As filed with the Securities and Exchange Commission on June 1, 2005
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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MEDIABAY, INC.
(Exact name of registrant as specified in its charter)
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Florida 2 Ridgedale Avenue - Suite 300 65-0429858
(State or other Cedar Knolls, New Jersey 07927 (IRS employer
jurisdiction of (973) 539-9528 identification
incorporation or (Address, including zip code, and telephone number, including number)
organization) area code, of registrant's principal executive offices)
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Jeffrey Dittus
Chief Executive Officer
MediaBay, Inc.
2 Ridgedale Avenue - Suite 300
Cedar Knolls, New Jersey 07927
(973) 539-9528
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copy to:
Robert J. Mittman, Esq.
Brad L. Shiffman, Esq.
Blank Rome LLP
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 885-5000
Facsimile: (212) 885-5001
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ____
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| _____
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
--------------------------------------- ----------------- ------------------ -------------------- ------------------
Proposed
Maximum
Title of each Amount Offering Proposed Amount of
Class of Securities To be Price Per Maximum Aggregate Registration
to be Registered Registered(1) Security(2) Offering Price(2) Fee
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Common stock, no par value per share 20,679,177(3) $0.545 $11,270,151.47 $1,326.50
--------------------------------------- ----------------- ------------------ -------------------- ------------------
(1) Includes 9,090,909 shares of common stock and 11,588,268 shares of
common stock issuable upon exercise of outstanding warrants and
options. All of the shares of common stock being registered hereby are
being offered for the accounts of selling shareholders who acquired
such shares or options or warrants to acquire shares in private
transactions.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, based upon the
average of the high and low sales prices of the common stock as
reported on the Nasdaq National Market on May 31, 2005.
(3) Pursuant to Rule 416 of the Securities Act of 1933, there are also
being registered hereunder additional shares of common stock as may be
issued to the selling shareholders because of any future stock
dividends, stock distributions, stock splits, similar capital
readjustments or other anti-dilution adjustments.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED JUNE 1, 2005
MEDIABAY, INC.
20,679,177 Shares of Common Stock
This prospectus relates to up to 20,679,177 shares of the common stock
of MediaBay, Inc., which have been registered for resale by some of our
securityholders pursuant to this prospectus.
The common stock may be offered from time to time by the selling
securityholders through ordinary brokerage transactions in the over-the-counter
markets, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices and in other ways as described in the
"Plan of Distribution." The shares of common stock being offered include up to
9,090,909 outstanding shares of common stock and 11,588,268 shares of common
stock issuable upon exercise of warrants. MediaBay will not receive any of the
proceeds from any sale of common stock by the selling securityholders. MediaBay
will receive proceeds from any exercise for cash of warrants made before any
sale of any of the shares of common stock being offered under this prospectus
that are underlying warrants.
The common stock is listed for trading on the Nasdaq National Market
under the symbol "MBAY". On May 31, 2005, the closing sale price of the common
stock as reported by the Nasdaq National Market was $0.54.
An investment in the common stock is speculative and involves a high
degree of risk. See "Risk Factors" beginning on Page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
THE COMPANY
MediaBay is a digital media and publishing company specializing in
spoken audio entertainment. We have over 75,000 hours of audio content, which we
distribute via mail order, our websites, some of the nation's largest retailers,
and a la carte, digital downloads and subscription services.
Today we have two principal content libraries; (1) Audiobooks: which we
license from the nation's largest publishing houses to sell on CD and cassette
through the Audio Book Club and which we intend to distribute via digital
downloads on third-party websites and a digital download service that is under
development; and (2) An archive of the history of American radio which we
produce and sell on CD and cassettes through our catalog, a mail order based
continuity program, retail outlets, and our on-line download subscription
service and third-party websites, of which one is currently operational. We
broadcast our radio programs through a syndicated radio show on 200 commercial
stations across the United States, as well as its 24-hour Radio Classics
channels on Sirius and XM Satellite Radio.
We are transitioning our business from selling hard goods primarily via
mail order to digital distribution via wireless and Internet downloads. Our
distribution strategy is two pronged: (1) to wholesale our audio content to the
leading music services and broadband companies on a white label basis, both
domestically and internationally; and (2) to operate our own downloadable
content stores and subscription services which are intended to be branded via
partnerships with celebrities and corporate affiliates, each chosen specifically
to reach the targeted demographics known to be interested in its content. We
intend to use various means to market our downloadable content stores, including
working with manufacturers of digital music players, smart phones, and PDA's to
include samples of our audio content for consumers to preview when they purchase
these new devices, with the hope that these samples will attract consumers to
our content stores.
We recently executed distribution agreements with Microsoft's MSN Music
to provide our spoken word content to the MSN audience, which has 350 million
unique monthly visitors. We have also executed a distribution agreement with
Loudeye to act as our digital sales agent in distributing our catalog to
potentially 70 music services which that company hosts and sources content for.
In addition, we expect to launch an on-demand, download and subscription service
in partnership with Larry King in 2005, and have begun to make our Classic Radio
library available for ring tone distribution.
We were incorporated in Florida in August 1993 under the name Audio
Book Club, Inc. In October 1999, we changed our name to MediaBay, Inc. Our
principal executive offices are located at 2 Ridgedale Avenue - Suite 300, Cedar
Knolls, New Jersey 07927. Our telephone number is (973) 539-9528. Our principal
internet addresses are MediaBay.com, RadioSpirits.com, Audiobookclub.com and
LarryKingaudio.com. Information contained on these web sites and our other web
sites is not deemed part of this prospectus.
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RISK FACTORS
Prospective investors should consider carefully the following risk
factors before purchasing any shares of the common stock offered hereby by the
selling securityholders.
WE HAVE A HISTORY OF LOSSES, ARE NOT CURRENTLY PROFITABLE, AND EXPECT
TO INCUR LOSSES IN THE FUTURE.
Since our inception, we have incurred significant losses. As of March
31, 2005, we had incurred an accumulated deficit of approximately $152 million.
Losses are continuing and are expected to continue. We may not be able to
achieve and sustain profitable operations.
OUR REVENUES HAVE DECLINED SIGNIFICANTLY AND WILL CONTINUE TO DECLINE.
WE DO NOT INTEND TO DEVOTE SUFFICIENT FUNDS TO MARKET TO ATTRACT NEW AUDIO BOOK
CLUB MEMBERS AND OUR REVENUE BASES WILL CONTINUE TO ERODE.
Because we significantly reduced our marketing expenditures for new
members, our club membership and revenues declined significantly. Sales for the
year ended December 31, 2004 and three months ended March 31, 2005 decreased 49%
and 41% as compared to the year ended December 31, 2003 and three months ended
March 31, 2004, respectively. Audio Book Club sales for the year ended December
31, 2004 and three months ended March 31, 2005 decreased 53% and 40% compared to
the year ended December 31, 2003 and three months ended March 31, 2004,
respectively, as a result of a reduction in our advertising expenditures for new
members. We do not anticipate conducting any significant new member acquisition
marketing of Audio Book Club as we have moved to a new strategy to grow our
business, as a result, our revenues will continue to decline until such time, if
ever, as we successfully implement our new strategies.
OUR PRODUCTS ARE SOLD IN A NICHE MARKET THAT MAY HAVE LIMITED FUTURE
GROWTH POTENTIAL.
Consumer interest in audiobooks and old-time radio may decline in the
future, and growth trends in these markets may stagnate or decline. A decline in
the popularity of audiobooks and old-time radio would limit our future growth
potential and negatively impact our future operating results.
WE MAY BE UNABLE TO ANTICIPATE CHANGES IN CONSUMER PREFERENCE FOR OUR
PRODUCTS AND MAY LOSE SALES OPPORTUNITIES.
Our success depends largely on our ability to anticipate and respond to
a variety of changes in the audiobook and old-time radio industries. These
changes include economic factors affecting discretionary consumer spending,
modifications in consumer demographics and the availability of other forms of
entertainment. The audiobook and old-time radio markets are characterized by
changing consumer preferences, which could affect our ability to:
o plan for product offerings;
o introduce new titles;
o anticipate order lead time;
o accurately assess inventory requirements; and
o develop new product delivery methods.
