson by a vote of a majority of the full Committee,
or, if the members have failed to do so, then the Board of Directors shall
designate a chairperson.
The Committee may form and delegate authority to subcommittees of this
Committee when appropriate.
STRUCTURE AND MEETINGS
The chairperson shall, after consultation with the other members of the
Committee, (i) determine the dates, times and places for meetings of the
Committee, and (ii) set the agenda for each meeting. The Committee shall hold at
least two meetings per year, and such additional meetings as the chairperson
determines are warranted under the circumstances in order for the Committee to
fulfill its mandate. The chairperson of the Committee shall preside at each
meeting of the Committee, except that in the absence of the chairperson at any
particular meeting, then the Committee member designated by the chairperson
shall preside at such meeting. A majority of the total number of Committee
members then in office shall constitute a quorum for the transaction of
committee business and all matters to be decided by the Committee shall be
decided by the affirmative vote of a majority of the members present in person
or by proxy at a duly called meeting of the Committee.
DUTIES AND RESPONSIBILITIES
The Committee shall have the following power, authority and
responsibilities:
1. Identify individuals qualified to become Board members and members of
Board committees (including members to fill vacancies), consistent with criteria
approved by the Board, and to recommend particular director nominees to the
Board (including nominations for re-election of continuing/incumbent directors)
for the next annual meeting of shareholders, except if and to the extent the
Corporation is legally required by contract or otherwise to provide third
parties with the ability to nominate directors (in which case the selection and
nomination of such directors need not be subject to action by this Committee).
The Committee will seek candidates for the Board that have exhibited strong
decision-making ability, substantial business experience, relevant knowledge,
skills or technological expertise and exemplary personal integrity and
reputation. The Committee will also have authority to obtain advice and
assistance from internal or external legal, accounting or other advisors at the
Corporation's expense and will have sole authority to approve the any such
advisor's fees and other retention terms.
2. Oversee the evaluation of the Board.
3. Monitor data submitted to the Board by individual directors that may
impact independence (such as, for example, data relating to new or changes in
affiliations, employment, investments, transactions and relationships) and make
recommendations to the Board regarding action, if any, that may be required in
view of such data.
4. Consider and make recommendations to the Board on membership of Board
committees and the responsibilities of those committees to enhance overall Board
performance.
5. Develop and promote procedures or programs for orientation of new
directors and continuing education of directors.
6. Devise and implement a program or system to evaluate the performance of
all directors of the Corporation each year.
7. Make regular reports to the Board, no less often than twice per year.
8. Periodically evaluate and make recommendations with respect to: (i)
director qualifications and selection criteria, such as retirement age and
experience; and (ii) board size and composition.
9. Review and reassess annually the adequacy of this Charter and recommend
to the Board for approval any proposed changes to this Charter.
10. Evaluate annually its own performance and report to the full Board of
Directors with respect to the same.
11. Perform such other duties and responsibilities as may be assigned to
the Committee from time to time by the Board of Directors.
OPERATING POLICIES
1. The Committee will keep the minutes of all Committee meetings
(designating in its discretion such individuals to record the minutes) and
approve them by subsequent action. The Committee will circulate the approved
minutes of the Committee meetings to the full Board for review.
2. The Committee will determine its rules of procedure in accordance with
the Corporation's principles of corporate governance and the Corporation's
Bylaws.
3. At each regular Board meeting held following a Committee meeting, the
chairperson of the Committee will report to the Board regarding the actions
taken by and the activities and findings of the Committee since the last Board
meeting, as well as any recommendations for action by the Board when
appropriate.
-2-
EXHIBIT C
MEDIABAY, INC.
2004 Stock Incentive Plan
SECTION 1. PURPOSES; DEFINITIONS.
The purpose of the MediaBay, Inc. 2004 Stock Incentive Plan is to enable
MediaBay, Inc. to offer to those of its employees and to the employees of its
Subsidiaries and other persons who are expected to contribute to the success of
the Company, long term performance-based stock and/or other equity interests in
the Company, thereby enhancing their ability to attract, retain and reward such
key employees or other persons, and to increase the mutuality of interests
between those employees or other persons and the shareholders of MediaBay, Inc.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Board" means the Board of Directors of MediaBay, Inc.
(b) "Cause" shall have the meaning ascribed thereto in Section 5(b)(ix)
below.
(c) "Change of Control" shall have the meaning ascribed thereto in
Section 9 below.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time and any successor thereto.
(e) "Committee" means any committee of the Board which the Board may
designate.
(f) "Company" means MediaBay, Inc., a corporation organized under the
laws of the State of Florida.
(g) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 7 below, at the end of a specified deferral
period.
(h) "Disability" means a disability described in Section 22(e) of the
Code, as determined under procedures established by the Board or the
Committee for purposes of the Plan.
(i) "Early Retirement" means retirement, with the approval of the Board
or the Committee, for purposes of one or more award(s) hereunder,
from active employment with the Company or any Parent or Subsidiary
prior to age 65.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, as in effect from time to time.
