<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LIQUID AUDIO, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Certificate)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
LIQUID AUDIO, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 9, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Liquid
Audio, Inc., a Delaware corporation, will be held on Friday, June 9, 2000 at
10:00 a.m., local time, at the offices of the company, 2221 Broadway, Redwood
City, California 94063, for the following purposes:
1. To elect one (1) Class I director for a term of three (3) years and
until his successor is duly elected and qualified;
2. To ratify the appointment by our board of directors of
PricewaterhouseCoopers LLP as our independent auditors for the fiscal year
ending December 31, 2000; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 14, 2000 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to vote,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously returned a Proxy.
By order of the board of directors of
Liquid Audio, Inc.
/s/ Gary J. Iwatani
-------------------------------------
Gary J. Iwatani
Senior Vice President and Chief
Financial Officer
Redwood City, California
May 10, 2000
<PAGE>
LIQUID AUDIO, INC.
PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Liquid Audio, Inc. for use at
our Annual Meeting of Stockholders to be held on Friday, June 9, 2000 at 10:00
a.m., or at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. Our Annual Meeting
will be held at our headquarters, Liquid Audio, Inc., 2221 Broadway, Redwood
City, California 94063. Our telephone number at that location is (650) 549-
2000.
These proxy solicitation materials were mailed on or about May 10, 2000 to
all stockholders entitled to vote at our Annual Meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on April 14, 2000 are
entitled to notice of and to vote at the Annual Meeting. As of April 14, 2000,
22,028,895 shares of our common stock, $0.001 par value, were issued and
outstanding. The closing price of our common stock on April 14, 2000, as
reported by Nasdaq, was $12.00 per share.
REVOCABILITY OF PROXIES
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to us or our transfer agent
a written notice of revocation or a duly executed Proxy bearing a later date or
by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
The cost of soliciting proxies will be borne by us. We may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of our directors, officers and regular
employees, without additional compensation, personally or by telephone,
telegram, telefax or otherwise.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of our stockholders which are intended to be presented by such
stockholders at our next Annual Meeting of Stockholders to be held in 2001 must
be received by us no later than January 10, 2001 in order that they may be
considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
Our Bylaws establish an advance notice procedure for proposals to be brought
by stockholders before an annual meeting. For nominations or other business to
be properly brought before the meeting by a stockholder, such stockholder must
provide timely notice as provided above, and the notice must contain specified
information concerning the matters to be brought before such meeting and
concerning the stockholder proposing such matters. A copy of the full text of
the Bylaw provision discussed above may be obtained by writing to our
Secretary. All notices of proposals by stockholders, whether or not included in
our proxy materials, should be sent to Liquid Audio, Inc., 2221 Broadway,
Redwood City, California 94063.
<PAGE>
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the meeting. If a stockholder intends to submit a
proposal at the next annual meeting of stockholders, which is not eligible for
inclusion in the proxy statement relating to that meeting, the stockholder must
give notice to us in accordance with the requirements set forth in the
Securities Exchange Act of 1934, as amended, no later than January 10, 2001. If
a stockholder does not comply with the foregoing notice provision, the proxy
holders will be allowed to use their discretionary voting authority when and if
the proposal is raised at the next annual meeting of stockholders.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the votes eligible to be cast by holders of shares of our common
stock issued and outstanding on April 14, 2000. Shares that are voted "FOR,"
"AGAINST" or "ABSTAIN" on a matter are treated as being present at the meeting
for purposes of establishing a quorum and are also treated as shares entitled
to vote, or votes cast, at our Annual Meeting with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, we believe that abstentions should be
counted for purposes of determining both: (i) the presence or absence of a
quorum for the transaction of business; and (ii) the total number of votes cast
with respect to a matter (other than the election of directors). In the absence
of controlling precedent to the contrary, we intend to treat abstentions in
this manner. Accordingly, abstentions will have the same effect as a vote
against the proposal. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court
held that, while broker non-votes may be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of votes
cast with respect to the particular proposal on which the broker has expressly
not voted. Broker non-votes with respect to proposals set forth in this Proxy
Statement will therefore be counted only for purposes of determining the
presence or absence of a quorum and will not be considered votes cast.
Accordingly, broker non-votes will not affect the determination as to whether
the requisite majority of votes cast has been obtained with respect to a
particular matter.
FISCAL YEAR END
Our fiscal year ends on December 31. Our last fiscal year ended on December
31, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the company's
officers and directors, and persons who own more than 10% of a registered class
of the company's equity securities, to file certain reports regarding ownership
of, and transactions in, the company's securities with the Securities and
Exchange Commission (the "SEC") and with Nasdaq. Such officers, directors and
10% stockholders are also required by SEC rules to furnish the company with
copies of all Section 16(a) forms that they file.