WE MAY NOT BE ABLE TO LICENSE OR PRODUCE DESIRABLE SPOKEN WORD CONTENT,
WHICH COULD REDUCE OUR REVENUES.
We could lose sales opportunities if we are unable to continue to
obtain the rights to additional premium spoken word content. We rely on
third-party content providers to offer downloads of premium spoken word content.
These third party providers include publishers. In some cases, we may be
required to pay substantial fees to obtain this third party content. In order to
provide a compelling service, we must license a wide variety of spoken word
content to our customers with attractive usage rules such as CD recording,
output to digital audio devices, portable subscription rights and other rights.
In addition, if we do not have sufficient breadth and depth of the titles
necessary to satisfy increased demand arising from growth in our customer base,
our customer satisfaction may be affected adversely. We cannot guarantee that we
will be able to secure licenses to spoken word content or that such licenses
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will be available on commercially reasonable terms. Some of our license
agreements expire over the several months unless they are renewed.
In addition, we have an agreement with a publisher under which we made
periodic payments for a series of audiobook titles. The agreement provides us to
make additional payments of approximately $700,000, some of which is past due.
We do not believe that we can profitably license the additional titles and we
are negotiating with the publisher to revise, amend or cancel the agreement.
IF OUR THIRD-PARTY PROVIDERS FAIL TO PERFORM THEIR SERVICES PROPERLY,
OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Third-party providers conduct all of our Audio Book Club and a majority
of our Radio Spirits customer service operations, process orders and collect
payments for us. If these providers fail to perform their services properly,
Audio Book Club members and Radio Spirits' customers could develop negative
perceptions of our business, collections of receivables could be delayed, our
operations might not function efficiently, our expenses may increase and our
revenue may decline.
WE ARE CURRENTLY TRANSITIONING OUR FULFILLMENT SERVICES TO A NEW
SERVICE PROVIDER, WHICH MAY CAUSE DISRUPTIONS IN SERVICE TO OUR AUDIO BOOK CLUB
MEMBERS.
Our fulfillment agreement with the third-party provider, which provided
virtually all of the services for our Audio Book Club, expired in April 2005. We
are currently utilizing these services on a month-to-month basis until our new
service providers commence providing services, which is scheduled for July 1,
2005. Our transition to new fulfillment service providers may be delayed and
could cause disruptions to our customers, which could result in decreased orders
and higher returns and bad debt expense.
IF OUR MARKETING STRATEGIES TO ACQUIRE NEW CUSTOMERS ARE NOT SUCCESSFUL
OUR SALES WILL DECLINE AND OUR COSTS COULD INCREASE.
If our direct mail and other marketing strategies are not successful,
our per member acquisition costs may increase and we may acquire fewer new
members than anticipated or the members we do acquire may not purchase as many
products as we anticipate, return products at a higher rate than we expect or
fail to pay for their purchases. As a result, our operating results would be
negatively impacted and our sales growth would be inhibited.
THE PUBLIC MAY BECOME LESS RECEPTIVE TO UNSOLICITED DIRECT MAIL
CAMPAIGNS.
The success of our direct mail campaigns is dependent on many factors
including the public's acceptance of direct mail solicitations. Negative public
reception of direct mail solicitations will result in lower customer
acquisitions rates and higher customer acquisition costs and will negatively
impact operating results and sales growth.
NEW LAWS ADDRESSING THE SENDING OF E-MAILS MAY LIMIT OUR ABILITY TO
MARKET OR SUBJECT US TO PENALTIES.
New laws recently enacted to limit "spam" e-mails may impact our
ability to conduct e-mail campaigns. While we attempt to only use "opt-in"
e-mail addresses and to work with third parties whose lists consist of "opt-in"
e-mails, the law may limit the number of third parties whose lists we can use or
significantly reduce the number of e-mails within these lists. Limitations on
our ability to continue the use of e-mail marketing campaigns could adversely
affect our ability to attract new Audio Book Club members and increase our cost
to acquire new members.
THE CLOSING OF RETAIL STORES, WHICH CARRY OUR PRODUCTS COULD NEGATIVELY
IMPACT OUR WHOLESALE SALES OF THESE PRODUCTS.
Bankruptcy filings by major retailers may limit the number of outlets
for our old-time radio products. With fewer chains and stores available as
distribution outlets, competition for shelf space will increase and our ability
to sell our products could be impacted negatively. Moreover, our wholesale sales
could be negatively impacted if any of our significant retail customers were to
close a significant number of their locations or otherwise discontinue selling
our products.
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IF THIRD PARTIES OBTAIN UNAUTHORIZED ACCESS TO OUR MEMBER AND CUSTOMER
DATABASES AND OTHER PROPRIETARY INFORMATION, WE WOULD LOSE THE COMPETITIVE
ADVANTAGE THEY PROVIDE.
We believe that our member file and customer lists are valuable
proprietary resources, and we have expended significant amounts of capital in
acquiring these names. Our member and customer lists, trade secrets, trademarks
and other proprietary information have limited protection. Third parties may
copy or obtain unauthorized access to our member and customer databases and
other proprietary know-how, trade secrets, ideas and concepts.
Competitors could also independently develop or otherwise obtain access
to our proprietary information. In addition, we rent our lists for one-time use
only to third parties that do not compete with us. This practice subjects us to
the risk that these third parties may use our lists for unauthorized purposes,
including selling them to our competitors. Our confidentiality agreements with
our executive officers, employees, list managers and appropriate consultants and
service suppliers may not adequately protect our trade secrets. If our lists or
other proprietary information were to become generally available, we would lose
a significant competitive advantage.
IF WE ARE UNABLE TO COLLECT OUR RECEIVABLES IN A TIMELY MANNER, IT MAY
NEGATIVELY IMPACT OUR CASH FLOW AND OUR OPERATING RESULTS.
We experienced bad debt rates of approximately 4.4% and 10.8% during
the year ended December 31, 2004 and 2003, respectively. We are subject to the
risks associated with selling products on credit, including delays in collection
or uncollectibility of accounts receivable. If we experience significant delays
in collection or uncollectibility of accounts receivable, our liquidity and
working capital position could suffer and we could be required to increase our
allowance for doubtful accounts, which would increase our expenses and reduce
our assets.
INCREASES IN COSTS OF POSTAGE COULD NEGATIVELY IMPACT OUR OPERATING
RESULTS.
We market through direct mailings to both our customers and prospective
customers, and postage is a significant expense in the operation of our
business. We do not pass on the costs of member mailings and member solicitation
packages. Even small increases in the cost of postage, multiplied by the
millions of mailings we conduct, would result in increased expenses and would
negatively impact our operating results.
WE FACE SIGNIFICANT COMPETITION FROM A WIDE VARIETY OF SOURCES FOR THE
SALE OF OUR PRODUCTS.
We may not be able to compete effectively because of the significant
competition in our markets from many competitors, many of whom are better
financed and have greater resources and from other competing products, which
provide similar entertainment value. We compete with other web sites, retail
outlets and catalogs, which offer similar entertainment products or content,
including digital download of spoken word content. New competitors, including
large companies, may elect to enter the markets for audiobooks and spoken word
content. We also compete for discretionary consumer spending with mail order
clubs and catalogs, other direct marketers and retailers that offer products
with similar entertainment value as audiobooks and old-time radio and classic
video programs, such as music on cassettes and compact discs, printed books,
videos, and DVDs. Many of these competitors are well-established companies,
which have greater financial resources that enable them to better withstand
substantial price competition or downturns in the market for spoken word
content.
A DECLINE IN CURRENT LEVELS OF CONSUMER SPENDING COULD REDUCE OUR
SALES.
The level of consumer spending directly affects our business. One of
the primary factors that affect consumer spending is the general state of the
local economies in which we operate. Lower levels of consumer spending in
regions in which we have significant operations could have a negative impact on
our business, financial condition or results of operations.
WE HAVE NOT FULLY COMPLIED WITH THE TERMS OF ALL OF OUR LICENSE
AGREEMENTS AND FAILURE TO DO SO MAY IMPAIR OUR ABILITY TO LICENSE PRODUCTS FROM
SOME RIGHTSHOLDERS.