(k) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means,
as of any given date: (i) if the principal market for the Stock is a
national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ), the
closing sale price of the Stock on such day as reported by such
exchange or market system, or on a consolidated tape reflecting
transactions on such exchange or market system, or (b) if the
principal market for the Stock is not a national securities exchange
and the Stock is not quoted on NASDAQ, the mean between the closing
bid sale price for the Stock on such day as reported by NASDAQ or
the National Quotation Bureau, Inc.; provided that if clauses (a)
and (b) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair
Market Value of the Stock shall be determined in good faith by the
Board of Directors or the Committee, as the case may be, which
determination shall be conclusive as to the Fair Market Value of the
Stock.
(l) "Incentive Stock Option" means any Stock Option which is intended to
be and is designated as an "incentive stock option" within the
meaning of Section 422 of the Code, or any successor thereto.
(m) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.
-3-
(o) "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent of the Company, as such
term is defined in Section 424(e) of the Code, or any successor
thereto.
(q) "Plan" means this MediaBay, Inc. 2004 Stock Incentive Plan, as
hereinafter amended from time to time.
(r) "Reorganization" of an entity shall be deemed to occur if such
entity is a party to a merger, consolidation, reorganization, or
other business combination with one or more entities in which said
entity is not the surviving entity, if such entity disposes of
substantially all of its assets, or if such entity is a party to a
spin-off, split-off, split-up or similar transaction; provided,
however, that the transaction shall not be a Reorganization if any
Parent or any Subsidiary is the surviving entity.
(s) "Restricted Stock" means Stock, received under an award made
pursuant to Section 6 below, that is subject to restrictions imposed
pursuant to said Section 6.
(t) "Retirement" means Normal Retirement or Early Retirement.
(u) "Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as in effect from time to time, and any
successor thereto.
(v) "Securities Act" means the Securities Act of 1933, as amended, as in
effect from time to time.
(w) "Stock" means the Common Stock of the Company, no par value per
share.
(x) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
(y) "Subsidiary" means any present or future (A) subsidiary corporation
of the Company, as such term is defined in Section 424(f) of the
Code, or any successor thereto, or (B) except in the case of
Incentive Stock Options, unincorporated business entity in which the
Company owns, directly or indirectly, 50% or more of the voting
rights, capital or profits.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board, or at its discretion, the
Committee, the membership of which shall consist solely of two or more members
of the Board, each of whom shall serve at the pleasure of the Board and shall be
a "Non-Employee Director," as defined in Rule 16b-3, and an "outside director,"
as defined in Section 162(m) of the Code, and shall be at all times constituted
so as not to adversely affect the compliance of the Plan with the requirements
of Rule 16b-3 or with the requirements of any other applicable law, rule or
regulation.
The Board or the Committee, as the case may be, shall have the authority
to grant, pursuant to the terms of the Plan, to officers and other employees or
other persons eligible under Section 4 below: (a) Stock Options, (b) Restricted
Stock, (c) Deferred Stock, and/or (d) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Board or the
Committee, as the case may be, shall have the authority (subject to the express
provisions of the Plan):
(i) to select the officers, other employees of the Company or any
Parent or Subsidiary and other persons to whom Stock Options,
Restricted Stock, Deferred Stock and/or Other Stock-Based
Awards may be from time to time granted hereunder;
(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock, Deferred Stock and/or Other
Stock-Based Awards, or any combination thereof, if any, to be
granted hereunder to one or more eligible persons;
(iii) to determine the number of shares of Stock to be covered by
each award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, share price, any restrictions
or limitations, and any vesting acceleration, exercisability
and/or forfeiture provisions);
-4-
(v) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in
conjunction with or apart from other awards made by the
Company or any Parent or Subsidiary outside of the Plan;
(vi) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder
shall be deferred; and
(vii) to substitute (A) new Stock Options for previously granted
Stock Options, including previously granted Stock Options
having higher option exercise prices and/or containing other
less favorable terms, and (B) new or any other type of awards
for previously granted awards of the same type, including
previously granted awards which contain less favorable terms.
Subject to Section 10 hereof, The Board or the Committee, as the case may
be, shall have the authority to (A) adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable, (B) interpret the terms and provisions of the Plan and any
award issued under the Plan (and to determine the form and substance of all
agreements relating thereto), and (C) otherwise supervise the administration of
the Plan.
Subject to the express provisions of the Plan, all decisions made by the
Board or the Committee, as the case may be, pursuant to the provisions of the
Plan shall be made in the Board or the Committee's discretion and shall be final
and binding upon all persons, including the Company, its Parent and Subsidiaries
and the Plan participants and their beneficiaries.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be [7,500,000] [to be adjusted if a reverse
split of the Common Stock is effected] shares any portion or all of which may be
made subject to Incentive Stock Options. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been optioned cease to be subject to a
Stock Option for any reason (other than by exercise), or if any shares of Stock
that are subject to any Restricted Stock award, Deferred Stock award or Other
Stock-Based award are forfeited or any such award otherwise terminates without
the issuance of such shares, such shares shall again be available for
distribution under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
such substitution or adjustments shall be made in the (A) aggregate number of
shares of Stock reserved for issuance under the Plan, (B) number, kind and
exercise price of shares of Stock subject to outstanding Options granted under
the Plan, and (C) number, kind, purchase price and/or appreciation base of
shares of Stock subject to other outstanding awards granted under the Plan, as
may be determined to be appropriate by the Board or the Committee, as the case
may be, in order to prevent dilution or enlargement of rights; provided,
however, that the number of shares of Stock subject to any award shall always be
a whole number. Such adjusted exercise price shall also be used to determine the
amount which is payable to the optionee upon the exercise by the Board or the
Committee, as the case may be, of the alternative settlement right which is set
forth in Section 5(b)(xi) below.