Based solely on its review of copies of Forms 3 and 4 and amendments thereto
furnished to the company pursuant to Rule 16(a)-(e) and Forms 5 and amendments
thereto furnished to the company with respect to the last fiscal year, and any
written representations referred to in Item 405(b)(2)(i) of Regulation S-K
stating that no Forms 5 were applicable to the company's officers, directors
and 10% stockholders were complied with, except a late filing of a Form 4 by
Sanford R. Climan, resulting in one purchase transaction not being reported on
time, a late filing of a Form 4 by Silvia Kessel, resulting in one purchase
transaction not being reported on time, a late filing of a Form 4 by Eric
Robison resulting in one purchase transaction not being reported on time, a
failure to file a From 5 by Leon Rishniw, resulting in one option grant not
being reported, and a failure to file a Form 3 by James Lynch III, resulting in
one option grant not being reported.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
Our board of directors is currently comprised of five directors who are
divided into three classes with overlapping three-year terms. A director serves
in office until his or her respective successor is duly elected and qualified
or until his or her earlier death or resignation. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of an
equal number of directors.
NOMINEE FOR CLASS I DIRECTOR
One Class I director is to be elected at the Annual Meeting for a three-year
term ending in 2003. Our board of directors has nominated SANFORD R. CLIMAN for
re-election as a Class I director. Unless otherwise instructed, the persons
named in the enclosed proxy intend to vote Proxies received by them for the re-
election of Mr. Climan. We expect that Mr. Climan will accept such nomination;
however, in the event that the nominee is unable to or declines to serve as a
director at the time of the Annual Meeting, Proxies will be voted for a
substitute nominee designated by our present board of directors. The term of
office of each person elected as a director will continue until such director's
term expires in 2003 or until such director's successor has been elected and
qualified.
INFORMATION REGARDING NOMINEE AND OTHER DIRECTORS
Set forth below is certain information regarding the nominee for Class I
director and each of our other directors whose term of office continues after
the Annual Meeting. Information as to the stock ownership of each director and
all of our current directors and executive officers as a group is set forth
below under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <C> <S> <C>
Class I Director
Managing Director, Entertainment Media
Sanford R. Climan.. 44 Ventures 1999
Class II Directors
Silvia Kessel...... 48 Executive Vice President, Chief Financial 1998
Officer and Treasurer, Metromedia
International Group, Inc.
General Partner of Hummer Winblad Venture
Ann Winblad........ 49 Partners 1996
Class III Directors
President and Chief Executive Officer of
Gerald W. Kearby... 52 Liquid Audio, Inc. 1996
Philip R. Wiser.... 33 Senior Vice President of Engineering and 1996
Chief Technical Officer of Liquid Audio,
Inc.
</TABLE>
NOMINEE FOR CLASS I DIRECTOR FOR A TERM EXPIRING IN 2003
Mr. Climan has served as one of our directors since April 1999. Since May
1999, Mr. Climan has been Managing Director of Entertainment Media Ventures, a
Los Angeles-based venture capital fund focused on investment in the areas of
technology and media. From October 1995, through May 1997, Mr. Climan was
Executive Vice President and President of Worldwide Business Development for
Universal Studios, Inc. From June 1997, through February 1999, and from June
1986, to September 1995, Mr. Climan was a member of the senior management team
at Creative Artists Agency, a leading talent and literary representation firm.
Mr. Climan also serves as a director of Equity Marketing Inc., a provider of
custom promotional programs, Sunterra Corporation, a developer and operator of
vacation ownership resorts, and a number of private companies. Mr. Climan
received his B.A. from Harvard College, a Master of Science in Health Policy
and Management from the Harvard School of Public Health and his M.B.A. from
Harvard Business School.
3
<PAGE>
INCUMBENT CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2001
Ms. Kessel has served as one of our directors since October 1998. Since
November 1995, Ms. Kessel has held several positions at Metromedia
International Group, Inc., a global communications and media company, including
Executive Vice President, Chief Financial Officer and Treasurer. From January
1993 to June 1997, Ms. Kessel was Executive Vice President and a director of
Orion Pictures Corporation, a movie production company. Since January 1994, Ms.
Kessel has served as Senior Vice President of Metromedia Company, a privately-
held partnership. Ms. Kessel has also served as President of Kluge & Company, a
privately-held company, for over five years. Ms. Kessel is currently a director
and Executive Vice President of Metromedia Fiber Network, Inc., a fiber optic
network provider, and Big City Radio, Inc., an owner and operator of radio
station combinations in New York City, Chicago and Los Angeles. Ms. Kessel
received an M.B.A. in finance from Columbia University.