As of the March 31, 2005, certain royalty payments have not been made
and there have been no requests for royalty statements or payments in connection
therewith. The publishers and other rightsholders have not requested royalty
statements or payments. These amounts are accrued for and reflected in the
Company's financial statements.
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IF WE ARE UNABLE TO COMPLETE OUR ASSESSMENT AS TO THE ADEQUACY OF OUR
INTERNAL CONTROL OVER FINANCIAL REPORTING WHEN REQUIRED AND FUTURE YEAR-ENDS AS
REQUIRED BY SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002, INVESTORS COULD LOSE
CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL STATEMENTS, WHICH COULD RESULT IN
A DECREASE IN THE MARKET PRICE OF OUR COMMON STOCK.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the issuer's internal control over financial
reporting in their annual reports on Form 10-K. This report is required to
contain an assessment by management of the effectiveness of such issuer's
internal controls over financial reporting. In addition, the public accounting
firm auditing a public company's financial statements must attest to and report
on management's assessment of the effectiveness of the company's internal
controls over financial reporting. While we anticipate expending significant
resources in developing the necessary documentation and testing procedures
required by Section 404, there is a risk that we will not comply with all of the
requirements imposed by Section 404. If we fail to implement required new or
improved controls, we may be unable to comply with the requirements of SEC 404
in a timely manner. This could result in an adverse reaction in the financial
markets due to a loss of confidence in the reliability of our financial
statements, which could cause the market price of our common stock to decline
and make it more difficult for us to finance our operations.
THE EFFECTIVENESS OF OUR DISCLOSURE AND INTERNAL CONTROLS MAY BE
LIMITED.
Our disclosure controls and procedures and internal controls over
financial reporting may not prevent all errors and intentional
misrepresentations. Any system of internal control can only provide reasonable
assurance that all control objectives are met. Some of the potential risks
involved could include but are not limited to management judgments, simple
errors or mistakes, willful misconduct regarding controls or misinterpretation.
There is no guarantee that existing controls will prevent or detect all material
issues or be effective in future conditions, which could materially and
adversely impact our financial results in the future.
ADDITIONAL RISKS RELATING TO OUR CHANGE IN STRATEGY AND OUR DOWNLOADABLE SPOKEN
WORD CONTENT OFFERINGS AND ONLINE INITIATIVES.
OUR NEW STRATEGY TO FOCUS ON DOWNLOADABLE SPOKEN WORD CONTENT AND OUR
PROPOSED LARRY KING ONLINE INITIATIVES IS SUBJECT TO MANY UNCERTAINTIES AND
COULD RESULT IN CONTINUING LOSSES AND DECLINING REVENUES UNTIL SUCH TIME, IF
EVER, IT IS SUCCESSFULLY IMPLEMENTED.
Historically, we have sold audiobooks through a membership club format
and other spoken word content, substantially all in hard goods format (audio
cassettes and CDs). Over the past two years, we significantly reduced our new
member and customer marketing activities. We intend to pursue a new strategy of
pursuing the opportunities to sell downloadable spoken word content and selling
hard good format content online. We have limited experience in the emerging and
competitive downloadable content distribution business and cannot assure you
that we will be successful in transiting, operating and growing our business.
Because we intend to pursue a new strategy, which focuses on
downloadable spoken word content and our proposed on-line club, we intend to
phase out the Audio Book Club and will not devote the funds necessary to acquire
new members to offset member attrition and/or expand our existing membership and
customer bases. As a result, our revenue will continue to decline, which will
continue to negatively impact our performance. We expect this trend to continue
until such time, if even, as we generate significant revenue from the sale of
downloadable spoken word content and attract and establish a meaningful customer
base for our online Larry King website or other websites we may develop. We do
not expect to begin to offer downloadable spoken word content until at least
June 2005 or launch our proposed Larry King website until at least June 2005.
There can be no assurance that we will meet these launch dates, or be able to
successfully implement our new strategies or that implementation will result in
increased revenues or profitable operations.
THE DOWNLOAD SPOKEN WORD DISTRIBUTION BUSINESS IS NEW AND RAPIDLY
EVOLVING AND MAY NOT PROVE TO BE A PROFITABLE OR EVEN VIABLE BUSINESS MODEL.
Download spoken word distribution services are a relatively new
business model for delivering digital media over the Internet. It is too early
to predict whether consumers will accept, in significant numbers, online spoken
word content services and accordingly whether the services will be financially
viable. If download spoken word distribution services do not prove to be popular
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with consumers, or if these services cannot sustain any such popularity, our
business and prospects would be harmed.
OUR PROPOSED LARRY KING ON-LINE SERVICE MAY NOT ATTRACT NEW CUSTOMERS.
We have signed an agreement with Larry King to form an online Larry
King audio entertainment and education service, which we believe could build an
income stream to replace the current negative option audiobook club. The
celebrity spokesman and associated public relations activities are expected to
lower acquisition costs of new members. We have not completed the design and
development of our proposed Larry King web site and related strategies and
cannot assure you that we will be successful in operating and growing the web
site. If our efforts are not successful, we will not generate sufficient
revenues to offset the expected continuing declining revenues from our Audit
Book Club. Moreover, there can be no assurance that we will be able to reduce
our cost of acquiring new members and overall operating costs as compared to our
Audio Book Club.
THE MARKET FOR OUR SERVICE IS UNCERTAIN AND CONSUMERS MAY NOT BE
WILLING TO USE THE INTERNET TO PURCHASE SPOKEN AUDIO CONTENT, WHICH COULD HARM
OUR BUSINESS.
Downloading audio content from the Internet is a relatively new method
of distribution and its growth and market acceptance is highly uncertain. Our
success will depend in large part on more widespread consumer willingness to
purchase and download spoken audio content over the Internet. Purchasing this
content over the Internet involves changing purchasing habits, and if consumers
are not willing to purchase and download this content over the Internet, our
revenue will be limited, and our business will be materially and adversely
affected. We believe that acceptance of this method of distribution may be
subject to network capacity constraints, hardware limitations, company computer
security policies, the ability to change user habits, and the quality of the
audio content delivered.
MANUFACTURERS OF ELECTRONIC DEVICES MAY NOT MANUFACTURE, MAKE
AVAILABLE, OR SELL A SUFFICIENT NUMBER OF PRODUCTS SUITABLE FOR OUR SERVICE,
WHICH WOULD LIMIT OUR REVENUE GROWTH.
If manufacturers of electronic devices do not manufacture, make
available, or sell a sufficient number of electronic devices enabled with the
Windows Media Platform for downloadable spoken word content or if these players
do not achieve sufficient market acceptance our sales could be adversely
affected and our business will be materially and adversely affected. Microsoft
competes with others for relationships with manufacturers of electronic devices
with audio playback capabilities. Manufacturers of electronic devices have
experienced delays in their delivery schedule of their digital players due to
parts shortages and other factors. Although the content we intend to provide can
be played on personal computers and burned to CDs for later listening, we
believe that a key to our future success is the ability to playback this content
on hand-held electronic devices that have digital audio capabilities.
WE MUST PROVIDE DIGITAL RIGHTS MANAGEMENT SOLUTIONS THAT ARE ACCEPTABLE
TO BOTH CONTENT PROVIDERS AND CONSUMERS.
We must provide digital rights management solutions and other security
mechanisms in our download spoken word distribution services in order to address
concerns of content providers and authors, and we cannot be certain that content
licensors or consumers will accept them. Content providers may be unwilling to
continue to support portable subscription services. Consumers may be unwilling
to accept the use of digital rights management technologies that limit their use
of content, especially with large amounts of free content readily available.
Third-party providers of digital rights management software, such as
Microsoft, may be unwilling to continue to provide such software to us upon
reasonable or any terms. If we are unable to acquire these solutions on
reasonable or any terms, or if customers are unwilling to accept these
solutions, our business and prospects could be harmed.
CAPACITY CONSTRAINTS AND FAILURES, DELAYS, OR OVERLOADS COULD INTERRUPT
OUR SERVICE AND REDUCE THE ATTRACTIVENESS OF DOWNLOADING SPOKEN WORD TO
POTENTIAL CUSTOMERS.