Subject to the provisions of the immediately preceding paragraph, the
maximum numbers of shares subject to Options, Restricted Stock awards, Deferred
Stock awards, and other Stock-Based awards to any one individual participant
shall be [2,500,000] [to be adjusted if a reverse split of the Common Stock is
effected] shares during the term of the Plan.
SECTION 4. ELIGIBILITY.
Officers and other employees of the Company or any Parent or Subsidiary
(but excluding any person whose eligibility would adversely affect the
compliance of the Plan with the requirements of Rule 16b-3) who are at the time
of the grant of an award under the Plan employed by the Company or any Parent or
Subsidiary and who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company or any Parent or Subsidiary,
are eligible to be granted Options and awards under the Plan. In addition,
Non-Qualified Stock Options and other awards may be granted under the Plan to
any person, including, but not limited to, independent agents, consultants and
attorneys who the Board or the Committee, as the case may be, believes has
contributed or will contribute to the success of the Company. Eligibility under
the Plan shall be determined by the Board or the Committee, as the case may be.
-5-
The Board or the Committee, as the case may be, may include additional
conditions and restrictions in the agreement entered into in connection with
such awards under the Plan. The grant of an Option or other award under the
Plan, and any determination made in connection therewith, shall be made on a
case by case basis and may differ among optionees and grantees. The grant of an
Option or other award under the Plan is a privilege and not a right and the
determination of the Board or the Committee, as the case may be, may be applied
on a non-uniform and discretionary basis.
SECTION 5. STOCK OPTIONS.
(a) GRANT AND EXERCISE. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock
Options. Any Stock Option granted under the Plan shall contain such
terms as the Board or the Committee, as the case may be, may from
time to time approve. The Board or the Committee, as the case may
be, shall have the authority to grant to any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock
Options, and they may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option
is not designated as an Incentive Stock Option or does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified
Stock Option. The grant of an Option shall be deemed to have
occurred on the date on which the Board or the Committee, as the
case may be, by resolution, designates an individual as a grantee
thereof, and determines the number of shares of Stock subject to,
and the terms and conditions of, said Option.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options or any agreement providing
for Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code, or, without the consent of the optionee(s) affected, to
disqualify any Incentive Stock Option under said Section 422.
(b) TERMS AND CONDITIONS. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the
Board or the Committee, as the case may be, at the time of
grant but as to Incentive Stock Options shall be not less than
100% (110% in the case of an Incentive Stock Option granted to
an optionee ("10% Shareholder") who, at the time of grant,
owns Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its
Parent, if any, or any of its Subsidiaries) of the Fair Market
Value of the Stock at the time of grant. The exercise price
for Non-Qualified Stock Options shall be determined by the
Board or the Committee, as the case may be, at the time of
grant.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Board or the Committee, as the case may be, but no Option
shall be exercisable more than ten years (five years, in the
case of an Incentive Stock Option granted to a 10%
Shareholder) after the date on which the Option is granted.
(iii) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as
shall be determined by the Board or the Committee, as the case
may be, at the time of grant. If the Board or the Committee,
as the case may be, provides that any Stock Option is
exercisable only in installments, the Board or the Committee,
as the case may be, may waive such installment exercise
provisions at any time at or after the time of grant in whole
or in part, based upon such factors as the Board or the
Committee, as the case may be, shall determine.
(iv) METHOD OF EXERCISE. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular
case, Stock Options may be exercised in whole or in part at
any time during the option period by giving written notice of
exercise to the Company specifying the number of shares of
Stock to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, which shall be in cash.
Notwithstanding the foregoing, if provided in the Stock Option
agreement referred to in Section 5(b)(xii) below or otherwise
permitted by the Board or the Committee, as the case may be,
payment of the purchase price may be made (A) in whole shares
of Stock which are already owned by the holder of the Option
or (B) partly in cash and partly in such Stock. Cash payments
shall be made by wire transfer, certified or bank check or
personal check, in each case payable to the order of the
Company; provided, however, that the Company shall not be
required to deliver certificates for shares of Stock with
respect to which an Option is exercised until the Company has
confirmed the receipt of good and available funds in payment
of the purchase price thereof. Payments in the form of Stock
(which shall be valued at the Fair Market Value of a share of
Stock on the date of exercise) shall be made by delivery of
stock certificates in negotiable form which are effective to
transfer good and valid title thereto to the Company, free of
any liens or encumbrances. In addition to the foregoing, if
provided in the Stock Option Agreement referred to in Section
5(b)(xii) below or otherwise permitted by the Board or the
Committee, as the case may be, payment of the exercise price
may be made by delivery to the Company by the optionee of an
executed exercise form, together with irrevocable instructions
to a broker-dealer to sell or margin a sufficient portion of
the shares covered by the option and deliver the sale or
margin loan proceeds directly to the Company. Except as
otherwise expressly provided in the Plan or in the Stock
Option agreement referred to in Section 5(b)(xii) below, no
Option which is granted to a person who is at the time of
grant an employee of the Company or of a Subsidiary or Parent
of the Company may be exercised at any time unless the holder
thereof is then an employee of the Company or of a Parent or a
Subsidiary. The holder of an Option shall have none of the
rights of a shareholder with respect to the shares subject to
the Option until the optionee has given written notice of
exercise, has paid in full for those shares of Stock and, if
requested by the Board or Committee, as the case may be, has
given the representation described in Section 11(a) below.