Ms. Winblad has served as one of our directors since May 1996. Ms. Winblad
has been a general partner of Hummer Winblad Venture Partners, a venture
capital investment firm, since 1989. She is a member of the board of trustees
of the University of St. Thomas and is an advisor to numerous entrepreneurial
groups such as the Software Development Forum, the Stanford/MIT Venture Forum
and the Massachusetts Computer Software Council, Software Industry Business
Practices. Ms. Winblad also serves on the boards of directors of Net
Perceptions Inc., a developer and supplier of realtime recommendation
technology for the Internet, The Knot, Inc., an Internet-based wedding services
company, and several private companies. Ms. Winblad holds a B.S. in mathematics
and business administration from the College of Saint Catherine and an M.A. in
education with an economics focus from the University of St. Thomas.
INCUMBENT CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2002
Mr. Kearby co-founded Liquid Audio in January 1996. Since January 1996, Mr.
Kearby has served as our President and Chief Executive Officer and one of our
directors. From June 1995 to December 1995, Mr. Kearby was co-founder and Chief
Executive Officer of Integrated Media Systems, a manufacturer of computer-based
professional audio equipment. From January 1989 until June 1995, Mr. Kearby
served as Vice President of Sales and Marketing at Studer Editech Corporation,
a professional audio recording equipment company. Mr. Kearby holds a B.A. in
broadcast management and audio engineering from San Francisco State University.
Mr. Wiser co-founded Liquid Audio in January 1996. Since July 1999, Mr.
Wiser has served as our Senior Vice President of Engineering and Chief
Technical Officer. From May 1996 to July 1999, Mr. Wiser served as our Vice
President of Engineering and from November 1998 to July 1999 as our Chief
Technical Officer. Since June 1996, he has also served as one of our directors.
From July 1995 to May 1996, Mr. Wiser served as a senior software engineer,
directing audio compression work at Chromatic Research, a multimedia
semiconductor device company. From October 1994 to July 1995, Mr. Wiser was a
senior software engineer and the director of digital signal processing research
for Studer Editech Corporation. From June 1994 to October 1994, Mr. Wiser was a
software engineer for Sonic Solutions, a developer of digital media tools.
Mr. Wiser holds a B.S. in electrical engineering from the University of
Maryland, College Park and an M.S. in electrical engineering from Stanford
University.
There are no family relationships among any of the company's directors or
executive officers.
BOARD MEETINGS AND COMMITTEES
Our board of directors held a total of seven meetings during 1999. During
1999, no director, except for Eric P. Robison who resigned from the board of
directors effective April 26, 2000, attended fewer than 75% of the meetings of
our board of directors or the meetings of committees, if any, upon which such
director served. Certain matters approved by our board of directors were
approved by unanimous written consent.
4
<PAGE>
The audit committee of our board of directors currently consists of Silvia
Kessel and Ann Winblad. Our audit committee reviews our annual audit and meets
with our independent auditors to review our internal accounting procedures and
financial management practices. Our audit committee held a total of three
meetings during 1999.
The compensation committee of our board of directors currently is composed
of Sanford R. Climan and Ann Winblad. Our compensation committee reviews and
recommends the compensation and benefits of all of our executive officers,
administers our stock and option plans and establishes and reviews general
policies relating to compensation and benefits of our employees. Our
compensation committee held a total of one meeting during 1999.
Our board of directors does not have a nominating committee or any
committee performing such function.
DIRECTOR COMPENSATION
Our directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses they incur in
connection with their attendance at meetings of our board of directors. In
addition, in the past, we have granted certain of our directors stock options
for their service on our board. We plan to implement a compensation package
for our board members which will likely include cash fees for their services.
In addition, our directors are eligible to receive discretionary option grants
pursuant to our 1996 Equity Incentive Plan, and our employee directors are
also eligible to participate in our 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is currently or has been,
at any time since our formation as a company, one of our officers or
employees. None of our executive officers: (i) has served as a member of the
compensation committee (or other board committee performing similar functions
or, in the absence of any such committee, the board of directors) of another
entity, one of whose executive officers served on our compensation committee;
(ii) has served as a director of another entity, one of whose executive
officers served on our compensation committee; or (iii) served as a member of
the compensation committee (or other board committee performing similar
functions or, in the absence of any such committee, the board of directors) of
another entity, one of whose executive officers served as one of our
directors.
REQUIRED VOTE
If a quorum is present and voting, the one (1) nominee for director
receiving the highest number of votes will be elected to our board of
directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum, but have no other legal
effect under Delaware law. See "INFORMATION CONCERNING SOLICITATION AND
VOTING--QUORUM; ABSTENTIONS; BROKER NON-VOTES."
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE NOMINEE LISTED ABOVE.
5
<PAGE>
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our board of directors has selected PricewaterhouseCoopers LLP as our
independent auditors to audit our financial statements for our fiscal year
ending December 31, 2000. PricewaterhouseCoopers LLP has audited our financial
statements since 1996. Our board of directors recommends that stockholders vote
for ratification of such appointment. In the event of a negative vote on
ratification, our board of directors will reconsider its selection. A
representative of PricewaterhouseCoopers LLP is expected to be available at our
Annual Meeting with the opportunity to make a statement if such representative
desires to do so, and is expected to be available to respond to appropriate
questions.