Any capacity constraints or sustained failure or delay in downloading
spoken word could reduce the attractiveness of downloading spoken word products
which could materially and adversely affect our ability to implement our new
strategy. The success of our new strategy depends on our ability to
electronically, efficiently, and with few interruptions or delays distribute
spoken audio content to potential customers. Accordingly, the performance,
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reliability, and availability of our Website, our transaction processing systems
and our network infrastructure are critical to our operating results. We believe
the potential instability of the Internet could mean that periodic interruptions
to our new service could occur. These interruptions might make it difficult to
download audio content from our Website in a timely manner and jeopardize
prospective customer relationships.
WE DO NOT HAVE A COMPREHENSIVE DISASTER RECOVERY PLAN AND WE HAVE
LIMITED BACK-UP SYSTEMS, AND A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS AND
COULD RESULT IN LOSS OF CUSTOMERS.
If our computer systems are damaged or interrupted by a disaster for an
extended period of time, our business, results of operations, and financial
condition would be materially and adversely affected. We do not have a
comprehensive disaster recovery plan in effect. Our operations depend upon our
ability to maintain and protect our computer systems - all of which are located
in our headquarters and at a third party offsite hosting facility. Although we
maintain insurance against general business interruptions, we cannot assure you
that the amount of coverage will be adequate to compensate us for our losses.
PROBLEMS ASSOCIATED WITH THE INTERNET COULD DISCOURAGE USE OF
INTERNET-BASED SERVICES AND ADVERSELY AFFECT OUR BUSINESS.
If the Internet fails to develop or develops more slowly than we expect
as a commercial medium, our business may also grow more slowly than we
anticipate or fail to grow. Our success will depend in large part on increasing
use of the Internet. There are critical issues concerning the commercial use of
the Internet which we expect to affect the development of the market for
downloadable spoken word, including:
o Secure transmission of customer credit card numbers and other
confidential information;
o Reliability and availability of Internet service providers;
o Cost of access to the Internet;
o Availability of sufficient network capacity; and
o Ability to download audio content consistent with computer
security measures employed by businesses.
MORE CONSUMERS ARE UTILIZING NON-PC DEVICES TO ACCESS DIGITAL CONTENT,
AND WE MAY NOT BE SUCCESSFUL IN GAINING WIDESPREAD ADOPTION BY USERS OF SUCH
DEVICES.
In the coming years, the number of individuals who access digital
content through devices other than a personal computer, such as personal digital
assistants, cellular telephones, television set-top devices, game consoles and
Internet appliances, is expected to increase dramatically. Manufacturers of
these types of products are increasingly investing in media-related
applications, but development of these devices is still in an experimental stage
and business models are new and unproven. If we are unable to offer downloads of
spoken word content on these alternative non-PC devices, we may fail to capture
a sufficient share of an increasingly important portion of the market for
digital media services or our costs may increase significantly.
WE COULD BE SUED FOR CONTENT THAT WE DISTRIBUTE OVER THE INTERNET,
WHICH COULD SUBJECT US TO SUBSTANTIAL DAMAGES.
A lawsuit based on the spoken word content we intend to distribute
could be expensive and damaging to our business. As a distributor and publisher
of content over the Internet, we may be liable for copyright, trademark
infringement, unlawful duplication, negligence, defamation, indecency, and other
claims based on the nature and content of the materials that we publish or
distribute to customers. Our liability insurance may not cover claims of these
types or may not be adequate to protect us from the full amount of the
liability. If we are found liable in excess of the amount of our insurance
coverage, we could be liable for substantial damages. Our reputation and
business may suffer even if we are not liable for significant financial damages.
8
FUTURE GOVERNMENT REGULATIONS MAY INCREASE OUR COST OF DOING BUSINESS
ON THE INTERNET, WHICH COULD ADVERSELY AFFECT OUR COST STRUCTURE.
Laws and regulations applicable to the Internet, covering issues such
as user privacy, pricing, and copyrights are becoming more prevalent. The
adoption or modification of laws or regulations relating to the Internet could
force us to modify our services in ways that could adversely affect our
business.
WE MAY BECOME SUBJECT TO SALES AND OTHER TAXES FOR DIRECT SALES OVER
THE INTERNET, WHICH COULD AFFECT OUR REVENUE GROWTH.
Increased tax burden could make our service too expensive to be
competitive. We do not currently collect sales or other similar taxes for
download of content. Nevertheless, one or more local, state, or foreign
jurisdictions may require that companies located in other states collect sales
taxes when engaging in online commerce in those states. If one or more states
successfully assert that we should collect sales or other taxes on the download
of spoken word content, the increased cost to our customers could discourage
them from purchasing our services, which would materially and adversely affect
our business.
WE MAY NOT BE ABLE TO PROTECT OUR LICENSES OR OUR INTELLECTUAL
PROPERTY, WHICH COULD JEOPARDIZE OUR COMPETITIVE POSITION.
If we fail to protect our licenses or our intellectual property, we may
be exposed to expensive litigation or risk jeopardizing our competitive
position. The steps we have taken may be inadequate to protect our licenses or
other intellectual property. We rely on a combination of licenses,
confidentiality agreements, and other contracts to establish and protect our
intellectual property rights. We may have to litigate to enforce our licenses or
other intellectual property rights or to determine the validity and scope of the
proprietary rights of others. This litigation could result in substantial costs
and the diversion of our management and other resources, which would harm our
business.
OTHER COMPANIES MAY CLAIM THAT WE INFRINGE THEIR COPYRIGHTS OR PATENTS,
WHICH COULD SUBJECT US TO SUBSTANTIAL DAMAGES.
Any claims of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business. A party making a claim could secure a judgment
that requires us to pay substantial damages. A judgment could also include an
injunction or other court order that could prevent us from offering downloads of
spoken word content. Any of these events could have a material adverse effect on
our business, operating results, and financial condition.
THE ONLINE CONTENT DISTRIBUTION INDUSTRY IS HIGHLY COMPETITIVE AND WE
CANNOT ASSURE YOU THAT WE WILL BE ABLE TO COMPETE EFFECTIVELY, WHICH WOULD HARM
OUR BUSINESS.
We will face competition in all aspects of our online business and we
cannot assure you that we will be able to compete effectively. We will compete
for consumers of spoken word content with other Internet-based audio
distributors, as well as with our existing, competitors, such as distributors of
audio on cassette tape or compact disc. The business of providing content over
the Internet is experiencing rapid growth and is characterized by rapid
technological changes, changes in consumer habits and preferences, and the
emergence of new and established companies. We will also continue to compete
with (i) book store chains deep-discount retailers, retail stores, mass
merchandisers, mail order catalogs, clubs, and libraries that sell, rent, or
loan audiobooks on cassette tape or compact disc, such as Borders, Barnes &
Noble, (ii) online retailers such as Amazon.com, (iii) websites that offer
streaming access to spoken audio content using tools such as the RealPlayer or
Windows Media Player, (iv) other companies offering services similar to ours,
such as Audible AudioFeast, iTunes, and (v) online and Internet portal companies
such as America Online, Inc., and Yahoo! Inc., and, which have the potential to
offer audio content. Moreover Audible, Inc., has begun to establish itself as a
leader in downloadable spoken word content distribution. Many of these companies
have financial, technological, promotional, and other resources that are much
greater than those available to us and could use or adapt their current
technology, or could purchase technology, to provide a service directly
competitive with our services and products.
9
RISKS RELATING TO OUR CAPITAL STRUCTURE
OUR ABILITY TO USE OUR NET OPERATING LOSSES WILL BE LIMITED IN FUTURE
PERIODS, WHICH COULD INCREASE OUR TAX LIABILITY.
Under Section 382 of the Internal Revenue Code of 1986, utilization of
prior net operating losses is limited after an ownership change, as defined in
Section 382, to an annual amount equal to the value of the corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the long-term tax exempt rate. In the event we achieve profitable operations,
any significant limitation on the utilization of net operating losses would have
the effect of increasing our tax liability and reducing after tax net income and
available cash reserves. We are unable to determine the availability of net
operating losses since this availability is dependent upon profitable
operations, which we have not achieved in prior periods.