-6-
(v) TRANSFERABILITY; EXERCISABILITY. No Stock Option shall be
transferable by the optionee other than by will or by the laws
of descent and distribution, except as may be otherwise
provided with respect to a Non-Qualified Option pursuant to
the specific provisions of the Stock Option agreement pursuant
to which it shall have been issued as referred to in Section
5(b)(xii) below. Except as otherwise provided in the Stock
Option agreement relating to a Non-Qualified Stock Option, all
Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or his or her guardian or legal
representative.
(vi) TERMINATION BY REASON OF DEATH. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or any
Parent or Subsidiary terminates by reason of death, any Stock
Option held by such optionee may thereafter be exercised, to
the extent then exercisable or on such accelerated basis as
the Board or Committee, as the case may be, may determine at
or after the time of grant, for a period of one year (or such
other period as the Board or the Committee, as the case may
be, may specify at or after the time of grant) from the date
of death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(vii) TERMINATION BY REASON OF DISABILITY. Subject to Section
5(b)(x) below, if an optionee's employment by the Company or
any Parent or Subsidiary terminates by reason of Disability,
any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at
the time of termination or on such accelerated basis as the
Board or the Committee, as the case may be, may determine at
or after the time of grant, for a period of one year (or such
other period as the Board or the Committee, as the case may
be, may specify at or after the time of grant) from the date
of such termination of employment or until the expiration of
the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the optionee dies within
such one year period (or such other period as the Board or the
Committee, as the case may be, shall specify at or after the
time of grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent to
which it was exercisable at the time of death for a period of
one year from the date of death or until the expiration of the
stated term of such Stock Option, whichever period is the
shorter.
(viii) TERMINATION BY REASON OF RETIREMENT. Subject to Section
5(b)(x) below, if an optionee's employment by the Company or
any Parent or Subsidiary terminates by reason of Normal
Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated
basis as the Board or the Committee, as the case may be, may
determine at or after the time of grant, in the case of a
Non-Qualified Stock Option, for a period of one year, or, in
the case of an Incentive Stock Option, for a period of three
months (or such other period as the Board or the Committee, as
the case may be, may specify at or after the time of grant)
from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that if the optionee
dies within such one year period (or such other period as the
Board or the Committee, as the case may be, shall specify at
or after the date of grant), any unexercised Stock Option held
by such optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period
of one year from the date of death or until the expiration of
the stated term of such Stock Option, whichever period is the
shorter. If an optionee's employment with the Company or any
Parent or Subsidiary terminates by reason of Early Retirement,
the Stock Option shall thereupon terminate; provided, however,
that if the Board or the Committee, as the case may be, so
approves at the time of Early Retirement, any Stock Option
held by the optionee may thereafter be exercised by the
optionee as provided above in connection with termination of
employment by reason of Normal Retirement.
-7-
(ix) OTHER TERMINATION. Subject to the provisions of Section 12(g)
below and unless otherwise determined by the Committee at or
after the time of grant, if an optionee's employment by the
Company or any Parent or Subsidiary terminates for any reason
other than death, Disability or Retirement, the Stock Option
shall thereupon automatically terminate, except that if the
optionee is involuntarily terminated by the Company or any
Parent or a Subsidiary without Cause (as hereinafter defined),
such Stock Option may be exercised for a period of three
months (or such other period as the Board or the Committee, as
the case may be, shall specify at or after the time of grant)
from the date of such termination or until the expiration of
the stated terms of such Stock Option, whichever period is the
shorter. For purposes of the Plan, "Cause" shall mean (A) the
conviction of the optionee of a felony under Federal law or
the law of the state in which such action occurred, (B)
dishonesty by the optionee in the course of fulfilling his or
her employment duties, or (C) the failure on the part of the
optionee to perform his or her employment duties in any
material respect. In addition, with respect to an option
granted to an employee of the Company, a Parent or a
Subsidiary, for purposes of the Plan, "Cause" shall also
include any definition of "Cause" contained in any employment
agreement between the optionee and the Company, Parent or
Subsidiary, as the case may be.
(x) ADDITIONAL INCENTIVE STOCK OPTION LIMITATION. In the case of
an Incentive Stock Option, the aggregate Fair Market Value of
Stock (determined at the time of grant of the Option) with
respect to which Incentive Stock Options are exercisable for
the first time by an optionee during any calendar year (under
all such plans of optionee's employer corporation and its
Parent and Subsidiaries) shall not exceed $100,000.