REQUIRED VOTE
Although stockholder approval is not required for the appointment of
PricewaterhouseCoopers LLP since our board of directors has the responsibility
for selecting auditors, our board of directors has conditioned its appointment
of our independent auditors upon the receipt of the affirmative vote of a
majority of the votes duly cast at our Annual Meeting. In the event that our
stockholders do not approve the selection of PricewaterhouseCoopers LLP, our
board of directors will reconsider its selection.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR
INDEPENDENT AUDITORS FOR THE 2000 FISCAL YEAR.
6
<PAGE>
OTHER INFORMATION
Executive Officers
In addition to Messrs. Kearby and Wiser, the following persons are
executive officers of the company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert G. Flynn......... 46 Senior Vice President of Business Development and Secretary
Gary J. Iwatani......... 37 Senior Vice President and Chief Financial Officer
Richard W. Wingate...... 48 Senior Vice President of Content Development and Label Relations
James Lynch III......... 37 Vice President of Information Technology
Kevin M. Malone......... 34 Vice President of Sales
Mathieu "Charly"
Prevost................ 51 Vice President of Promotions
Andrea Cook Fleming..... 33 Vice President of Corporate Marketing
Heather Furmidge........ 46 Vice President of Internet Business
Leon Rishniw............ 34 Vice President of Engineering
Paul Melnychuck......... 40 Vice President of Sales and Business Development
</TABLE>
- --------
Mr. Flynn co-founded Liquid Audio in January 1996. Since July 1999, Mr.
Flynn has served as our Senior Vice President of Business Development and
Secretary. From January 1996 to July 1999, Mr. Flynn served as our Vice
President of Business Development and Secretary. Mr. Flynn also served as our
Chief Financial Officer from January 1996 to August 1997 and as one of our
directors from January 1996 to June 1996. From March 1987 until November 1995,
Mr. Flynn served as a general partner of Entertainment Media Venture Partners
I, L.P., an institutional venture capital fund investing in the entertainment,
media and communications technology industries. During this time, Mr. Flynn
also served on the board of directors of Integrated Media Systems. Mr. Flynn
holds a B.A. in English from Stanford University and an M.B.A. from UCLA.
Mr. Iwatani has served as our Senior Vice President since July 1999 and as
our Chief Financial Officer since August 1997. From May 1995 to April 1997,
Mr. Iwatani was the Chief Financial Officer of Berkeley Systems, Inc., a
developer and marketer of multimedia entertainment consumer software. From May
1991 to March 1995, Mr. Iwatani served as Director of Finance and Operations
at Insignia Solutions, Inc., a utility software company. Mr. Iwatani holds a
B.S. in accounting from Santa Clara University, as well as a C.P.A. from the
State of California.
Mr. Wingate has served as our Senior Vice President of Content Development
and Label Relations since November 1999 and as our Vice President of Content
Development and Label Relations since August 1998. Mr. Wingate operated his
own new media marketing consulting company, Wingate Marketing, from July 1996
until June 1998. From August 1997 to June 1998, Mr. Wingate was also a private
music industry consultant. From June 1994 to July 1996, Mr. Wingate was Senior
Vice President, Marketing for Arista Records Incorporated, a music recording
company. Prior to June 1994, Mr. Wingate held several senior management
positions with major music industry record labels, including Polygram, Inc.
and Columbia Records. Mr. Wingate holds a B.A. in communications from Brown
University.
Mr. Lynch has served as our Vice President of Information Technology since
November 1999. From August 1997 to November 1999, Mr. Lynch was Manager of
Integration Services at Wells Fargo & Company, a banking institution. From
November 1996 to August 1997, Mr. Lynch was an Internet development
consultant, providing services to several companies, including Internet
service providers. Prior to November 1996, Mr. Lynch owned Business Link
Communications, a prepress company, and worked as a music journalist and
artist manager. Mr. Lynch holds a B.A. in English from Columbia University.
7
<PAGE>
Mr. Malone has served as our Vice President of Sales since February 1998.
From June 1997 to February 1998, Mr. Malone was our Director, International
Sales. From May 1993 to June 1997, Mr. Malone held a variety of positions at
Silicon Graphics, Inc., a manufacturer of work stations, servers and
supercomputing systems, including Manager, Strategic Marketing, Operations
Manager, Portugal and International Business Development Manager. Mr. Malone
holds a B.S. in business administration from the University of Arizona and an
M.B.A. in international business studies from the University of South Carolina.
Mr. Prevost has served as our Vice President of Promotions since December
1998. From April 1996 to November 1998, Mr. Prevost was Vice President, Retail
at The Album Network, a media company trade journal. Prior to April 1996, Mr.