THE NUMBER OF SHARES OF COMMON STOCK WHICH ARE AVAILABLE FOR SALE UPON
EXERCISE OF CONVERTIBLE PREFERRED STOCK AND EXERCISE OF WARRANTS AND OPTIONS IS
SUBSTANTIAL IN RELATION TO OUR CURRENTLY OUTSTANDING COMMON STOCK AND THE PUBLIC
FLOAT OF OUR COMMON STOCK, AND COULD CAUSE DOWNWARD PRESSURE ON THE MARKET PRICE
FOR OUR COMMON STOCK.
The number of shares of common stock registered for resale upon
exercise of convertible preferred stock and exercise of warrants and options is
significantly greater than the number of shares currently outstanding and in the
public float. If those securityholders determine to sell a significant number of
shares into the market at any given time, there likely will not be sufficient
demand in the market to purchase the shares without a decline in the market
price for our common stock. Moreover, continuous sales into the market of a
number of shares in excess of the typical trading market for our common stock,
or even the availability of such a large number of shares, could continue to
depress the trading market for our common stock over an extended period of time
OUR STOCK PRICE HAS BEEN AND COULD CONTINUE TO BE EXTREMELY VOLATILE.
The market price of our common stock has been subject to significant
fluctuations since our initial public offering in October 1997. The securities
markets have experienced, and are likely to experience in the future,
significant price and volume fluctuations, which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, the trading price of our common stock could be subject to significant
fluctuations in response to:
o Timely and successful implementation of our new strategies;
o actual or anticipated variations in our quarterly operating
results;
o announcements by us or other industry participants;
o factors affecting the market for spoken word content;
o changes in national or regional economic conditions;
o changes in securities analysts' estimates for us, our
competitors' or our industry or our failure to meet such
analysts' expectations; and
o general market conditions.
OUR STOCK PRICE MAY DECLINE IF WE ARE UNABLE TO MAINTAIN OUR LISTING ON
NASDAQ
Our Common Stock is currently below the minimum per share requirement
($1.00) for continued listing on the Nasdaq National Market and we have received
a letter dated March 8, 2005 from Nasdaq Stock Market, Inc. stating that we are
not in compliance with the minimum per share requirement ($1.00) for continued
listing on the exchange under Nasdaq Marketplace Rule 4310(c)(4). We have 180
days to demonstrate compliance by having our stock trade over $1.00 for a
minimum of ten consecutive trading days, or are subject to delisting by Nasdaq.
10
A LARGE NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD IN THE
MARKET IN THE NEAR FUTURE, WHICH COULD DEPRESS OUR STOCK PRICE.
As of June 1, 2005, we had outstanding approximately 35.4 million
shares of common stock. In addition, a substantial portion of our shares are
currently freely trading without restriction under the Securities Act of 1933,
having been registered for resale or held by their holders for over two years
and are eligible for sale under Rule 144(k). There are currently outstanding
options and warrants to purchase and convertible preferred stock convertible
into an aggregate of approximately 169 million shares of our common stock and
substantially all of the underlying shares are available for sale under an
effective registration statements. To the extent any of our warrants or options
are exercised or convertible preferred stock is converted, your percentage
ownership will be diluted and our stock price could be further adversely
affected. Moreover, as the underlying shares are sold, the market price could
drop significantly if the holders of these restricted shares sell them or if the
market perceives that the holders intend to sell these shares.
BECAUSE OUR BOARD OF DIRECTORS CONSISTS OF THREE CLASSES, IT MAY BE
MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY.
Our by-laws divide our board of directors into three classes, serving
staggered three-year terms. The staggered board of directors may make it more
difficult for a third party to acquire, or may discourage acquisition bids for
our company.
OUR OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO DESIGNATE ADDITIONAL
PREFERRED STOCK COULD ADVERSELY EFFECT THE RIGHTS OF OUR COMMON STOCKHOLDERS.
Our Articles of Incorporation authorize our board of directors to issue
up to 5,000,000 shares of "blank check" preferred stock without shareholder
approval, in one or more series and to fix the dividend rights, terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges, and restrictions
applicable to each new series of preferred stock. We currently have four series
of preferred stock outstanding all of which have liquidation preferences senior
to our common stock. Three of these series have approval rights with respect to
amendments to our articles of incorporation which adversely affect the preferred
stock, incurrence of indebtedness, payment of dividends and distributions,
redemption of capital stock, the creation of other series of capital stock
convertible into our common stock. Moreover, two of the series of preferred
stock have voting rights, including an approval right with respect to certain
corporate events, such as, mergers and other business contribution and certain
sales and transfer of assets. The existence of our outstanding preferred stock
and designation of additional series of preferred stock in the future could,
among other results, adversely affect the voting power of the holders of common
stock and, under certain circumstances, could make it difficult for third
parties to gain control of our company, prevent or substantially delay a change
in control, discourage bids for our common stock at a premium, or otherwise
adversely affect the market price of our common stock.
SPECIAL INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus and in the documents incorporated
by reference herein constitute "forward-looking" statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements other
than statements of historical facts included in this prospectus, including,
without limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of our management
for future operations are forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe," or "continue" or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
cannot assure you that such expectations will prove to be correct. These forward
looking statements involve certain known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any results, performances or achievements expressed
or implied by such forward-looking statements. Important factors that could
cause actual results to differ materially from our expectations, include,
without limitation our ability to implement our new strategy and transition our
business and the risks related thereto: our history of losses and declining
11
revenues; our ability to license and sell new spoken word content, obtain
additional financing, anticipate and respond to changing customer preferences,
license and produce desirable content, protect our databases and other
intellectual property from unauthorized access, and collect receivables;
dependence on third-party providers, suppliers and distribution channels;
competition; the costs and success of our marketing strategies, product returns,
member attrition; and risks relating to our capital structure. Undue reference
should not be placed on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to update any forward-looking
statements.
USE OF PROCEEDS
We will not receive any proceeds from any sales of shares of common
stock made from time to time hereunder by the selling securityholders. Any
proceeds we receive from the exercise of warrants or options for cash will be
added to our working capital. We have agreed to bear the expenses in connection
with the registration of the common stock being offered hereby by the selling
securityholders.
SECURITYHOLDERS FOR WHICH SHARES ARE BEING REGISTERED FOR SALE
The following table sets forth information as of June 1, 2005, with
respect to the securityholders for which shares are being registered for sale.
The table below assumes for calculating each selling securityholder's
beneficial percentage ownership that options, warrants and/or convertible
securities that are held by such selling securityholder (but not held by any
other selling securityholder or person) and are exercisable or convertible
within 60 days from the date of this prospectus have been exercised or
converted. The table also assumes the sale of all of the shares registered for
sale by the selling securityholder pursuant to this prospectus.
Beneficial Shares Beneficially % of Shares
Ownership of Owned Assuming the Beneficially Owned
Securityholders for Which Shares are Being Shares of Common Shares Registered Sale of the Shares Assuming the Sale of
Registered for Sale Stock for Sale Registered the Shares Registered
------------------------------------------ ---------------- ----------------- ------------------ --------------------
SF Capital Partners (1) 3,636,364 5,454,546(2) 0 0
Presidio Partners (3) 1,854,545 2,781,818(4) 0 0
Geary Partners (5) 1,792,091 2,023,636(6) 0 0
Brady Retirement Fund LP (7) 649,091 649,091(8) 0 0
TCMP3 Partners, LP (9) 409,091 409,091(10) 0 0
Western Reserve Hedged Equity, LP (11) 777,273 777,273(12) 0 0
Western Reserve Hedged Equity AI, LP (13) 40,909 40,909(14) 0 0
PEF Advisers Ltd (15) 1,500,000 1,500,000(16) 0 0
Evan Herrick 1,850,000 1,850,000(17) 0 0
Howard Herrick (18) 1,849,500 1,225,000(17) 624,500 1.7
Michael Herrick (19) 1,850,000 1,550,000(17) 300,000 *
Norton Herrick (20) 10,068,027 1,430,203(17) 7,650,214(21) 20.7
Huntingdon Corporation (22) 987,610 987,610(17) 0 0
---------------
* Less than 1%
12
1. The selling securityholder has advised us that Michael A. Roth and
Brian J. Stark, the managing members of Stark Offshore Management, LLC
("Stark Offshore"), the investment manager of the selling
securityholder, have voting and dispositive power of the securities
held by the selling securityholder.