(xi) ALTERNATIVE SETTLEMENT OF OPTION. Upon the receipt of written
notice of exercise and if provided for with respect to a Stock
Option pursuant to the specific provisions of the Stock Option
agreement pursuant to which it was issued and referred to in
Section 5(b)(xii) below (unless otherwise provided with
respect to a Stock Option pursuant to the specific provisions
of the Stock Option agreement pursuant to which it was issued
and referred to in Section 5(b)(xii) below), the Board or the
Committee, as the case may be, may elect to settle all or part
of any Stock Option by paying to the optionee an amount, in
cash or Stock (valued at Fair Market Value on the date of
exercise), equal to the product of the excess of the Fair
Market Value of one share of Stock, on the date of exercise
over the Option exercise price, multiplied by the number of
shares of Stock with respect to which the optionee proposes to
exercise the Option. Any such settlements which relate to
Options which are held by optionees who are subject to Section
16(b) of the Exchange Act shall comply with any "window
period" provisions of Rule 16b-3, to the extent applicable,
and with such other conditions as the Board or Committee, as
the case may be, may impose.
(xii) STOCK OPTION AGREEMENT. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an
agreement executed by the Company and the participant.
-8-
SECTION 6. RESTRICTED STOCK.
(a) GRANT AND EXERCISE. Shares of Restricted Stock may be issued either
alone or in addition to or in tandem with other awards granted under
the Plan. The Board or the Committee, as the case may be, shall
determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares
to be awarded, the price (if any) to be paid by the recipient, the
time or times within which such awards may be subject to forfeiture
(the "Restriction Period"), the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the
awards. The Board or the Committee, as the case may be, may
condition the grant of Restricted Stock upon the attainment of such
factors as the Board or the Committee, as the case may be, may
determine.
(b) TERMS AND CONDITIONS. Each Restricted Stock award shall be subject
to the following terms and conditions:
(i) Restricted Stock, when issued, will be represented by a stock
certificate or certificates registered in the name of the
holder to whom such Restricted Stock shall have been awarded.
During the Restriction Period, certificates representing the
Restricted Stock and any securities constituting Retained
Distributions (as defined below) shall bear a restrictive
legend to the effect that ownership of the Restricted Stock
(and such Retained Distributions), and the enjoyment of all
rights related thereto, are subject to the restrictions, terms
and conditions provided in the Plan and the Restricted Stock
agreement referred to in Section 6(b)(iv) below. Such
certificates shall be deposited by the holder with the
Company, together with stock powers or other instruments of
assignment, endorsed in blank, which will permit transfer to
the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions that shall
be forfeited or that shall not become vested in accordance
with the Plan and the applicable Restricted Stock agreement.
(ii) Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes, and the
issuance thereof shall be made for at least the minimum
consideration (if any) necessary to permit the shares of
Restricted Stock to be deemed to be fully paid and
nonassessable. The holder will have the right to vote such
Restricted Stock, to receive and retain all regular cash
dividends and other cash equivalent distributions as the Board
may designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a
holder of Stock with respect to such Restricted Stock, with
the exceptions that (A) the holder will not be entitled to
delivery of the stock certificate or certificates representing
such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect
thereto shall have been fulfilled; (B) the Company will retain
custody of the stock certificate or certificates representing
the Restricted Stock during the Restriction Period; (C) other
than regular cash dividends and other cash equivalent
distributions as the Board may designate, pay or distribute,
the Company will retain custody of all distributions
("Retained Distributions") made or declared with respect to
the Restricted Stock (and such Retained Distributions will be
subject to the same restrictions, terms and conditions as are
applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall
have become vested and with respect to which the Restriction
Period shall have expired; (D) the holder may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Stock or any Retained Distributions during the
Restriction Period; and (E) a breach of any of the
restrictions, terms or conditions contained in the Plan or the
Restricted Stock agreement referred to in Section 6(b)(iv)
below, or otherwise established by the Board or Committee, as
the case may be, with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such
Restricted Stock and any Retained Distributions with respect
thereto.
(iii) Upon the expiration of the Restriction Period with respect to
each award of Restricted Stock and the satisfaction of any
other applicable restrictions, terms and conditions (A) all or
part of such Restricted Stock shall become vested in
accordance with the terms of the Restricted Stock agreement
referred to in Section 6(b)(iv) below, and (B) any Retained
Distributions with respect to such Restricted Stock shall
become vested to the extent that the Restricted Stock related
thereto shall have become vested. Any such Restricted Stock
and Retained Distributions that do not vest shall be forfeited
to the Company and the holder shall not thereafter have any
rights with respect to such Restricted Stock and Retained
Distributions that shall have been so forfeited.
-9-
(iv) Each Restricted Stock award shall be confirmed by, and shall
be subject to the terms of, an agreement executed by the
Company and the participant.
SECTION 7. DEFERRED STOCK.
(a) GRANT AND EXERCISE. Deferred Stock may be awarded either alone or in
addition to or in tandem with other awards granted under the Plan.
The Board or the Committee, as the case may be, shall determine the
eligible persons to whom and the time or times at which Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be
awarded to any person, the duration of the period (the "Deferral
Period") during which, and the conditions under which, receipt of
the Deferred Stock will be deferred, and all the other terms and
conditions of the awards. The Board or the Committee, as the case
may be, may condition the grant of the Deferred Stock upon the
attainment of such factors or criteria as the Board or the
Committee, as the case may be, shall determine.