Prevost was president of his own company, the Charly Prevost Company, a
multimedia management company. Mr. Prevost has also held several senior
management positions within the music recording industry, including president
of Island Records.
Ms. Fleming has served as our Vice President of Corporate Marketing since
June 1999. From February 1999 to June 1999, Ms. Fleming was our Director of
Corporate Marketing. From December 1995 to February 1999, Ms. Fleming served as
Public Relations Director at Netscape Communications Corporation, an Internet
services provider. From June 1994 to December 1995, Ms. Fleming was a Corporate
Public Relations Manager for Microsoft Corporation, a software company. Ms.
Fleming holds a B.A. in English from Stanford University.
Ms. Furmidge has served as our Vice President of Internet Business since
June 1999. From January 1999 to June 1999, Ms. Furmidge was an Executive
Producer for ZD TV LLC, an Internet cable channel integrating television and
Internet programming. From June 1997 to January 1999, Ms. Furmidge was an
Executive Producer for Netscape Communications Corporation. From December 1995
to June 1997, Ms. Furmidge served as a Senior Producer for Netscape
Communications Corporation. Prior to December 1995, Ms. Furmidge served as an
Engineering Project Manager for Apple Computer, Inc., a software company. Ms.
Furmidge holds a B.A. in international relations from Stanford University and
an M.B.A. in telecommunications from the University of San Francisco.
Mr. Rishniw has served as our Vice President of Engineering since October
1999. He was originally employed by us as a software engineer in August 1996,
became one of our Development Managers in January 1997 and Director of
Engineering in November 1998. From May 1995 until August 1996, Mr. Rishniw
served as a senior software engineer for Studer Editech, a professional audio
recording equipment company. From August 1994 until May 1995, Mr. Rishniw
served as a software engineer for Signal Stream Technology, a medical imaging
technology provider. Mr. Rishniw holds a B.S. in engineering from Melbourne
Institute of Technology.
Mr. Melnychuck has served as our Vice President of Sales and Business
Development since February 2000. From March 1998 until February 2000, Mr.
Melnychuck served as a Director of Corporate Marketing and Communications for
Digidesign, a division of Avid Technology, Inc., a manufacturer of digital
audio workstations. Prior to March 1998, Mr. Melnychuck held several positions
with Eastman Kodak Company, a manufacturer of photographic and digital media
equipment, including Director of New Business Development for Entertainment
Imaging and Senior Vice President and General Manager of Kodak Recording
Products, FPC Inc., a Kodak Company. Mr. Melnychuck holds a B.S. in Chemistry
and an M.S. in Imaging Science from Rochester Institute of Technology, and an
M.S. in Electrical Engineering from National Technological University.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information with respect to beneficial
ownership of our common stock as of April 14, 2000 by:
. each person known by us who beneficially owns more than 5% of the common
stock;
. each of our executive officers;
. each of our directors; and
. all executive officers and directors as a group.
Except as otherwise noted, the address of each 5% stockholder listed in the
table is c/o Liquid Audio, Inc., 2221 Broadway, Redwood City, CA 94063. The
table includes all shares of common stock issuable within 60 days of April 14,
2000 upon the exercise of options and other rights beneficially owned by the
indicated stockholders on that date. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. To our knowledge,
except under applicable community property laws or as otherwise indicated, the
persons named in the table have sole voting and sole investment control with
respect to all shares beneficially owned. The applicable percentage of
ownership for each stockholder is based on 22,028,895 shares of common stock
outstanding as of April 14, 2000, together with applicable options for that
stockholder. Shares of common stock issuable upon exercise of options and other
rights beneficially owned are deemed outstanding for the purpose of computing
the percentage ownership of the person holding those options and other rights,
but are not deemed outstanding for computing the percentage ownership of any
other person.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned
-----------------
Name of Beneficial Owner Number Percent
- ------------------------ --------- -------
<S> <C> <C>
Intel Corporation........................................... 2,515,708 11.4
2200 Mission College Boulevard
Santa Clara, CA 95052
Gerald W. Kearby............................................ 844,100 3.8
Philip R. Wiser............................................. 748,467 3.4
Robert G. Flynn............................................. 675,000 3.1
Gary J. Iwatani(1).......................................... 170,000 *
Kevin M. Malone(2).......................................... 100,000 *
Richard W. Wingate(3)....................................... 101,000 *
Heather Furmidge(4)......................................... 95,000 *
Andrea Cook Fleming(5)...................................... 85,000 *
Leon Rishniw(6)............................................. 79,500 *
Mathieu Prevost(7).......................................... 65,000 *
James Lynch III(8).......................................... 85,500 *
Paul Melnychuck(9).......................................... 85,310 *
Ann Winblad(10)............................................. 340,738 1.5
Eric P. Robison(11)......................................... 999,803 4.5
Silvia Kessel(12)........................................... 880,978 4.0
Sanford R. Climan(13)....................................... 26,700 *
All executive officers and directors as a group (16
persons)(14)............................................... 5,382,096 23.6
</TABLE>
9
<PAGE>
- --------
(1) Consists of 170,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 14, 2000.