2. Represents 3,636,364 shares and 1,818,182 shares issuable upon exercise
of warrants.
3. The selling securityholder has advised us that Van L. Brady and William
J. Brady, each a general partner of the selling securityholder, have
voting and dispositive power of the securities held by the selling
securityholder.
4. Represents 1,854,545 shares and 927,273 shares issuable upon exercise
of warrants.
5. The selling securityholder has advised us that Van L. Brady and William
J. Brady, each a general partner of the selling securityholder, have
voting and dispositive power of the securities held by the selling
securityholder.
6. Represents 1,349,091 shares and 674,545 shares issuable upon exercise
of warrants.
7. The selling securityholder has advised us that Van L. Brady and William
J. Brady, each a general partner of the selling securityholder, have
voting and dispositive power of the securities held by the selling
securityholder.
8. Represents 432,727 shares and 216,364 shares issuable upon exercise of
warrants.
9. The selling securityholder has advised us that Steven Slawson and
Walter Shenker, each a principal of the selling securityholder, have
voting and dispositive power of the securities held by it.
10. Represents 272,727 shares and 136,364 shares issuable upon exercise of
warrants.
11. The selling securityholder has advised us that WRCM, LLC, the general
partner of Western Reserve Capital Management, LP, the general partner
of the selling securityholder, and Michael P. Durante, the managing
partner of the selling securityholder, have voting and dispositive
power of the securities held by it.
12. Represents 518,182 shares and 259,091 shares issuable upon exercise of
warrants.
13. The selling securityholder has advised us that WRCM, LLC, the general
partner of Western Reserve Capital Management, LP, the general partner
of the selling securityholder, and Michael P. Durante, the managing
partner of the selling securityholder, have voting and dispositive
power of the securities held by it.
14. Represents 27,273 shares and 13,636 shares issuable upon exercise of
warrants.
15. The selling securityholder has advised us that Paul Mannion and Andrew
Reckles, each a director of the selling securityholder, have voting and
dispositive power of the securities held by it.
16. Represents 1,000,000 shares and 500,000 shares issuable upon exercise
of warrants.
17. Represents shares issuable upon exercise of warrants.
18. The selling securityholder is employed by MediaBay pursuant to an
employment agreement dated as of April 28, 2004, as amended on April
11, 2005. Pursuant to the employment agreement, the selling
securityholder currently receives an annual salary of $189,280, subject
to a 4% increase per year, plus a minimum bonus of $30,000 on each of
December 1, 2005 and 2006. Upon termination without cause (as defined
in the agreement) or after a Change of Control (as defined in the
agreement) or resignation by the selling securityholder within six
months following a Change of Control, the selling securityholder is
entitled to receive severance equal to the greater of $525,000 and
three times the total compensation for the twelve months prior thereto.
The term of the employment agreement expires June 30, 2008. The selling
securityholder is also a former officer, director and principal
shareholder of MediaBay.
19. The selling securityholder is a former officer, director and principal
shareholder of MediaBay
20. Norton Herrick is a principal shareholder of MediaBay. Mr. Herrick was
Chairman and a director of MediaBay until May 1, 2003. In addition,
following are other material relationships between MediaBay and Mr.
Herrick:
On October 3, 2002, MediaBay and Huntingdon Corporation, a
company wholly-owned by Mr. Herrick ("Huntingdon" and, together
with Norton Herrick, the "Herrick Entities") entered into an
agreement pursuant to which Huntingdon agreed to loan MediaBay
$1.5 million (the "October Agreement").
During August and September of 2002, Norton Herrick advanced
$1.0 million to MediaBay, which was converted into a $1.0
million principal amount convertible promissory note payable to
Huntingdon under the October Agreement. This note bore interest
at the prime rate plus 2 1/2 %, was convertible into shares of
common stock at a rate of $2.00 per share and is due September
30, 2007, except that the holder could make a demand for
repayment after our then existing credit facility was repaid. In
connection with the transaction, we issued to Huntingdon a
ten-year warrant to purchase 250,000 shares of common stock at
an exercise price of $2.00 per share.
13
Pursuant to the October Agreement, on October 10, 2002, we
issued to Huntingdon an additional $150,000 principal amount
convertible promissory note to Huntingdon. This note was
convertible into shares of common stock at a rate of $2.00 per
share. The remaining terms of the note were similar to those of
the initial note issued under the October Agreement. Warrants to
purchase 37,500 of shares of common stock at an exercise price
of $2.00 were also issued to Huntingdon. The remaining terms of
this warrant were similar to those of the initial warrant issued
under the October Agreement.
Pursuant to the October Agreement, on November 15, 2002, we
issued to Huntingdon an additional $350,000 principal amount
convertible promissory note to Huntingdon (the "Third Note").
The Third Note is convertible into shares of common stock at a
rate of $1.25 per share. The remaining terms of the Third Note
were similar to those of the initial note issued under the
October Agreement. At the time of the loan, warrants to purchase
140,000 of shares of common stock at an exercise price of $1.25
were also issued to Huntingdon. The remaining terms of this
warrant were similar to those of the initial warrant issued
under the October Agreement.
Pursuant to the October Agreement, each of the $2.5 million and
$500,000 principal amount convertible notes previously issued to
Huntingdon were amended to, among other things, extend the
maturity date to September 30, 2007, provided that the holder of
either note could demand repayment of the note on or after our
credit facility is repaid. The $800,000 principal amount
convertible note issued to Huntingdon was also amended on
October 3, 2002 to, among other things, extend the maturity date
to September 30, 2007, provided that beginning on the 90th day
after our then-existing credit facility was repaid the holder
could demand repayment.
Also on October 3, 2002, the $1,984,000 principal amount
convertible promissory note previously issued to Norton Herrick
was amended to, among other things, extend the maturity dates to
September 30, 2007; except that the holder could demand
repayment of the note on or after October 31, 2004 if our
then-existing credit facility has been repaid.
On November 15, 2002, we entered into an agreement with Norton
Herrick pursuant to which Norton Herrick agreed to resign as
Chairman upon the lenders under the senior credit facility
consent to such resignation or the Company's repayment of the
facility as to permit Carl Wolf to become Chairman. As
consideration, Mr. Herrick was given the right to nominate up to
four members of our Board of Directors and we agreed not to
increase the number of directors to more than seven members
without Mr. Herrick's consent.
On November 15, 2002, in connection with entering into an
employment agreement with Norton Herrick, we entered into an
indemnification agreement with Mr. Herrick pursuant to which, we
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 our company or any subsidiary or in any
other capacity.
Companies wholly owned by Norton Herrick, a principal
shareholder, 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. We paid or accrued to these entities $88,000,
$430,000 and $292,000 for these services during the years ended
December 31, 2001, 2002 and 2003, respectively. In addition, a
company wholly owned by Norton Herrick provided us with access
to a corporate airplane during 2001 and 2002. We generally paid
the fuel, fees and other costs related to our use of the
airplane directly to the service providers. For use of this
airplane, we paid rental fees of approximately $14,000 in each
of 2001 and 2002 to Mr. Herrick's affiliate. As of December 31,
2003 we owed to Mr. Herrick and his affiliates $895,000 for
reimbursement of such expenses and services. From January 1,
2004 through April 27, 2004, we repaid approximately $187,000 of
this amount and, on April 28, 2004, in connection with the
agreements described below, we agreed to repay the remaining
approximately $639,000 as follows: (i) Mr. Herrick $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, we 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 our Board of Directors. For its services, we agreed to
pay XNH a fee of $8,000 per month 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 consulting agreement provided that the
indemnification agreement with Mr. Herrick entered into on
November 15, 2002 pursuant to which, we 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 ours 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 we terminated the employment agreement signed as
of November 2, 2002 on May 1, 2003.
14
Effective December 31, 2003, we agreed with Norton Herrick to
terminate the two-year consulting agreement with XNH, we 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. In
April 2004, we amended the termination agreement such that we
are longer required to either pay Herrick the $7,500 each month
or to provide Herrick with health insurance and other benefits
applicable to our officers. In connection with the termination
agreement, the non-competition and nondisclosure covenants of
the XNH consulting agreement were extended until December 31,
2006. In accordance with the agreement, we paid or reimbursed
certain health insurance premiums for Mr. Herrick.
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 "cash-less" basis and the
closing stock price on July 31, 2003 was $.78. Accordingly, we
issued to Mr. Herrick a certificate for 107,692 shares of our
common stock.
During the three months ended September 30, 2003, Norton Herrick
provided a $100,000 guarantee to a vendor. We subsequently paid
the vendor and the guarantee expired. Mr. Herrick received no
compensation and did not profit from the transaction.
During the three months ended September 30, 2003, Norton Herrick
also loaned MediaBay $100,000. The loan was subsequently
converted into an investment by Huntingdon, in the $1,065,000
bridge financing completed on October 1, 2003. Carl Wolf, our
Chairman, also purchased a $100,000 note in this financing. In
consideration, we 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, we 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 our
common stock on March 31, 2004.
We 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 us for cancellation within ten (10) days of the
date of the November Agreement, shares of our 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 our
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 our common stock.
Based on the Market Price, the aggregate value of these shares
is $1,029,650. Also, as part of the Payment, Mr. Herrick
deposited warrants to purchase 1,875,000 shares of our common
stock. Based on the Market Price ($.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 and 2002, Norton Herrick advanced $360,000 and $372,000,
respectively, to certain of our vendors and professional firms
as payment of amounts owed to them. As we 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 April 12, 2004, none of the
advances were outstanding.
On January 29, 2004, we 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 us 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
15
converted into common stock. In consideration for Huntingdon's
consent to the Financing and execution of the letter agreement
upon receipt of shareholders' approval, we 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 we entered into a new credit agreement.
Herrick, Huntingdon and N. Herrick Irrevocable ABC Trust (the
"Trust"), of which 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 us to Herrick, Huntingdon and the Trust be
reduced to $6,800,000 ("Permissible Debt") by June 1, 2004, and
that the Permissible Debt would be further reduced by up to an
additional $1,800,000 if we did 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. MediaBay received a
fairness opinion in connection with this transaction.
Pursuant to an agreement dated April 28, 2004, on May 25, 2004,
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 was required to be reduced due to
our failure to raise the requisite additional equity, such
reduction would have 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 were guaranteed by
certain subsidiaries of MediaBay and secured by a lien on the
assets of the Company and certain subsidiaries of MediaBay.
In connection with our financing in March 2005, we also entered
into an agreement with the Herrick Entities, pursuant to which,
concurrently with the financing:
o all $5.784 million principal amount of our convertible
notes owned by the Herrick Entities (the "Herrick
Notes") and 10,684 of their shares of our Series A
Preferred Stock were converted into an aggregate of
approximately 12.2 million shares of Common Stock (the
"Herrick Shares"), at their stated conversion rate of
$0.56 per share;
o we also agreed to redeem the remaining 14,316 shares of
Series A Preferred Stock held by the Herrick Entities
and all 43,527 of their shares of our Series C Preferred
Stock (collectively, the "Redemption Securities") for
$5.8 million, the aggregate stated capital of such
shares, on the earlier of the effective date of the
Shareholder Consent (May 3, 2005) and June 1, 2005, and
both the Redemption Securities and the redemption price
were placed into escrow pending such date;
o the Herrick Entities waived certain of their
registration rights and we agreed to include the Herrick
Shares for resale in the Financing Registration
Statement, so long as such Herrick Shares are owned by
the Herrick Entities and not otherwise transferred,
including, but not limited to, in the Herrick Financing
(as defined below); and
o the Herrick Entities consented to the terms of the
Financing and the agreements entered into in connection
with the Financing, as we were required to obtain such
consents pursuant to the terms of the Herrick Notes, the
Series A Preferred Stock and the Series C Preferred
Stock.
o Herrick and Huntingdon also entered into a voting
agreement and proxy with us pursuant to which they
agreed not to take any action to contradict or negate
the Shareholder Consent and gave us a proxy to vote
their shares, at the direction of the Company's Board of
Directors, until the Effective Date.
o We released the Herrick Entities from all actions,
causes of action, claims and demands which we had on or
prior to the date of the agreement, by reason of any
matter known or should have been known to us or our
officers or directors and arising on or prior to the
date of the agreement, except those relating to the
agreement and the related agreements thereto.
On March 23, 2005, in connection with the March 2005 financing,
MediaBay, Herrick and Huntingdon entered into a voting agreement
16
whereby Herrick and Huntingdon authorized the chairman and/or
president of MediaBay to vote their voting securities pursuant
to the terms of the March 2005 transactions and in accordance
with MediaBay's Board of Directors.
Also on March 23, 2005, in connection with the March 2005
transactions, we entered into a registration rights agreement
with Herrick and Huntingdon in which Herrick and Huntingdon were
granted the same automatic registration rights as the Investors
under the Registration Rights Agreement with respect to the
shares of common stock issuable to Herrick and Huntingdon upon
conversion of the Herrick Notes and Series A Preferred Stock.
We also entered into another registration rights agreement dated
March 23, 2005, with Herrick and Huntingdon in which we agreed
to register the shares of our common stock issuable to Herrick
and Huntingdon upon exercise of the warrants held by Herrick and
Huntingdon in a registration statement to be filed with the SEC
within 30 days following the effective date of the previous
registration statement.
We also paid to Norton Herrick and Huntingdon all accrued and
unpaid interest dividends due to them in the amount $2,271,000.
On May 3, 2005, the effective date of the Shareholder Consent,
we redeemed the Redemption Securities for $5.8 million.
21. Assumes the sale of the 987,610 shares of common stock registered for
sale by Huntingdon Corporation.
22. The selling stockholder advised us that Norton Herrick is its sole
stockholder and has sole voting and dispositive power over the
securities held by it.
PLAN OF DISTRIBUTION
The selling securityholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling securityholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker/dealer solicits purchasers;
o block trades in which the broker/dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker/dealer as principal and resale by the
broker/dealer for its account;
o an exchange distribution in accordance with the Rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker/dealers may agree with the selling shareholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling securityholders may also sell shares under Rule 144 under
the Securities Act, if available, rather than under this prospectus.
Broker/dealers engaged by the selling securityholders may arrange for
other brokers/dealers to participate in sales. Broker/dealers may receive
commissions from the selling securityholders (or, if any broker/dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling securityholders do not expect these commissions to
exceed what is customary in the types of transactions involved.
The selling securityholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
17
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling securityholders to include the pledgee, transferee
or other successors in interest as selling securityholders under this
prospectus.
The selling shareholders and any broker/dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker/dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions under the Securities Act. The selling securityholders have informed
MediaBay that they do not have any agreement or understanding, directly or
indirectly, with any person to distribute MediaBay common stock.
MediaBay is required to pay all fees and expenses incident to the
registration of the shares. MediaBay has agreed to indemnify the selling
securityholders who purchased securities in the Financing against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
INDEMNIFICATION
Our Articles of Incorporation and By-Laws provide that we shall
indemnify our directors and officers to the fullest extent permitted by the
Florida Business Corporation Act. The Florida Business Corporation Act provides
that none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to MediaBay or our
shareholders, except for liability for (i) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (ii) any
unlawful payment of a dividend or unlawful stock repurchase or redemption in
violation of the Florida Business Corporation Act, (iii) any transaction from
which the director received an improper personal benefit or (iv) a violation of
a criminal law.
We have entered into indemnification agreements with some of our
employees, officers and consultants. Under the terms of the indemnity
agreements, we have agreed to indemnify, to the fullest extent permitted under
applicable law, against any amounts which the employee, officer or consultant
may become legally obligated to pay in connection with any claim arising from or
out of the employee, officer or consultant acting, in connection with any
services performed by or on behalf of us and related expenses. Provided however,
that the employee, officer or consultant shall reimburse us for the amounts if
the individual is found, as finally judicially determined by a court of
competent jurisdiction, not to have been entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against these liabilities, other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of us in the successful defense of any action, suit or proceeding is
asserted by the director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of the issue.