(b) TERMS AND CONDITIONS. Each Deferred Stock award shall be subject to
the following terms and conditions:
(i) Subject to the provisions of the Plan and Deferred Stock
agreement referred to in Section 7(b)(vi) below, Deferred
Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the
expiration of the Deferral Period, share certificates shall be
delivered to the participant, or his legal representative, in
a number equal to the shares of Stock covered by the Deferred
Stock award.
(ii) As determined by the Board or the Committee, as the case may
be, at the time of award, amounts equal to any dividends
declared during the Deferral Period with respect to the number
of shares covered by a Deferred Stock award may be paid to the
participant currently or deferred and deemed to be reinvested
in additional Deferred Stock.
(iii) Subject to the provisions of the Deferred Stock agreement
referred to in Section 7(b)(vi) below and this Section 7 and
Section 12(g) below, upon termination of a participant's
employment with the Company or any Parent or Subsidiary for
any reason during the Deferral Period for a given award, the
Deferred Stock in question will vest or be forfeited in
accordance with the terms and conditions established by the
Board or the Committee, as the case may be, at the time of
grant.
(iv) The Board or the Committee, as the case may be, may, after
grant, accelerate the vesting of all or any part of any
Deferred Stock award and/or waive the deferral limitations for
all or any part of a Deferred Stock award.
(v) In the event of hardship or other special circumstances of a
participant whose employment with the Company or any Parent or
Subsidiary is involuntarily terminated (other than for Cause),
the Board or the Committee, as the case may be, may waive in
whole or in part any or all of the remaining deferral
limitations imposed hereunder or pursuant to the Deferred
Stock agreement referred to in Section 7(b)(vi) below with
respect to any or all of the participant's Deferred Stock.
(vi) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company
and the participant.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) GRANT AND EXERCISE. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance
of the Company or any Parent or Subsidiary, may be granted either
alone or in addition to or in tandem with Stock Options, Restricted
Stock or Deferred Stock. The Board or the Committee, as the case may
be, shall determine the eligible persons to whom, and the time or
times at which, such awards shall be made, the number of shares of
Stock to be awarded pursuant to such awards, and all other terms and
conditions of the awards. The Board or the Committee, as the case
may be, may also provide for the grant of Stock under such awards
upon the completion of a specified performance period.
-10-
(b) TERMS AND CONDITIONS. Each Other Stock-Based Award shall be subject
to the following terms and conditions:
(i) Shares of Stock subject to an Other Stock-Based Award may not
be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction or
period of deferral lapses.
(ii) The recipient of an Other Stock-Based Award shall be entitled
to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of shares
covered by the award, as determined by the Board or the
Committee, as the case may be, at the time of the award. The
Board or the Committee, as the case may be, may provide that
such amounts (if any) shall be deemed to have been reinvested
in additional Stock.
(iii) Any Other Stock-Based Award and any Stock covered by any Other
Stock-Based Award shall vest or be forfeited to the extent so
provided in the award agreement referred to in Section 8(b)(v)
below, as determined by the Board or the Committee, as the
case may be.
(iv) In the event of the participant's Retirement, Disability or
death, or in cases of special circumstances, the Board or the
Committee, as the case may be, may waive in whole or in part
any or all of the limitations imposed hereunder (if any) with
respect to any or all of an Other Stock-Based Award.
(v) Each Other Stock-Based Award shall be confirmed by, and shall
be subject to the terms of, an agreement executed by the
Company and by the participant.
SECTION 9. CHANGE OF CONTROL PROVISIONS.
(a) A "Change of Control" shall be deemed to have occurred on the day
after:
(i) any individual, corporation or other entity or group (as
defined in Section 13(d)(3) of the Exchange Act), other than
Norton Herrick and his family members and their affiliates,
becomes, directly or indirectly, the beneficial owner (as
defined in the General Rules and Regulations of the Securities
and Exchange Commission with respect to Sections 13(d) and
13(g) of the Exchange Act) of more than 50% of the then
outstanding shares of the Company's capital stock entitled to
vote generally in the election of directors of the Company; or
(ii) the commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity
or of any group (as defined in Section 13(d)(3) of the
Exchange Act) to commence, a tender or exchange offer subject
to Section 14(d)(1) of the Exchange Act for any class of the
Company's capital stock; or
(iii) the shareholders of the Company approve (A) a definitive
agreement for the merger or other business combination of the
Company with or into another corporation pursuant to which the
shareholders of the Company do not own, immediately after the
transaction, more than 50% of the voting power of the
corporation that survives, or (B) a definitive agreement for
the sale, exchange or other disposition of all or
substantially all of the assets of the Company, or (C) any
plan or proposal for the liquidation or dissolution of the
Company;
provided, however, that a "Change of Control" shall not be
deemed to have taken place if beneficial ownership is acquired
(I) directly from the Company, other than an acquisition by
virtue of the exercise or conversion of another security
unless the security so converted or exercised was itself
acquired directly from the Company, or (II) by, or a tender or
exchange offer is commenced or announced by, the Company, any
profit-sharing, employee ownership or other employee benefit
plan of the Company; or any trustee of or fiduciary with
respect to any such plan when acting in such capacity.