(2) Includes 60,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 14, 2000.
(3) Includes 83,500 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 14, 2000.
(4) Consists of 95,000 shares of common stock issuable upon the exercise of
stock options exercisable within 60 days of April 14, 2000.
(5) Consists of 85,000 shares of common stock issuable upon the exercise of
stock options exercisable within 60 days of April 14, 2000.
(6) Includes 50,000 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of April 14, 2000.
(7) Consists of 65,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 14, 2000.
(8) Includes 85,000 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 14, 2000.
(9) Includes 85,000 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of April 14, 2000.
(10) Includes 80,943 shares of common stock owned by Hummer Winblad Venture
Partners II, L.P. and 488 shares of common stock owned by Hummer Winblad
Technology Fund II, L.P. (collectively, the "Hummer Winblad Funds"). Ann
Winblad is a general partner of Hummer Winblad Equity Partners II, L.P.
("HWII"), the general partner of each of the Hummer Winblad Funds.
Consequently, Ms. Winblad may be deemed to beneficially own all of the
shares held by the Hummer Winblad Funds. Ms. Winblad disclaims beneficial
ownership of such shares, except to the extent of her respective pecuniary
interest therein.
(10) Paul Allen is the sole shareholder of Vulcan Ventures, Inc. and the
beneficial owner of the shares held by Vulcan Ventures, Inc. Mr. Robison,
one of our directors on April 14, 2000, is a business development
associate of Vulcan Ventures, Inc. Mr. Robison possesses no investment or
voting power over and disclaims beneficial ownership of the shares held by
Vulcan Ventures, Inc. Mr. Robison holds 1,000 shares of common stock in
his own name. Mr. Robison resigned as one of our directors effective as of
April 26, 2000.
(11) Ms. Kessel, one of our directors, is Senior Vice President of Metromedia
Company. Ms. Kessel disclaims beneficial ownership of shares held by
Metromedia Company. Ms. Kessel holds 1,500 shares of common stock in her
own name.
(12) Includes 20,000 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of April 14, 2000.
(13) Includes 798,500 shares of common stock issuable upon the exercise of
stock options exercisable within 60 days of April 14, 2000.
* Does not exceed 1%.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received for services
rendered to us during 1999 by our Chief Executive Officer and our four other
most highly compensated executive officers who received salary and bonus in
1999 in excess of $100,000 (Named Executive Officers).
<TABLE>
<CAPTION>
Annual
Compensation
-----------------
Name and Principal Position Salary Bonus
--------------------------- -------- --------
<S> <C> <C>
Gerald W. Kearby, President and Chief Executive Officer..... $167,692 $100,000
Robert G. Flynn, Senior Vice President of Business
Development................................................ $136,154 $ 75,000
Philip R. Wiser, Senior Vice President of Engineering and
Chief Technical Officer.................................... $136,154 $ 75,000
Gary J. Iwatani, Senior Vice President and Chief Financial
Officer.................................................... $136,154 $ 75,000
Richard W. Wingate, Senior Vice President of Content
Development
and Label Relations........................................ $179,099 $ 75,000
</TABLE>
We granted stock options to certain Named Executive Officers during 1999. We
have never granted any stock appreciation rights.
Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31,
1999. All such options were awarded under our 1996 Equity Incentive Plan.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Options Term(4)
-------------------
Number of Percent of
Securities Total Options
Underlying Granted
Options in Fiscal Exercise Expiration
Name Granted(1) 1999(2) Price(3) Date 5% 10%
---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Kearby........ -- -- -- -- -- --
Robert G. Flynn......... -- -- -- -- -- --
Philip R. Wiser......... -- -- -- -- -- --
Gary J. Iwatani......... 50,000 4.8% $11.00 7/7/09 $345,892 $876,558
Richard W. Wingate...... 25,000 2.4 11.00 7/7/09 172,946 438,279
</TABLE>
- --------
(1) Options were granted under our 1996 Equity Incentive Plan and generally
vest over four years from the date of grant.
(2) Based on an aggregate of 1,043,500 options granted by us in the year ended
December 31, 1999 to our employees, directors and consultants, including
the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors according to the provisions of the 1996 Equity Incentive Plan.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant, or 10 years. In accordance with the rules of
the Securities and Exchange Commission, the following table also sets forth
the potential realizable value over the term of the options, the period
from the grant date to the expiration date, based on assumed rates of stock
appreciation of 5% and 10% compounded annually.
11
<PAGE>
These amounts do not represent our estimate of future stock price
performance. Actual realizable values, if any, of stock options will depend
on the future performance of the common stock.