LEGAL MATTERS
The legality of the shares of common stock offered hereby was passed
upon for MediaBay, Inc. by Blank Rome LLP, New York, New York.
EXPERTS
The financial statements and the related financial statement schedule
for the years ended December 31, 2003 and 2004 incorporated in this prospectus
by reference from MediaBay, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2004 have been audited by Amper Politziner & Mattia, P.C., as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
18
The financial statements and the related financial statement schedule
for the year ended December 31, 2002 incorporated in this prospectus by
reference from MediaBay, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2004 have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and we file reports and other information with the SEC.
You may read and copy any of the reports, statements, or other
information we file with the SEC at the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Information on
the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains a Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding issuers that file
electronically with the SEC. The Nasdaq Stock Market maintains a Web site at
http://www.nasdaq.com that contains reports, proxy statements and other
information filed by us.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed with the SEC, Washington, D.C., a registration statement
on Form S-3 under the Securities Act of 1933, covering the securities offered by
this prospectus. This prospectus does not contain all of the information that
you can find in our registration statement and the exhibits to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance such statement is qualified by reference to each such contract or
document filed or incorporated by reference as an exhibit to the registration
statement.
The SEC allows us to "incorporate by reference" the information we file
with them. This means that we can disclose important information to you by
referring you to other documents that are legally considered to be part of this
prospectus, and later information that we file with the SEC will automatically
update and supersede the information in this prospectus and the documents listed
below. We incorporate by reference the documents listed below, and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the selling stockholders sell all the
shares.
The following documents previously filed by MediaBay with the
Securities and Exchange Commission are incorporated herein by reference and
shall be deemed a part of this prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December
31, 2004;
(b) Current Report on Form 8-K filed with the SEC on February 11,
2005;
(c) Current Report on Form 8-K filed with the SEC on March 22,
2005;
(d) Current Report on Form 8-K filed with the SEC on April 7,
2005;
(e) Definitive Information Statement pursuant to Section 14(c) of
the Securities Exchange Act of 1934, filed with the SEC on
April 8, 2005;
(f) Current Report on Form 8-K filed with the SEC on May 4, 2005;
(g) Form 10-Q for the three months ended March 31, 2005;
19
(h) The description of our common stock contained in our
Registration Statement on Form 8-A dated November 12, 1999,
together with any amendment or report filed with the SEC for
the purpose of updating the description; and
(i) All documents filed by MediaBay pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of the initial registration statement and prior to the
effectiveness of the registration statement.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, after the date of this prospectus and
before the termination of the offering of the securities hereby shall be deemed
to be incorporated by reference in this prospectus and to be a part of this
prospectus on the date of filing of the documents. Any statement incorporated in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is, or is deemed to be,
incorporated by reference in this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus or the
registration statement of which it is a part.
This prospectus incorporates documents by reference with respect to
MediaBay that are not presented herein or delivered herewith. These documents
are available without charge to any person, including any beneficial owner of
our securities, to whom this prospectus is delivered, upon written or oral
request to Chief Financial Officer, MediaBay, Inc., 2 Ridgedale Avenue - Suite
300, Cedar Knolls, New Jersey 07927, telephone: (973) 539-9528.
We have not authorized anyone else to provide you with information
different from that contained or incorporated by reference in this prospectus.
This prospectus is not an offer to sell nor is it a solicitation of an offer to
buy any security in any jurisdiction where the offer or sale is not permitted.
Neither the delivery of this prospectus nor any sale made under this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus or that the information contained in
this prospectus or incorporated by reference herein is correct as of any time
subsequent to its date.
20
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We have not authorized any dealer, sales person or any other person to give
any information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information. This prospectus does not offer to
sell or buy any securities in any jurisdiction where it is unlawful.
TABLE OF CONTENTS
Page
----
The Company.........................................2
Risk Factors........................................3
Special Information Regarding Forward-looking
Statements ......................................11
Use of Proceeds....................................12
Securityholders for Which Shares are Being
Registered for Sale..............................12
Plan of Distribution...............................17
Indemnification....................................18
Legal Matters......................................18
Experts............................................18
Where You Can Find Information.....................15
Incorporation of Certain Documents by Reference....15
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and
distribution of the securities being registered, all of which will be paid by
the Registrant:
SEC registration fee.............................................$ 1,326.50
Legal fees and expenses*......................................... 30,000.00
Accounting fees and expenses*.................................... 20,000.00
Miscellaneous*.................................................... 8,673.50
---------
Total*...........................................................$60,000.00
=========
---------------------------
* Estimated+
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") contain
provisions entitling the Registrant's directors and officers to indemnification
from judgments, settlements, penalties, fines, and reasonable expenses
(including attorney's fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Registrant. In its Articles of Incorporation, the Registrant has included a
provision that limits, to the fullest extent now or hereafter permitted by the
Florida Act, the personal liability of its directors to the Registrant or its
shareholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the Florida Act as currently in effect, this
provision limits a director's liability except where such director breaches a
duty. The Company's Articles of Incorporation and By-Laws provide that the
Company shall indemnify, and upon request shall advance expenses to, its
directors and officers to the fullest extent permitted by the Florida Act. The
Florida Act provides that no director or officer of the Company shall be
personally liable to the Company or its shareholders for damages for breach of
any duty owed to the Company or its shareholders, except for liability for (i)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (ii) any unlawful payment of a dividend or unlawful
stock repurchase or redemption in violation of the Florida Act, (iii) any
transaction from which the director received an improper personal benefit or
(iv) a violation of a criminal law. This provision does not prevent the
Registrant or its shareholders from seeking equitable remedies, such as
injunctive relief or rescission. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have any
effective remedy against actions taken by directors that constitute negligence
or gross negligence.
Our company has entered into indemnification agreements with certain
employees, officers and consultants. Pursuant to the terms of the indemnity
agreements, our company has agreed to indemnify, to the fullest extent permitted
under applicable law, against any amounts which the employee, officer or
consultant may become legally obligated to pay in connection with any claim
arising from or out of the employee, officer or consultant acting, in connection
with any services performed by or on behalf of our company and certain expenses
related thereto. Provided however, that the employee, officer or consultant
shall reimburse our company for such amounts if the such individual is found, as
finally judicially determined by a court of competent jurisdiction, not to have
been entitled to such indemnification.
II-1
Insofar as indemnification for liabilities arising under the Securities
Act of 1993, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to any charter
provision, by-law, contract, arrangement, statute or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
(a) Exhibits
Exhibit Number Description
-------------- -----------
5 Opinion of Blank Rome LLP as to the legality of the securities being registered
23.1 Consent of Amper Politziner & Mattia, P.C.
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Blank Rome LLP included in opinion filed as Exhibit 5
24 Power of Attorney, included in the signature page of this Registration Statement
----------
* Previously filed
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and offering therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the Town of Cedar
Knolls, State of New Jersey, on the 1st day of June 2005.
MEDIABAY, INC.
By: /s/ Robert Toro
----------------------------------------
Robert Toro, Chief Financial Officer and
Senior Vice President of Finance
Each person whose signature appears below hereby authorizes each of
Jeffrey Dittus and Robert Toro or either of them as his true and lawful
attorney-in-fact with full power of substitution to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to
file, any and all amendments to this Registration Statement, including any and
all post-effective amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 was signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Joseph R. Rosetti Director and Chairman June 1, 2005
------------------------------------
Joseph R. Rosetti
/s/ Jeffrey Dittus Director and Chief Executive Officer (Principal June 1, 2005
------------------------------------ Executive Officer)
Jeffrey Dittus
/s/ Robert Toro Chief Financial Officer and Senior Vice President of June 1, 2005
------------------------------------ Finance
Robert Toro
/s/ Daniel Altobello Director June 1, 2005
------------------------------------
Daniel Altobello
/s/ Richard Berman Director June 1, 2005
------------------------------------
Richard Berman
/s/ Paul Neuwirth Director June 1, 2005
------------------------------------
Paul Neuwirth
/s/ Stephen Yarvis Director June 1, 2005
------------------------------------
Stephen Yarvis
II-4