(b) Unless otherwise provided in the Stock Option agreement, or
agreement relating to a Restricted Stock award, Deferred Stock award
or Other Stock Based Award, in the event of a Change of Control of
the Company, the Board may provide on a case by case basis that some
or all outstanding awards granted under this Plan become immediately
exercisable or vested, without regard to any limitation imposed
pursuant to this Plan. In the event of a Change of Control, of the
Company the Board may provide on a case by case basis, that Stock
Options shall terminate upon such Change of Control, provided,
however, that the optionee shall have the right, immediately prior
to the occurrence of such Change of Control and during such
reasonable period as the Board shall determine and designate, to
exercise any vested options in whole or in part.
-11-
(c) Unless otherwise provided in a Stock Option agreement or agreement
relating to a Restricted Stock award, Deferred Stock award or Other
Stock-Based Award, in the event of a Change in Control of a Parent
or Subsidiary or Reorganization of a Parent or Subsidiary, or in the
event that a Parent or Subsidiary ceases to be a "parent" or
"subsidiary" as such terms are defined in Section 424 of the Code,
the Board may, (i) provide on a case by case basis that some or all
outstanding awards held by an optionee or a participant employed by
or performing service for such Parent or Subsidiary may become
immediately exercisable or vested, without regard to any limitation
imposed pursuant to this Plan and/or (ii) treat the employment or
other services of an optionee or participant employed by such Parent
or Subsidiary as terminated (and such optionee shall have the right
to exercise his or her Stock Options in accordance with Section 5(b)
of this Plan) if such optionee or grantee is not employed by the
Company or any Parent or Subsidiary immediately after such event.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may at any time, and from time to time, amend any of the
provisions of the Plan, and may at any time suspend or terminate the Plan;
provided, however, that no such amendment shall be effective unless and until it
has been duly approved by the holders of the outstanding shares of Stock if the
failure to obtain such approval would adversely affect the compliance of the
Plan with the requirements of Rule 16b-3 or any other applicable law, rule or
regulation. The Board or the Committee, as the case may be, may amend the terms
of any Stock Option or other award theretofore granted under the Plan; provided,
however, that subject to Sections 3 above and 12(m) below, no such amendment may
be made by the Board or the Committee, as the case may be, which in any material
respect impairs the rights of the optionee or participant without the optionee's
or participant's consent, except for such amendments which are made to cause the
Plan to qualify for the exemption provided by Rule 16b-3.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
creditor of the Company.
SECTION 12. GENERAL PROVISIONS.
(a) The Board or the Committee, as the case may be, may require each
person acquiring shares of Stock pursuant to an Option or other
award under the Plan to represent to and agree with the Company in
writing that the optionee or participant is acquiring the shares for
investment without a view to distribution thereof.
All certificates for shares of Stock delivered under the Plan shall
be subject to such stop transfer orders and other restrictions as
the Board or the Committee, as the case may be, may deem to be
advisable under the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange or
association upon which the Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable
corporate law, and the Board or the Committee, as the case may be,
may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from adopting
such other or additional incentive arrangements as it may deem
desirable, including, but not limited to, the granting of stock
options and the awarding of stock and cash otherwise than under the
Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
(c) NOTHING CONTAINED IN THE PLAN OR IN ANY AWARD HEREUNDER SHALL BE
DEEMED TO CONFER UPON ANY EMPLOYEE OF THE COMPANY OR ANY PARENT OR
SUBSIDIARY ANY RIGHT TO CONTINUED EMPLOYMENT WITH THE COMPANY OR ANY
PARENT OR SUBSIDIARY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE
RIGHT OF THE COMPANY OR ANY PARENT OR SUBSIDIARY TO TERMINATE THE
EMPLOYMENT OF ANY OF ITS EMPLOYEES AT ANY TIME.
-12-
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income
tax purposes with respect to any Option or other award under the
Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Board or the Committee, as the case may be,
regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such
amount. If permitted by the Board or the Committee, as the case may
be, tax withholding or payment obligations may be settled with
Stock, including Stock that is part of the award that gives rise to
the withholding requirements, based on the then Fair Market Value of
such Stock. The obligations of the Company under the Plan shall be
conditional upon such payment or arrangements, and the Company or
the participant's employer (if not the Company) shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant from the
Company or any Parent or Subsidiary. For purposes of this Section
12(d), the term "Subsidiary" (in the case of an Incentive Stock
Option) shall include any entity referred to in Section 1(y) above.
(e) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State
of Florida (without regard to choice of law provisions).
(f) Any Stock Option granted or other award made under the Plan shall
not be deemed compensation for purposes of computing benefits under
any retirement plan of the Company or any Parent or Subsidiary and
shall not affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of
benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under the Plan).
(g) A leave of absence, unless otherwise determined by the Board or
Committee, as the case may be, prior to the commencement thereof,
shall not be considered a termination of employment. Any Stock
Option granted or awards made under the Plan shall not be affected
by any change of employment, so long as the holder continues to be
an employee of the Company or any Parent or Subsidiary.
(h) Except as otherwise expressly provided in the Plan or in any Stock
Option agreement, Restricted Stock agreement, Deferred Stock
agreement or any Other Stock-Based Award agreement, no right or
benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbered or
charged, and any attempt to alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be subject
to the debts, contracts or liabilities of the person entitled to
such benefit.