Fiscal Year End Option Values
The following table provides summary information concerning stock options
held as of December 31, 1999 by each of the Named Executive Officers. Two of
these officers exercised options in 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End Fiscal Year-End(1)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Kearby........ -- -- -- -- -- --
Robert G. Flynn......... -- -- -- -- -- --
Philip R. Wiser......... -- -- -- -- -- --
Gary J. Iwatani......... 30,000 $1,021,700 170,000 -- $3,889,300 --
Richard Wingate......... 22,500 474,375 88,500 -- 1,952,875 --
</TABLE>
- --------
(1) The value of unexercised in-the-money options at fiscal year-end is based
on a price per share of $26.25 less the exercise price.
CERTAIN TRANSACTIONS
Since our inception in January 1996, we have never been a party to any
transaction or series of similar transactions in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer
or holder of more than 5% of our common stock had or will have an interest,
other than as described under "Security Ownership of Certain Beneficial Owners
and Management" and the transactions described below.
Gerald W. Kearby, Philip R. Wiser and Robert G. Flynn, all current
executive officers, were involved in our founding and organization and may be
considered as our promoters. Following our inception in January 1996, we
issued 937,500 shares of common stock to Mr. Kearby, 843,750 shares of common
stock to Mr. Wiser and 750,000 shares of common stock to Mr. Flynn. Mr.
Kearby, Mr. Wiser and Mr. Flynn each contributed a nominal amount of capital
for our initial capitalization.
From May to July 1996, we sold an aggregate of 3,049,989 shares of Series A
preferred stock to certain investors at a purchase price of $0.656 per share.
In May 1997, we sold an aggregate of 3,186,888 shares of Series B preferred
stock to certain investors at a purchase price of $1.96 per share. In July and
September 1998, we sold an aggregate of 3,507,322 shares of Series C preferred
stock to certain investors at a purchase price of $6.14 per share. The shares
of Series A, Series B and Series C preferred stock automatically converted
into 9,744,199 shares of common stock upon the closing of our initial public
offering.
12
<PAGE>
The investors in the preferred stock included the following entities, which
are 5% stockholders or are affiliated with our directors:
<TABLE>
<CAPTION>
Shares of
Series A Shares of Shares of
Preferred Series B Series C
Investor Stock Preferred Stock Preferred Stock
-------- --------- --------------- ---------------
<S> <C> <C> <C>
Entities Affiliated with Directors:
Entities affiliated with Ann
Winblad(1)........................ 1,829,272 788,928 81,431
(Entities affiliated with Hummer
Winblad Venture Partners)(2)
Entity affiliated with Silvia
Kessel(1)......................... -- -- 977,198
(Metromedia Company)
Other 5% Stockholders:
Intel Corporation.................. 763,398 612,245 1,140,065
</TABLE>
- --------
(1) Ann Winblad and Silvia Kessel are each members of our board of directors.
Ms. Winblad is a general partner of Hummer Winblad Venture Partners. Ms.
Kessel is a Senior Vice President of Metromedia Company.
(2) Hummer Winblad Venture Partners II, L.P. purchased 1,756,098 shares of
Series A preferred stock, 757,370 shares of Series B preferred stock and
80,943 shares of Series C preferred stock. Hummer Winblad Technology Fund
II, L.P. purchased 62,198 shares of Series A preferred stock and 26,825
shares of Series B preferred stock. Hummer Winblad Technology Fund II, L.P.
purchased 10,976 shares of Series A preferred stock, 4,733 shares of Series
B preferred stock and 488 shares of Series C preferred stock.
In the past, we have granted options to our executive officers and
directors. We intend to grant options to our officers and directors in the
future. See "PROPOSAL ONE DIRECTOR COMPENSATION" and "EXECUTIVE COMPENSATION--
Option Grants in Last Fiscal Year."
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. We also intend to execute such agreements
with our future directors and executive officers.
All of our securities referenced above were purchased or sold at prices
equal to the fair market value of such securities, as determined by our board
of directors, on the date of issuance.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation committee of the board of directors establishes the general
compensation policies of the company as well as the compensation plans and
specific compensation levels for executive officers. It also administers the
company's employee stock benefit plan for executive officers. The compensation
committee is currently composed of independent, non-employee directors who,
except as disclosed under "Compensation Committee Interlocks and Insider
Participation," have no interlocking relationships as defined by the Securities
and Exchange Commission.
The compensation committee believes that the compensation of the executive
officers, including that of the Chief Executive Officer (each, an "Executive
Officer" and collectively, the "Executive Officers"), should be influenced by
the company's performance. The compensation committee establishes the salaries
and bonuses of all of the Executive Officers by considering: (i) the company's
financial performance for the past year; (ii) the achievement of certain
objectives related to the particular Executive Officer's area of
responsibility; (iii) the salaries and bonuses of Executive Officers in similar
positions of comparably-sized companies; and (iv) the
13
<PAGE>
relationship between revenue and Executive Officer compensation. The committee
believes that the company's Executive Officer salaries and bonuses in 1999 were
comparable in the industry for similarly-sized businesses.
In addition to salary and bonus, the compensation committee, from time to
time, grants options to Executive Officers. The compensation committee views
option grants as an important component of its long-term, performance-based
compensation philosophy. Since the value of an option bears a direct
relationship to the company's stock price, the compensation committee believes
that options motivate Executive Officers to manage the company in a manner
which will also benefit stockholders. As such, options are granted at the
current market price. One of the principal factors considered in granting
options to an Executive Officer is the Executive Officer's ability to influence
the company's long-term growth and profitability.
Compensation Committee of the Board
of Directors
Sanford R. Climan
Ann Winblad
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
our common stock with the cumulative total return of the Nasdaq Stock Market
Index-U.S. and a group of peer issuers selected in good faith and comprised of
CDnow, Inc. (CDNW); EMusic.com, Inc. (EMUS); Intertrust Technologies
Corporation (ITRU); Launch Media, Inc. (LAUN); MP3.com, Inc. (MPPP);
Musicmaker.com, Inc. (HITS); Preview Systems, Inc. (PRVW) and RealNetworks,
Inc. (RNWK). The graph assumes that $100 was invested on July 8, 1999, the date
of our initial public offering, in our common stock, the Nasdaq Stock Market
Index-U.S. and the peer group, including reinvestment of dividends. No
dividends have been declared or paid on our common stock. Historic stock price
performance is not necessarily indicative of future stock price performance.
COMPARISON OF 6 MONTH CUMULATIVE TOTAL RETURN* AMONG LIQUID AUDIO, THE NASDAQ
STOCK MARKET (U.S.) INDEX AND A PEER GROUP
[PERFORMANCE GRAPH HERE]
* $100 INVESTED ON 7/9/99 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
<TABLE>
<CAPTION>
7/9/99 9/99 12/99
<S> <C> <C> <C>
LIQUID AUDIO 100.00 246.67 175.00
PEER GROUP 100.00 97.70 119.64
NASDAQ STOCK MARKET (U.S.) 100.00 98.37 141.96
</TABLE>
THE INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED
TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH
INFORMATION BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
15
<PAGE>
OTHER MATTERS
The board of directors does not know of any other matters to be presented at
our Annual Meeting. If any other matters properly come before our Annual
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the board of directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute
and return, at your earliest convenience, the accompanying Proxy in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Redwood City, California
Dated: May 10, 2000
16
<PAGE>
PROXY LIQUID AUDIO, INC. PROXY
Annual Meeting of Stockholders - June 9, 2000
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF LIQUID AUDIO, INC.
The undersigned stockholder of Liquid Audio, Inc., a Delaware Corporation,
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated May 10, 2000, and the 1999 Annual Report to Stockholders,
and appoints Gerald W. Kearby and Gary J. Iwatani, or either of them, as the
proxies and attorneys-in-fact, with full power to each of substitution on behalf
and in the name of the undersigned to vote and otherwise represent all of the
shares registered in the name of the undersigned at the 2000 Annual Meeting of
Stockholders of the company to be held on Friday, June 9, 2000 at 10:00 a.m.
(local time) at the offices of Liquid Audio, Inc., 221 Broadway, Redwood City,
California 94063, and any adjournment thereof with the same effect as if the
undersigned were present and voting such shares, on the following matters and in
the following manner:
TO ASSURE YOUR REPRESENTATION AT THE
ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND
RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
LIQUID AUDIO, INC.
Please mark [X]
your vote
as indicated
<S> <C> <C> <C> <C>
1. The election of the 2. To ratify the appointment of FOR AGAINST ABSTAIN
following person as Class I PricewaterhouseCoopers LLP as [_] [_] [_]
director of Liquid Audio, Inc., independent auditors for Liquid
to serve for a term of three Audio, Inc. for the fiscal year
years and until his successor ending December 31, 2000
shall be duly elected and qualified
3. To vote or otherwise represent the [_] [_] [_]
shares on any other business which may
Nominee: Stanford R. Climan properly come before the meeting or any
adjournment thereof, according to their
discretion and in their discretion
YES NO
I plan to attend the meeting [_] [_]
The shares represent by this Proxy will be voted in accordance with the
specification made. If no specification is made, the shares represented by this
Proxy will be voted for each of the above persons and proposals, and for or
against such other matters a may properly come before the meeting as the
Proxyholders deem advisable.
Signature(s) _________________________________ (Title, if appropriate) ________________________________ Dated: ____________, 2000
Sign exactly as your name(s) appears on stock certificate. A corporation is requested to sign its name by its President or other
authorized officer, with the office held designated Executors, administrators, trustees, etc., are requested to so indicated when
signing, if stock registered in two names, both should sign.
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