(i) The obligations of the Company with respect to all Stock Options and
awards under the Plan shall be subject to (A) all applicable laws,
rules and regulations, and such approvals by any governmental
agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act,
and (B) the rules and regulations of any securities exchange or
association on which the Stock may be listed or traded.
(j) If any of the terms or provisions of the Plan conflicts with the
requirements of Rule 16b-3 as in effect from time to time, or with
the requirements of any other applicable law, rule or regulation,
and with respect to Incentive Stock Options, Section 422 of the
Code, then such terms or provisions shall be deemed inoperative to
the extent they so conflict with the requirements of said Rule
16b-3, and with respect to Incentive Stock Options, Section 422 of
the Code. With respect to Incentive Stock Options, if the Plan does
not contain any provision required to be included herein under
Section 422 of the Code, such provision shall be deemed to be
incorporated herein with the same force and effect as if such
provision had been set out at length herein.
(k) The Board or the Committee, as the case may be, may terminate any
Stock Option or other award made under the Plan if a written
agreement relating thereto is not executed and returned to the
Company within 30 days after such agreement has been delivered to
the optionee or participant for his or her execution.
(l) The grant of awards pursuant to the Plan shall not in any way affect
the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business
structure or to merge, consolidate, liquidate, sell or otherwise
dispose of all or any part of its business or assets.
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(m) Notwithstanding any other provision of the Plan if the Committee
determines at the time a Restricted Stock award, Deferred Stock
award or other Stock-Based award is granted to a participant who is
then an officer that such participant is, or is likely to be as of
the end of the tax year in which the Company would ordinarily claim
a tax deduction in connection with such award, a "covered employee"
within the meaning of Section 162(m)(3) of the Code ("Covered
Employee") then the Committee may provide that this Section 12(m) is
applicable to such award.
(i) If an award is subject to this Section 12(m), then the lapsing
of restrictions thereon and the distribution of cash, Stock or
other property pursuant thereto, as applicable, shall be
subject to the achievement of one or more objective
performance goals established by the Committee, which shall be
based on the attainment of specified levels of one or any
combination of the following: revenues, cost reductions,
operating income, income before taxes, net income, adjusted
net income, earnings per share, adjusted earnings per share,
operating margins, working capital measures, return on assets,
return on equity, return on invested capital, cash flow
measures, market share, shareholder return or economic value
added of the Company or the affiliate or division of the
Company for or within which the participant is primarily
employed. Such performance goals also may be based on the
achievement of specified levels of Company performance (or
performance of an applicable affiliate or division of the
Company) under one or more of the measures described above
relative to the performance of other corporations. Such
performance goals shall be set by the Committee within the
time period prescribed by, and shall otherwise comply with the
requirements of, Section 162(m) of the Code, or any successor
provision thereto, and the regulations thereunder.
(ii) Notwithstanding any provision of the Plan other than Section 9
above, with respect to any award that is subject to this
Section 12(m), the Committee may adjust downwards, but not
upwards, the amount payable pursuant to such Award, and the
Committee may not waive the achievement of the applicable
performance goals except in the case of the death or
disability of the participant, or under such other conditions
where such waiver will not jeopardize the treatment of other
awards under this Section 12(m) as "performance-based
compensation" under Section 162(m) of the Code.
(iii) The Committee shall have the power to impose such other
restrictions on awards subject to this Section 12(m) as it may
deem necessary or appropriate to ensure that such awards
satisfy all requirements for "performance-based compensation"
within the meaning of Section 162(m)(4)(C) of the Code, or any
successor provision thereto.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be adopted and effective as of the date of the approval and
adoption thereof at a meeting of the shareholders of the Company.
SECTION 14. TERM OF PLAN.
No Stock Option, Restricted Stock Award, Deferred Stock award or Other
Stock-Based Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but awards granted prior to such
tenth anniversary may extend beyond that date.
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MEDIABAY, INC.
2 RIDGEDALE AVENUE - SUITE 300
CEDAR KNOLLS, NEW JERSEY 07297
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
WEDNESDAY, DECEMBER 15, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN F. LEVY and JEFFREY DITTUS and each
of them, Proxies, with full power of substitution in each of them, in the name,
place and stead of the undersigned, to vote at the Annual Meeting of
Shareholders of MediaBay, Inc. (the "Company") on Wednesday, December 15, 2004,
at the Company's offices located at 2 Ridgedale Avenue - Suite 300, Cedar
Knolls, New Jersey 07927 or at any adjournment or adjournments thereof,
according to the number of votes that the undersigned would be entitled to vote
if personally present, upon the following matters:
1. ELECTION OF CLASS I DIRECTORS:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below). nominees listed below.
JOSEPH R. ROSETTI, PAUL EHRLICH AND STEPHEN YARVIS
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE BELOW.)
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(Continued and to be signed on reverse side)
2. Proposal to adopt the Company's 2004 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to amend the Company's Articles of Incorporation to change the
Company's name to "Soundbytes Media Corporation."
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to amend the Company's Articles of Incorporation to effect a
reverse split of the Company's issued and outstanding shares of Common
Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES AND THE
PROPOSALS LISTED ABOVE.
DATED: ________________________________, 2004
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
----------------------------------
Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE