<PAGE> 1
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LAUNCH MEDIA, INC.
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<PAGE> 2
LAUNCH MEDIA, INC.
2700 PENNSYLVANIA AVENUE
SANTA MONICA, CALIFORNIA 90404
April 28, 2000
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Launch Media, Inc. on June 7, 2000 at Loews Santa Monica Hotel located at 1700
Ocean Avenue, Santa Monica, California 90401 at 10:30 a.m. Pacific Time.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement. Also enclosed is a copy of the 1999 Launch Media, Inc. Annual Report,
which includes audited financial statements and certain other information.
It is important that you use this opportunity to take part in the affairs
of Launch Media, Inc. by voting on the business to come before this meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
Returning the proxy does not deprive you of your right to attend the meeting and
vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ ROBERT D. ROBACK
Robert D. Roback
President
<PAGE> 3
LAUNCH MEDIA, INC.
2700 PENNSYLVANIA AVENUE
SANTA MONICA, CALIFORNIA 90404
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 2000
Dear Stockholder:
You are invited to attend the Annual Meeting of Stockholders of Launch
Media, Inc., which will be held on June 7, 2000 at Loews Santa Monica Hotel
located at 1700 Ocean Avenue, Santa Monica, California 90401 at 10:30 a.m.
Pacific Time, for the following purposes:
1. To elect six directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
2. To approve amendments to our 1998 Stock Option Plan to (i) increase the
number of shares reserved for issuance under our 1998 Stock Option Plan
from 2,000,000 shares to 3,200,000 shares of common stock and (ii) limit
to 250,000 the maximum number of shares for which options may be granted
to any employee in any fiscal year.
3. To approve an amendment to our 1998 Stock Option Plan to provide that
the number of shares issuable under our 1998 Stock Option Plan is
automatically increased on the first day of each of our fiscal years
beginning on and after January 1, 2001 by (i) 3% of the number of shares
of our common stock issued and outstanding on the last day of the
preceding fiscal year or (ii) such lesser number of shares as determined
by the Board of Directors or a committee of the Board.
4. To ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on April 26, 2000, are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at our principal offices.
By order of the Board of Directors,
/s/ JEFFREY M. MICKEAL
Jeffrey M. Mickeal
Secretary
Santa Monica, California
April 28, 2000
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND
ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY PRIOR TO THE TIME IT IS VOTED, OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE> 4
LAUNCH MEDIA, INC.
2700 PENNSYLVANIA AVENUE
SANTA MONICA, CALIFORNIA 90404
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of Launch
Media, Inc., a Delaware corporation, for use at the Annual Meeting of
Stockholders to be held on June 7, 2000, or any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The date of this proxy statement is April 28, 2000, the approximate date on
which this proxy statement and the accompanying form of proxy were first sent or
given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the year ended December 31, 1999, is
enclosed with this proxy statement.
Voting Securities. Only stockholders of record as of the close of business
on April 26, 2000, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 13,507,075 shares of our common stock, par
value $.001 per share, issued and outstanding. Stockholders may vote in person
or by proxy. Each stockholder of shares of common stock is entitled to one vote
for each share of stock held on the proposals presented in this proxy statement.
Our bylaws provide that a majority of all of the shares of our capital stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.
Solicitation of Proxies. Launch Media will bear the cost of soliciting
proxies. We will solicit stockholders by mail and will request banks and
brokers, and other custodians, nominees and fiduciaries, to solicit their
customers who have our stock registered in the names of such persons and will
reimburse them for their reasonable, out-of-pocket costs. We may use the
services of our officers, directors and others to solicit proxies, personally or
by telephone, without additional compensation.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her proxy,
at any time prior to the time it is voted, by delivery to the Secretary of
Launch Media at our principal offices at 2700 Pennsylvania Avenue, Santa Monica,
CA 90404, of a written instrument revoking the proxy or a duly executed proxy
with a later date, or by attending the meeting and voting in person.
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PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Management's nominees for election at the 2000 Annual Meeting of
Stockholders to the Board of Directors are David B. Goldberg, Robert D. Roback,
Thomas C. Hoegh, Richard D. Synder, Warren Littlefield and James M. Koshland. If
elected, the nominees will serve as directors until Launch Media's Annual
Meeting of Stockholders in 2001, and until their successors are duly elected and
qualified. If the nominees decline to serve or become unavailable for any
reason, or if a vacancy occurs before the election, although management knows of
no reason to anticipate that this will occur, the proxies may be voted for
substitute nominees as the Board of Directors may designate.
The table below sets forth the names and certain information of our
directors and our director nominees.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
- ---- -------- --- --------
<S> <C> <C> <C>
David B. Goldberg.......................... Chairman of the Board of Directors and 32 1994
Chief Executive Officer
Robert D. Roback........................... President and Director 32 1994
Thomas C. Hoegh............................ Director 33 1998
Richard D. Synder.......................... Director 41 1998
Warren Littlefield......................... Director 47 1999
James M. Koshland.......................... Director Nominee 48 --
</TABLE>
David B. Goldberg has served as Launch Media's chairman of the Board and
chief executive officer since he co-founded Launch Media in February 1994. Prior
to that time, from October 1991 to December 1993, Mr. Goldberg was director of
marketing strategy and new business development at Capitol Records, a major
record label in Hollywood, California. Mr. Goldberg was a consultant at Bain &
Co., a major strategy consulting firm, from September 1989 to September 1991.
Mr. Goldberg is a member of the National Academy of Recording Arts and Sciences.
Mr. Goldberg holds an A.B. in history and government from Harvard University.
Robert D. Roback has served as Launch Media's president and a director
since he co-founded Launch Media in February 1994. Prior to that time, from
October 1992 to February 1994, Mr. Roback was a corporate attorney at Mayer,
Brown & Platt, a major international law firm in Chicago, Illinois. Mr. Roback
holds a B.S. in economics from The Wharton School of the University of
Pennsylvania and is a graduate of the University of Minnesota Law School.
Thomas C. Hoegh has served as a member of Launch Media's Board of Directors
since June 1998. He has been managing director of Arts Alliance, a venture
capital firm in London, England, since July 1997. From August 1995 to June 1997,
Mr. Hoegh was a student at Harvard Business School. From January 1992 to August
1995, Mr. Hoegh was an independent artistic director.
Richard D. Snyder has served as a member of Launch Media's Board of
Directors since February 1998. He has been president of Avalon Investments,
Inc., a venture capital management company in Ann Arbor, Michigan, since
September 1997. From January 1996 to August 1997, Mr. Snyder was president and
chief operating officer of Gateway 2000, Inc., a computer manufacturer. He
served as executive vice president of Gateway 2000 from July 1991 until January
1996.
Warren Littlefield has served as a member of Launch Media's Board of
Directors since April 1999. Mr. Littlefield currently serves as president of the
Littlefield Company, a joint venture with the National Broadcasting Company.
Prior to founding the Littlefield Company in October 1998, Mr. Littlefield
served as president of NBC Entertainment beginning in July 1990.
James M. Koshland is a lawyer and a partner in the law firm of Gray Cary
Ware & Freidenrich LLP, Launch Media's outside general counsel. Mr. Koshland
currently serves as a director on the boards of a number of private companies.
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BOARD OF DIRECTORS' COMMITTEES AND MEETINGS
During 1999, the Board of Directors held seven meetings. Each incumbent
director attended at least 75% of the aggregate of such meetings of the Board
and any committee of the Board on which he served. The Board of Directors has
established an audit committee and a compensation committee.
The audit committee's function is to review the internal accounting
procedures of Launch Media, as well as to consult with and review the services
provided by the independent auditors of Launch Media. The members of the audit
committee during 1999 were Thomas C. Hoegh and Richard D. Snyder. During 1999,
the audit committee held two meetings.
The compensation committee's function is to review and recommend to the
Board of Directors the compensation and benefits of all officers of Launch
Media, and to establish and review general policies relating to compensation and
benefits of employees of Launch Media. The members of the compensation committee
during 1999 were Sergio S. Zyman and Richard D. Snyder. During 1999, the
compensation committee held three meetings.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
If a quorum is present and voting at the Annual Meeting of Stockholders,
the nominees for director receiving the highest number of votes will be elected.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
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PROPOSAL NUMBER TWO
APPROVAL OF AMENDMENT OF 1998 STOCK OPTION PLAN
TO INCREASE SHARE RESERVE BY 1,200,000 SHARES AND
ESTABLISH AN ANNUAL GRANT LIMIT
The Board of Directors adopted the 1998 Stock Option Plan, also referred to
as the 1998 Plan, in March 1998. Currently, the maximum number of shares of our
common stock issuable under the 1998 Plan is 2,000,000. Because the use of
options is an important factor in attracting and retaining qualified employees
and consultants, the Board of Directors has amended the 1998 Plan, subject to
stockholder approval, to increase the maximum number of shares issuable under
the 1998 Plan by 1,200,000 shares, to a total of 3,200,000 shares.
The Internal Revenue Code of 1986 (the "Code") limits the amount of
compensation paid to a corporation's chief executive officer and four other most
highly compensated officers that the corporation may deduct as an expense for
federal income tax purposes. To enable Launch Media to continue to deduct in
full all amounts of ordinary income recognized by its executive officers in
connection with awards granted under the 1998 Plan, the Board of Directors has
amended the 1998 Plan, subject to stockholder approval, to limit to 250,000 the
maximum number of shares for which options may be granted to any employee in any
fiscal year. However, Launch Media's stock option grants typically do not
approach this limit.
The stockholders are now being asked to approve the increase in the number
of shares issuable under the 1998 Plan by 1,200,000 shares, from 2,000,000
shares to 3,200,000 shares, as well as the grant limit. The Board of Directors
believes that approval of these amendments is in the best interests of Launch
Media and our stockholders because (1) the availability of an adequate reserve
of shares under the 1998 Plan is an important factor in attracting, motivating
and retaining qualified officers and employees essential to our success and in
aligning their long-term interests with those of the stockholders and (2)
approval of the grant limit will allow Launch Media to continue to deduct
compensation related to options granted under the 1998 Plan for federal income
tax purposes.
SUMMARY OF THE PROVISIONS OF THE 1998 PLAN
The following summary of the 1998 Plan is qualified in its entirety by the
specific language of the 1998 Plan, a copy of which is available to any
stockholder upon request.
General. The 1998 Plan provides for the grant of ISOs and nonstatutory
stock options. As of March 31, 2000, Launch Media had outstanding options under
the 1998 Plan to purchase an aggregate of 1,615,549 shares at a weighted average
exercise price of $13.04 per share. As of March 31, 2000, options to purchase
56,950 shares of common stock granted pursuant to the 1998 Plan had been
exercised, and there were 327,501 shares of common stock available for future
grants under the 1998 Plan, without taking the proposed increase into account.
Shares subject to the 1998 Plan. Currently, a maximum of 2,000,000 shares
of the authorized but unissued or reacquired common stock of Launch Media may be
issued pursuant to the 1998 Plan. The Board has amended the 1998 Plan, subject
to stockholder approval, to increase the maximum number of shares issuable under
the 1998 Plan to 3,200,000 shares. In addition, if the stockholders approve the
automatic share reserve increase provision described in Proposal 3, without
further stockholder approval, no more than 3,200,000, or 2,000,000 if this
Proposal 2 is not approved by the stockholders, shares may be issued pursuant to
ISO exercises.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of Launch Media, appropriate adjustments will be made to the
shares subject to the 1998 Plan, the proposed per employee grant limit and ISO
issuance limit and to outstanding options. To the extent any outstanding option
under the 1998 Plan expires or terminates prior to exercise in full, or if
Launch Media repurchases shares issued upon exercise of an option, the shares of
common stock for which that option is not exercised or the repurchased shares
are returned to the 1998 Plan and will again be available for issuance under the
1998 Plan.
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<PAGE> 8
Administration. The Board of Directors or a duly appointed committee of the
Board may administer the 1998 Plan. Subject to the provisions of the 1998 Plan,
the Board determines the persons to whom options are to be granted, the number
of shares to be covered by each option, whether an option is to be an ISO or a
nonstatutory stock option, the terms of vesting and exercisability of each
option, including the effect thereon of an optionee's termination of service,
the type of consideration to be paid to Launch Media upon exercise of an option,
the duration of each option, and all other terms and conditions of the options.
The Board will interpret the 1998 Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the 1998 Plan or any option under that plan.
Eligibility. Generally, all employees, directors and consultants of Launch
Media or of any present or future parent or subsidiary corporations of Launch
Media are eligible to participate in the 1998 Plan. In addition, the 1998 Plan
also permits the grant of options to prospective employees, consultants and
directors in connection with written offers of employment or engagement. As of
March 31, 2000, Launch Media had 259 full-time employees, including five
executive officers and four outside directors. Any person eligible under the
1998 Plan may be granted a nonstatutory option. However, only employees may be
granted ISOs. In addition, subject to stockholder approval, the Board has
amended the 1998 Plan to provide that during any fiscal year of Launch Media, no
employee may receive options under the plan for more than a total of 250,000
shares.
Terms and conditions of options. Each option granted under the 1998 Plan is
evidenced by a written agreement between Launch Media and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the 1998 Plan. The
exercise price per share must equal at least the fair market value of a share of
Launch Media's common stock on the date of grant of an option. In addition, the
exercise price of any ISO granted to a person who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of Launch Media or any parent or subsidiary corporation of Launch
Media, a "10% Stockholder," must be at least 110% of the fair market value of a
share of Launch Media's common stock on the date of grant. The fair market value
of Launch Media's common stock is based on the trading price of Launch Media's
shares on the Nasdaq National Market.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of Launch Media's common stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or a loan with respect to some or all of
the shares of common stock being acquired upon the exercise of the option, by
means of a promissory note, or by any combination of these. The Board may
nevertheless restrict the forms of payment permitted in connection with any
option grant.
The Board will specify when options granted under the 1998 Plan will become
exercisable and vested. Shares subject to options generally vest and become
exercisable in installments, subject to the optionee's continued employment or
service. The maximum term of options granted under the 1998 Plan is ten years,
except that an ISO granted to a 10% Stockholder may not have a term longer than
five years. Options are nontransferable by the optionee other than by will or by
the laws of descent and distribution and are exercisable during the optionee's
lifetime only by the optionee.
Change in control. The 1998 Plan provides that, in the event of a change in
control of Launch Media, the acquiring corporation may assume or substitute for
outstanding options granted under the 1998 Plan. In addition, 50% of the
unvested shares subject to an option granted under the 1998 Plan will become
vested if either (a) the acquiring corporation does not assume or substitute for
the option, or (b) the optionee's service is terminated other than for cause
within 12 months after the acquisition or the optionee resigns for good reason
during such period.
Termination or amendment. Unless sooner terminated, no options may be
granted under the 1998 Plan after March 2008. The Board may terminate or amend
the 1998 Plan at any time, but, without stockholder approval, the Board may not
adopt an amendment to the 1998 Plan which would increase the total number of
shares of common stock reserved for issuance thereunder, change the class of
persons eligible to receive ISOs, or require stockholder approval under any
applicable law, regulation or rule. No amendment may adversely
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affect an outstanding option without the consent of the optionee, unless the
amendment is required to preserve the option's status as an ISO or is necessary
to comply with any applicable law.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE 1998 PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
1998 Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
ISOs. An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of an ISO qualifying under
Section 422 of the Code. Optionees who do not dispose of their shares for two
years following the date the option was granted or within one year following the
exercise of the option will normally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale price and the purchase price
of the shares. If an optionee satisfies such holding periods upon a sale of the
shares, Launch Media will not be entitled to any deduction for federal income
tax purposes. If an optionee disposes of shares within two years after the date
of grant or within one year from the date of exercise, referred to as a
disqualifying disposition, the difference between the fair market value of the
shares on the exercise date, and the option exercise price, not to exceed the
gain realized on the sale if the disposition is a transaction with respect to
which a loss, if sustained, would be recognized, will be taxed as ordinary
income at the time of disposition. Any gain in excess of that amount will be a
capital gain. If a loss is recognized, there will be no ordinary income, and
such loss will be a capital loss. A capital gain or loss will be long-term if
the optionee's holding period is more than 12 months. Generally, for federal
income tax purposes, Launch Media should be able to deduct any ordinary income
recognized by the optionee upon the disqualifying disposition of the shares,
except to the extent the deduction is limited by applicable provisions of the
Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an ISO is an adjustment in computing the
optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if the tax exceeds the regular tax for the
year. Special rules may apply with respect to certain subsequent sales of the
shares in a disqualifying disposition, certain basis adjustments for purposes of
computing the alternative minimum taxable income on a subsequent sale of the
shares and certain tax credits which may arise with respect to optionees subject
to the alternative minimum tax.
Nonstatutory stock options. Options not designated or qualifying as ISOs
will be nonstatutory stock options. Nonstatutory stock options have no special
tax status. An optionee generally recognizes no taxable income as the result of
the grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares on the exercise date. If the optionee is an employee, the ordinary income
generally is subject to withholding of income and employment taxes. Upon the
sale of stock acquired by the exercise of a nonstatutory stock option, any gain
or loss, based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period is more than 12
months. No tax deduction is available to Launch Media with respect to the grant
of a nonstatutory option or the sale of the stock acquired pursuant to that
grant. Launch Media generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the exercise
of a nonstatutory option, except to the extent the deduction is limited by
applicable provisions of the Code or the regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast on the proposal at the
Annual Meeting of Stockholders, at which a quorum representing a majority of all
outstanding shares of Launch Media's common stock is present, either in person
or by proxy, is required for approval of this proposal. Votes for and against,
abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. However, abstentions and broker non-votes
will have no effect on the outcome of this vote.
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<PAGE> 10
The Board of Directors believes that approval of the increase in the number
of shares issuable under the 1998 Plan is in the best interests of Launch Media
and its stockholders. THEREFORE, FOR THE REASONS STATED ABOVE, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF AN INCREASE IN THE
NUMBER OF SHARES ISSUABLE UNDER THE 1998 PLAN AND THE ESTABLISHMENT OF THE GRANT
LIMIT.
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<PAGE> 11
PROPOSAL NUMBER THREE
APPROVAL OF AMENDMENT TO 1998 STOCK OPTION PLAN
TO AUTOMATICALLY INCREASE THE SHARE RESERVE
General. As of March 31, 2000, 327,501 shares remained available for future
option grants under the 1998 Plan. In April 2000, the Board of Directors amended
the 1998 Plan, subject to stockholder approval, to increase automatically on the
first day of each of our fiscal years beginning on and after January 1, 2001 the
maximum aggregate number of shares of common stock issuable under the plan by
(i) 3% of the number of shares of our common stock issued and outstanding on the
last day of the preceding fiscal year or (ii) such lesser number of shares as
determined by the Board of Directors or a committee of the Board. The
stockholders are now being asked to approve such amendment for the reasons
specified below.
For a description of the 1998 Plan, see "PROPOSAL NUMBER TWO -- APPROVAL OF
AMENDMENT TO 1998 STOCK OPTION PLAN TO INCREASE SHARE RESERVE BY 1,200,000
SHARES AND ESTABLISH AN ANNUAL GRANT LIMIT."
To effect the routine annual increases in a fixed share reserve, expenses
must be incurred to obtain the necessary stockholder approval. The Board of
Directors believes that it is in the best interests of Launch Media and its
stockholders to avoid such expenses by amending the 1998 Plan to increase
automatically on the first day of each of our fiscal years beginning on and
after January 1, 2001 the maximum aggregate number of shares of common stock
issuable under the 1998 Plan by (i) 3% of the number of shares of our common
stock issued and outstanding on the last day of the preceding fiscal year or
(ii) such lesser number of shares as determined by the Board of Directors or a
committee of the Board. In addition, the automatic increase proposed here would
remove the 1998 Plan reserve increase from the annual meeting agenda in future
years, thereby allowing stockholders to focus on other proposals.
Possible disadvantages of the proposed amendment include, but are not
limited to, a lack of flexibility in the amount of the annual increase in the
share reserve of the 1998 Plan. Such inflexibility could be remedied by future
proposals to revise up or down the automatic increase in the number of shares
reserved for any particular year. However, such a remedy would require approval
by the stockholders and, accordingly, would result in expense for obtaining such
approval. The Board of Directors believes that the advantages of the proposed
amendment outweigh the possible disadvantages because the proposed annual
increase in the number of shares reserved under the 1998 Plan would be
sufficient in most years, thereby avoiding the expenses involved in obtaining
the necessary approvals for routine increases in the 1998 Plan reserve each
year.
The Board of Directors believes that our stock option program is an
important factor in attracting and retaining the high caliber employees and
consultants essential to the success of Launch Media and in aligning their
long-term interests with those of the stockholders. Because competition for
highly qualified individuals in our industry is intense, management believes
that to attract the best candidates, we must offer a competitive stock option
program as an essential component of its compensation packages. The Board of
Directors further believes that stock options serve an important role in
motivating their holders to contribute to Launch Media's continued growth and
profitability. The proposed amendment is intended to ensure that the 1998 Plan
will continue to have available a reasonable number of shares to meet these
needs for the remainder of its term. For more information on the 1998 Plan
reserve, see "PROPOSAL NUMBER TWO -- APPROVAL OF AMENDMENT TO 1998 STOCK OPTION
PLAN TO INCREASE SHARE RESERVE BY 1,200,000 SHARES AND ESTABLISH AN ANNUAL GRANT
LIMIT."
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast on the proposal at the
Annual Meeting of Stockholders, at which a quorum representing a majority of all
outstanding shares of Launch Media's common stock is present, either in person
or by proxy, is required for approval of this proposal. Votes for and against,
abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. However, abstentions and broker non-votes
will have no effect on the outcome of this vote.
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<PAGE> 12
The Board of Directors believes that the proposed amendment to the 1998
Plan to increase automatically on the first day of each of our fiscal years
beginning on and after January 1, 2001 the maximum aggregate number of shares of
common stock issuable under the 1998 Plan by (i) 3% of the number of shares of
our common stock issued and outstanding on the last day of the preceding fiscal
year or (ii) such lesser number of shares as determined by the Board of
Directors or a committee of the Board., as described above, is in the best
interests of Launch Media and the stockholders for the reasons so stated.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF AN ANNUAL AUTOMATIC INCREASE IN THE NUMBER OF SHARES ISSUABLE UNDER THE 1998
PLAN.
9
<PAGE> 13
PROPOSAL NUMBER FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP as
independent auditors to audit our financial statements for the fiscal year
ending December 31, 2000. PricewaterhouseCoopers LLP has acted in such capacity
since its appointment during the fiscal year ended 1994. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting of
Stockholders with the opportunity to make a statement if the representative
desires to do so, and is expected to be available to respond to appropriate
questions.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum representing a majority of all outstanding
shares of Launch Media common stock is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum, but will not be counted as having been voted on the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS LLP AS LAUNCH MEDIA'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2000.
10
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 2000,
with respect to the beneficial ownership of Launch Media common stock by:
- each person known by Launch Media to be the beneficial owner of more than
5% of our common stock,
- each director and director nominee of Launch Media,
- the chief executive officer, and the four other highest compensated
executive officers of Launch Media whose salary and bonus for the year
ended December 31, 1999 exceeded $100,000, also referred to as the "Named
Executive Officers," and
- all executive officers and directors of Launch Media as a group.
Except as otherwise indicated, the address of each beneficial owner is c/o
Launch Media, Inc., 2700 Pennsylvania Avenue, Santa Monica, California 90404.
Except as indicated in the footnotes to the table, Launch Media believes
that the persons named in the table have sole voting and dispositive power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws, where applicable. A person is deemed to be
the beneficial owner of securities that can be acquired by such person within 60
days upon the exercise of options. Percentages are based on 13,489,011 shares of
common stock outstanding on March 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS SHARES OWNED
- ------------------------------------- --------- ----------
<S> <C> <C>
The Phoenix Partners Limited Partnership(1)................. 1,341,343 9.0%
1000 Second Avenue, Suite 3600
Seattle, WA 98104
Intel Corporation........................................... 892,225 6.2%
Mail Stop SC-210
2200 Mission College Blvd
Santa Clara, CA 95052
NBC Multimedia, Inc. (2).................................... 784,312 5.5%
30 Rockefeller Plaza
Suite 1076E
New York, NY 10112
General Electric Capital Corporation (3).................... 784,312 5.5%
120 Long Ridge Road
Stamford, CT 06927
Sony Music Entertainment Inc................................ 727,272 5.1%
550 Madison Avenue
New York, NY 10022
David B. Goldberg (4)....................................... 430,340 3.1%
Robert D. Roback (5)........................................ 243,071 1.8%
Jeffrey M. Mickeal (6)...................................... 69,601 *
Spencer A. McClung, Jr. (7)................................. 61,602 *
James E. Hughes (8)......................................... 12,066 *
Thomas C. Hoegh (9)......................................... 875,847 6.1%
Richard D. Snyder (10)...................................... 595,975 4.2%
Sergio S. Zyman (11)........................................ 45,000 *
Warren Littlefield (12)..................................... 40,000 *
James M. Koshland........................................... -- --
All directors and executive officers as a group (10 persons)
(13)...................................................... 2,373,502 15.0%
</TABLE>
- ---------------
* Less than 1%
11
<PAGE> 15
(1) Includes 502,367 shares held by The Phoenix Partners IIIB Limited
Partnership ("PPIIIB"), 627,957 shares held by The Phoenix Partners III
Liquidating Trust ("PPIII"), and 211,019 shares held by The Phoenix
Partners IV Limited Partnership ("PPIV"). Stuart C. Johnston is the Trustee
of PPIII, and is the Managing General Partner of Phoenix Management
Partners III, which is the General Partner of PPIIIB, and the Managing
Member of Phoenix Management IV, LLC, which is the General Partner of PPIV.
As such, Mr. Johnston has voting and investment power with respect to the
shares held by PPIII, PPIIIB, and PPIV and may be deemed to be the
beneficial owner of such shares. Mr. Johnston disclaims beneficial
ownership of shares held by PPIII, PPIIIB and PPIV, except to the extent of
his proportionate interest therein.
(2) Includes 392,156 shares held by General Electric Capital Corporation.
General Electric Capital Corporation and NBC Multimedia, Inc. are under
common control of entities affiliated with the General Electric Company.
(3) Includes 392,156 shares held by NBC Multimedia, Inc. General Electric
Capital Corporation and NBC Multimedia, Inc. are under common control of
entities affiliated with the General Electric Company.
(4) Includes 22,166 shares subject to options exercisable within 60 days of
March 31, 2000.
(5) Includes 26,583 shares subject to options exercisable within 60 days of
March 31, 2000.
(6) Includes 12,831 shares subject to options exercisable within 60 days of
March 31, 2000.
(7) Includes 17,875 shares subject to options exercisable within 60 days of
March 31, 2000.
(8) Includes 10,416 shares subject to options exercisable within 60 days of
March 31, 2000.
(9) Includes 5,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(10) Includes 5,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(11) Includes 45,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(12) Includes 20,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(13) Includes 164,871 shares subject to options exercisable within 60 days of
March 31, 2000.
12
<PAGE> 16
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the total
compensation of the Named Executive Officers for the fiscal year ending December
31, 1999. The total amount of personal benefits paid to each of the Named
Executive Officers during the fiscal year was less than the lesser of $50,000 or
10% of such executive officer's total reported salary and bonus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION NUMBER OF
--------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS
--------------------------- ---- -------- ------------------
<S> <C> <C> <C>
David B. Goldberg........................................... 1999 $162,500 40,000
Chief Executive Officer
Robert D. Roback............................................ 1999 $162,500 40,000
President
Jeffrey M. Mickeal.......................................... 1999 $131,250 15,000
Chief Financial Officer and Secretary
Spencer A. McClung, Jr...................................... 1999 $130,000 15,000
Senior Vice President, Advertising and Business
Development
James E. Hughes............................................. 1999 $232,917 10,000
Senior Vice President, General Manager(1)
</TABLE>
- ---------------
(1) Mr. Hughes resigned effective April 28, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning options to
purchase Launch Media's common stock granted during the fiscal year ended
December 31, 1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER AT ASSUMED ANNUAL RATES
OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE PER TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION --------------------------
NAME GRANTED FISCAL 1999 ($/SHARE) DATE 5% 10%
---- ---------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David B. Goldberg............. 40,000 6.4% $9.00 2/18/09 $226,402 $573,747
Robert D. Roback.............. 40,000 6.4 9.00 2/18/09 226,402 573,747
Jeffrey M. Mickeal............ 10,000 1.6 9.00 2/18/09 56,601 143,437
5,000 0.8 13.50 11/08/09 42,450 107,578
Spencer A. McClung, Jr........ 15,000 2.4 9.00 2/18/09 84,901 215,155
James E. Hughes............... 10,000 1.6 9.00 2/18/09 56,601 143,437
</TABLE>
13
<PAGE> 17
AGGREGATE OPTION EXERCISES FOR FISCAL 1999 AND FISCAL 1999 YEAR-END VALUES
The following table provides certain information concerning exercises of
options to purchase Launch Media common stock during 1999, and unexercised
options held as of December 31, 1999, by the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/99(1) 12/31/99(2)
ACQUIRED ON VALUE ----------------------- -----------------------------
NAME EXERCISE REALIZED(3) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Goldberg....... 16,833 $124,206 18,333 56,834 $254,068 $741,735
Robert D. Roback........ 35,416 267,600 21,750 58,834 315,133 777,111
Jeffrey M. Mickeal...... 52,000 403,000 11,457 21,543 179,219 247,985
Spencer A. McClung, Jr.. 28,289 208,079 14,501 40,210 228,233 595,656
James E. Hughes......... -- -- 9,166 20,834 140,673 297,467
</TABLE>
- ---------------
(1) All options were granted under Launch Media's 1994 and 1998 stock option
plans. These options vest over four years and otherwise generally conform to
the terms of the option plans.
(2) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1999 of $18.94 per share, determined for
financial accounting purposes, minus the exercise price.
(3) Fair market price on date of exercise, less exercise price.
COMPENSATION OF DIRECTORS
Launch Media reimburses members of its Board of Directors for out-of-pocket
expenses incurred in the performance of their duties as directors of Launch
Media. No non-executive member of our Board of Directors currently receives any
additional cash compensation for his services as a director of Launch Media.
From time to time, directors who are not employees of Launch Media receive
options under Launch Media's stock option plans as compensation for their
services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The compensation committee is composed of Sergio S. Zyman and Richard D.
Snyder. No interlocking relationships exist between any member of our
compensation committee and any member of any other company's board of directors
or compensation committee. The compensation committee reviews and recommends to
the Board of Directors the compensation and benefits of all officers of Launch
Media, and establishes and reviews general policies relating to compensation and
benefits of employees of Launch Media.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1999, there has not been, nor is there currently, any
transaction or series of similar transactions to which Launch Media was or is a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than five percent of Launch Media's capital
stock had or will have a direct or indirect material interest other than (a)
agreements which are described where required under the caption "Management" and
(b) the transactions described below.
Launch Media has entered into a stock purchase agreement with Sony Music
Entertainment, Inc., a holder of 5% or more of our capital stock. Launch Media
and Sony also entered into a sponsorship and content license agreement and a
music video license agreement upon the closing of our initial public offering.
Advertising revenues for 1999 include approximately $493,000 in revenues
received from the sponsorship and content license agreement. At December 31,
1999, approximately $145,000 of this amount was included in accounts receivable.
In addition, deferred revenue related to this sponsorship agreement as of
December 31, 1999 was $191,000.
Advertising revenues for 1999 include approximately $2,235,000 in revenues
received from Intel Corporation in connection with a sponsorship agreement
between Launch Media and Intel. At December 31,
14
<PAGE> 18
1999, approximately $24,000 of this amount was included in accounts receivable.
In addition, deferred revenue related to this sponsorship agreement as of
December 31, 1999 was $617,000.
In November 1998, Launch entered into an architectural development and
assistance agreement with Intel Corporation. Pursuant to the terms of these
agreements, Launch agreed to develop a product which is able to use the
capabilities of a processor developed by Intel. In consideration, Intel agreed
to pay Launch certain amounts and to provide technical assistance, and Launch
agreed to pay Intel a portion of revenues derived from the developed product.
Approximately $269,000 and $650,000 in development revenue for the years ended
December 31, 1998 and 1999, respectively, has been recognized using the
percentage of completion method on a cost to cost basis. The development revenue
is included in subscription and other revenues in the statements of operations.
Launch Media believes that all transactions with affiliates described above
were made on terms no less favorable to Launch Media than could have been
obtained from unaffiliated third parties. Launch Media's policy is to require
that a majority of the independent and disinterested outside directors on our
Board of Directors approve all future transactions between Launch Media and its
officers, directors, principal stockholders and their affiliates. Such
transactions will continue to be on terms no less favorable to Launch Media than
it could obtain from unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Launch
Media's executive officers, directors and persons who beneficially own more than
10% of our common stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission. These persons
are required by SEC regulations to furnish Launch Media with copies of all
Section 16(a) forms that they file.
Based solely on our review of the forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and persons who
beneficially own more than 10% of our common stock were complied with in fiscal
1999.
15
<PAGE> 19
The following table sets forth grants of stock options under the 1998 Plan
during 1999 by:
- the Named Executive Officers;
- all current executive officers as a group;
- all current directors who are not executive officers as a group; and
- all employees, who are not executive officers, as a group.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1998 PLAN
-------------------------------
NAME AND POSITION EXERCISE PRICE NO. OF SHARES
----------------- -------------- -------------
<S> <C> <C>
David B. Goldberg........................................... $ 9.00 40,000
Chief Executive Officer
Robert D. Roback............................................ 9.00 40,000
President
Jeffrey M. Mickeal.......................................... 9.00 10,000
Chief Financial Officer and Secretary 13.50 5,000
Spencer A. McClung, Jr...................................... 9.00 15,000
Senior Vice President, Broadband
James E. Hughes............................................. 9.00 10,000
Senior Vice President, General Manager
Executive group (5 persons)................................. 9.19(1) 120,000
Non-executive director group (4 persons).................... 22.00(2) 35,000
Non-executive officer employee group........................ 13.10(3) 466,800
</TABLE>
- ---------------
(1) Average exercise price of options granted to executive officer employees
under the 1998 Plan.
(2) Average exercise price of options granted to non-executive directors under
the 1998 Plan.
(3) Average exercise price of options granted to non-executive officer employees
under the 1998 Plan.
16
<PAGE> 20
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee is comprised of Sergio S. Zyman and Richard D.
Snyder, each an outside director of the Board of Directors, and is responsible
for setting and monitoring policies governing compensation of executive
officers. The compensation committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of Launch Media and
establishes and reviews general policies relating to compensation and benefits
of employees at Launch Media. The objectives of the committee are to correlate
executive compensation with our business objectives and performance, and to
enable us to attract, retain and reward executive officers who contribute to our
long-term success.
SALARY
The compensation committee annually assesses the performance and sets the
salary of the Chief Executive Officer, David B. Goldberg, and President, Robert
D. Roback. In turn, Messrs. Goldberg and Roback annually assess the performance
of all other executive officers and recommend salary increases which are
reviewed and approved by the compensation committee.
Messrs. Goldberg's and Robacks' compensation is based on compensation
levels of officers of comparable size companies. In addition, the compensation
committee considers certain incentive objectives based on Launch Media's
performance as it relates to revenue levels and earnings per share levels.
In determining executive officer salaries, the compensation committee
reviews recommendations from Messrs. Goldberg and Roback which include
information from salary surveys, performance evaluations and the financial
condition of Launch Media. The compensation committee also establishes both
financial and operational based objectives and goals in determining executive
officer salaries. These goals and objectives include sales and spending
forecasts for the upcoming year and published executive compensation literature
for comparable sized companies.
For more information regarding the compensation and employment arrangements
of Messrs. Goldberg and Roback and other executive officers, see "EXECUTIVE
COMPENSATION AND OTHER MATTERS."
BONUSES
While the compensation committee did not administer a bonus plan for
executives in 1999, the committee may administer such a bonus plan in the future
in order to provide additional incentives to executives who meet established
performance goals. Awards under this bonus plan may be contingent upon Launch
Media's attainment of revenue and operating profit targets, set by the
compensation committee in consultation with the Chief Executive Officer and
President. Additionally, awards may be weighted so that executives would receive
proportionately higher awards when our performance reaches maximum targets,
proportionately smaller awards when our performance reaches minimum targets, and
no awards when we do not meet minimum performance targets.
STOCK OPTIONS
The compensation committee believes that employee equity ownership provides
significant motivation to executive officers to maximize value for our
stockholders and, therefore, periodically grants stock options under our stock
option plan. Stock options are granted at the current market price and will only
have value if our stock price increases over the exercise price.
17
<PAGE> 21
The compensation committee determines the size and frequency of option
grants for executive officers after consideration of recommendations from the
Chief Executive Officer and President. Recommendations for options are based
upon the relative position and responsibilities of each executive officer,
previous and expected contributions of each officer to Launch Media and previous
option grants to such executive officers. Generally, option grants vest 25%
twelve months after commencement of employment or after the date of grant and
continue to vest thereafter in equal monthly installments over three years,
conditioned upon continued employment.
THE COMPENSATION COMMITTEE
18
<PAGE> 22
COMPARISON OF STOCKHOLDER RETURN(1)
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on our common stock with the CRSP Total Return Index
for the Nasdaq Stock Market (U.S. Companies) and the S&P 500 Index for the
period commencing April 23, 1999, the date of our initial public offering, and
ending December 31, 1999.
Stockholder Return Comparison Graph
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET (US
LAUNCH MEDIA, INC. COMPANIES) S&P 500 INDEX
------------------ ----------------------- -------------
<S> <C> <C> <C>
4/23/99 100 100 100
6/30/99 71 106 103
9/30/99 48 108 96
12/31/99 75 160 110
</TABLE>
- ---------------
(1) Assumes that $100.00 was invested April 23, 1999 in our common stock and in
each index, and that all dividends were reinvested. Stockholder returns over
the indicated period should not be considered indicative of future
stockholder returns.
19
<PAGE> 23
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 2700 Pennsylvania Avenue, Santa Monica, California 94040, not
later than December 31, 2000, and satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
Launch Media's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this proxy statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By order of the Board of Directors
/S/ JEFFREY M. MICKEAL
Jeffrey M. Mickeal
Secretary
April 28, 2000
20
<PAGE> 24
LAUNCH MEDIA, INC.
1998 STOCK OPTION PLAN
SECTION 1
General
1.1. Purpose. LAUNCH Media, Inc. (the "Company") has established the
LAUNCH Media, Inc. 1998 Stock Option Plan (the "Plan") as set forth herein to
promote the long term interests of the Company by (i) attracting, motivating and
retaining key employees; and (ii) strengthening the Company's ability to attract
and retain the services of experienced and knowledgeable directors and providing
such directors with an opportunity to acquire an equity interest in the Company.
1.2. Effective Date and Duration. Subject to the approval of the
stockholders of the Company, the Plan shall be effective as of March 12, 1998;
provided, however, that to the extent any Options (as defined in Section 3) have
been granted under the Plan prior to receipt of such approval, such Options
shall be contingent on such approval being obtained and shall automatically
terminate and be of no further force or effect if such approval is not obtained.
The Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Options granted under it are outstanding;
provided, however, that no Options (as defined in Section 3) may be granted
under the Plan on a date that is more than 10 years from the date the Plan is
adopted or, if earlier, the date the Plan is approved by the stockholders of the
Company.
1.3. Administration. The authority to manage and control the operation
and administration of the Plan shall be vested in the Company's Board of
Directors (the "Board") or a designated committee of the Board (the
"Committee"). The determination of the Board or the Committee on matters within
its authority shall be conclusive and binding upon the Company and all other
persons. Notwithstanding the foregoing, no member of the Board or the Committee
shall act or participate in any way with respect to the grant of an Option to
himself.
1.4. Shares Subject to Plan. Subject to adjustment as provided in
subsection 1.5, the maximum aggregate number of shares of common stock of the
Company ("Stock") that may be issued under the Plan shall be 3,200,000,
cumulatively increased on the first day of each fiscal year of the Company
beginning on and after January 1, 2001 by a number of shares equal to the lesser
of (a) 3% of the total number of shares of Stock issued and outstanding on the
last day of the preceding fiscal year, or (b) such lesser number of shares of
Stock as determined by the Board or the Committee. Shares issuable under the
Plan shall consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. Notwithstanding the foregoing, except as adjusted
pursuant to subsection 1.5, in no event shall more than 3,200,000 shares of
Stock (the "ISO Share Issuance Limit") be cumulatively available for issuance
pursuant to the exercise of incentive stock options within the meaning of
section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). If
any Option under the Plan or portion thereof shall expire unexercised,
terminate, be surrendered, canceled or settled in such a manner that all or some
shares subject to the Option are not issued to the Participant, such shares
shall (unless the Plan
1
<PAGE> 25
shall have terminated) become available for the grant of additional Options
under the Plan, except shares withheld pursuant to subsection 3.7.
1.5. Adjustments to Number of Shares Subject to the Plan. In the event
of any merger, consolidation, reorganization, recapitalization, spinoff, stock
dividend, stock split, reverse stock split, reclassification, exchange or other
change in corporate structure or capitalization affecting the Stock of the
Company, the aggregate number of shares of Stock with respect to which Options
may be granted under the Plan, the ISO Share Issuance Limit and the Section
162(m) Grant Limit (as defined below) and the type and number of shares subject
to any outstanding Options under the Plan and the terms thereof shall be
equitably adjusted by the Board or the Committee in its sole discretion.
1.6. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
1.7. Right to Continue Service; Stockholder Status. The Plan does not
constitute a contract of employment or continued service, and participation in
the Plan will not give any employee or Participant the right to be retained in
the employ or service of the Company (or any parent corporation or subsidiary
corporation of the Company, as such terms are defined in Section 424(e) and (f)
of the Code), or any right or claim to any benefit under the Plan unless such
right or claim has specifically accrued under the terms of the Plan or any
agreement evidencing the grant of the Option. No Option under the Plan shall
confer upon the holder thereof any right as a stockholder of the Company prior
to the issuance of Stock pursuant to the exercise thereof.
SECTION 2
Participation
Subject to the terms and conditions of the Plan, the Board or the
Committee shall determine and designate from time to time the employees,
directors and consultants of the Company (or any parent corporation or
subsidiary corporation of the Company) who shall be "Participants" in the Plan.
In making this determination, the Board or the Committee shall take into account
the individual's contribution and potential contribution to the Company and any
other factors that the Board or the Committee determines to be relevant.
Notwithstanding the foregoing, subject to adjustment as provided in subsection
1.5, at any time that the Company (or any parent or subsidiary corporation of
the Company) is a "publicly held corporation" within the meaning of section
162(m) of the Code, no employee shall be granted one or more options within any
fiscal year of the Company which in the aggregate are for the purchase of more
than 250,000 shares of Stock (the "Section 162(m) Grant Limit"). An option which
is canceled in the same fiscal year of the Company in which it was granted shall
continue to be counted against the Section 162(m) Grant Limit for such period.
2
<PAGE> 26
SECTION 3
Grants
3.1. Option Grants. Subject to the terms and conditions of the Plan,
each Participant designated by the Board or the Committee in accordance with
Section 2 shall be granted an option to purchase shares of Stock ("Options") and
the Board or the Committee shall determine the number, type and terms of the
Options to be granted to each of them. Each option shall entitle the Participant
to purchase shares of Stock upon the terms and conditions as the Board or the
Committee specifies and which are not inconsistent with the Plan and at the
Option Price (as defined in subsection 3.3) determined by the Board or the
Committee at the time the Option is granted, subject to the following provisions
of this Section 3. Any option granted under this Section 3 that is awarded to an
employee of the Company (or any parent or subsidiary corporation of the Company)
and that satisfies all of the requirements of section 422 of the Code, may be
designated by the Board or the Committee as an "Incentive Stock Option";
provided, however, that to the extent that the aggregate fair market value of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year (under the Plan and all
other plans of the Company and its affiliates) exceeds $100,000, such Options
shall be treated as Non-Qualified Options. "Non-Qualified Options" are Options
that are not designated as Incentive Stock Options or that do not satisfy the
requirements of section 422 of the Code.
3.2. Option Agreement. Each grant of an Option under the Plan shall be
evidenced by an agreement between the Participant and the Company in a form
specified by the Board or the Committee containing such terms and conditions,
not inconsistent with the Plan, as the Board or the Committee may, in its sole
discretion, prescribe.
3.3. Option Price. The purchase price of each share of Stock under an
Option granted under this Section 3 (the "Option Price") shall be determined by
the Board or the Committee at the time of the grant of the Option; provided,
however, that in no event shall the Option Price be less than the Fair Market
Value (as defined below) of a share of Stock on the date the Option is granted
or, if greater, par value; and provided further that, in the case of a grant of
an Incentive Stock Option to a Participant who, as of the date of grant, is a 10
percent stockholder of the Company or any parent or subsidiary corporation of
the Company (determined in accordance with section 422 of the Code), the Option
Price shall not be less than 110 percent of the Fair Market Value of a share of
Stock as of the date of grant. For all purposes of the Plan, the term "Fair
Market Value" of a share of Stock as at any date shall mean the fair market
value of such share of Stock determined, in good faith, in accordance with
procedures established by the Board or the Committee or in accordance with
procedures established by the Board of the Committee.
3.4. Expiration of Options. All rights with respect to an Option granted
under the Plan, whether or not then exercisable, shall automatically terminate
as of the Option's Expiration Date. The "Expiration Date" with respect to an
Option or any portion thereof, granted to a Participant under the Plan shall be
the earliest of:
(a) the date which is 10 years after the date of which the Option is
granted (5 years in the case of an Incentive Stock Option which is granted to an
individual who, as of the
3
<PAGE> 27
date of grant, is a 10 percent stockholder of the Company or any parent or
subsidiary corporation of the Company);
(b) the date established by the Board or the Committee at the time
of the grant of the Option;
(c) the date which is one year, or such other longer or shorter
period of time (not less than six months) as established by the Board or the
Committee, after the date on which the Participant's employment with the Company
(or service as a director of the Company) is terminated by reason of his
becoming disabled (within the meaning of section 22(e)(3) of the Code) or his
death;
(d) the date which is three months, or such other longer or shorter
period of time (not less than thirty days) as established by the Board or the
Committee, after the date on which the Participant's employment with the Company
(or service as a director of the Company) is terminated for any reason other
than (i) disability, (ii) death, or (iii) for Cause (as defined below); or
(e) the date on which the Participant's employment with the Company
(or service as a director of the Company) is terminated for Cause.
For purposes of the Plan, the term "Cause" shall mean (a) the willful and
continued failure by the Participant to substantially perform his duties for the
Company; (b) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
or (c) an illegal or negligent action of the Participant which substantially and
adversely affects the Company.
3.5. Exercise of Options. To the extent then exercisable, Options
awarded under the Plan shall be exercised, in whole or in part, by filing a
written notice with the Secretary of the Company at its corporate headquarters
prior to the Option's Expiration Date. Such notice shall specify the number of
shares of Stock which the Participant elects to purchase and shall be
accompanied by payment of the Option Price for such shares, plus any required
withholding taxes. The Option price of each share of Stock purchased upon the
exercise of any Option granted under this Section 3, and any required
withholding taxes, shall be paid in cash (including check, bank draft or money
order) or, to the extent provided by the Board or the Committee at the time of
grant, in shares of Stock (valued at Fair Market Value as of the date of
exercise, and including shares of Stock acquired pursuant to the exercise of the
Option) by the assignment of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System) (a "Cashless Exercise"), by the Participant's promissory
note in a form approved by the Company, or in any combination thereof.
Notwithstanding the foregoing, the Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise. In addition, no promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of any
law, and any permitted promissory note shall be on such terms as the Board or
the Committee shall determine
4
<PAGE> 28
at the time the Option is granted. If applicable, in the discretion of the Board
or the Committee, separate certificates representing the shares purchased by
exercise of Incentive Stock Option and by exercise of Non-Qualified Option shall
be delivered to the person entitled thereto as soon as practicable after such
exercise.
3.6. Compliance with Applicable Laws. Notwithstanding any other
provision of the Plan:
(a) The Company shall have no liability to issue any shares of
Stock under the Plan unless such issuance would comply with all applicable laws
and the applicable requirements of any securities exchange or similar entity.
(b) Prior to the issuance of any shares of Stock under the Plan,
the Company may require a written statement that the recipient is acquiring the
shares of Stock solely for investment and not for the purpose or with the
intention of distributing the shares and will not dispose of such shares in
violation of the Securities Act of 1933 or any applicable state securities
registration law and any certificate representing such shares shall bear a
legend referring to such restrictions.
(c) If, at any time, the Company, in its sole discretion,
determines that the listing, registration or qualification (or any updating of
any such document) of the Stock is necessary on any securities exchange or under
any federal or state securities or blue sky law, or that the consent or approval
of any governmental regulatory body is necessary or desirable as a condition or,
or in connection with the issuance of Stock pursuant to the exercise of an
Option, the Stock shall not be issued, in whole or in part, unless such listing,
registration, qualification consent or approval shall have been affected or
obtained free of any condition not acceptable to the Company.
3.7. Withholding. All exercises of Options under the Plan are subject to
withholding of all applicable taxes, which withholding obligation shall be
satisfied by the payment of cash or check payable to the Company, or, to the
extent permitted by the Board or the Committee at the time of the grant of an
Option, through the surrender of shares of Stock which the Participant already
owns or the withholding of shares of Stock to which a Participant is otherwise
entitled upon exercise of the Option.
3.8. Nontransferability. No Option under the Plan, and no interest
therein, shall be transferable by the Participant except by will or by the laws
of descent and distribution and shall be exercisable during a Participant's
lifetime only by the Participant. After a Participant's death, Options shall be
exercisable, to the extent exercisable by the Participant on the date of his
death, by the executor or administrator of the Participant's estate or by the
person or persons who shall have acquired the Option from the Participant by
bequest or inheritance, subject to the terms of the Plan and the agreement
between the Company and the Participant evidencing such Option.
5
<PAGE> 29
3.9. Provision of Information. At least annually, copies of the
Company's balance sheet and income statement for the just completed fiscal year
shall be made available to each Participant and purchaser of shares of Stock
upon the exercise of an Option. The Company shall not be required to provide
such information to persons whose duties in connection with the Company assure
them access to equivalent information.
SECTION 4
4.1. Termination or Amendment of Plan. The Board may terminate or amend
the Plan at any time. However, subject to changes in applicable law, regulations
or rules that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of subsection 1.5), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Participant.
4.2. Stockholder Approval. The Plan or any increase in the maximum
number of shares of Stock issuable thereunder as provided in subsection 1.4 (the
"Maximum Shares") shall be approved by the stockholders of the Company within
twelve (12) months of the date of adoption thereof by the Board. Options granted
prior to stockholder approval of the Plan or in excess of the Maximum Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Maximum
Shares, as the case may be.
6
<PAGE> 30
LAUNCH MEDIA, INC.
PROXY FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert D. Roback and Jeffrey M. Mickeal, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of stock in Launch Media, Inc. which the undersigned
is entitled to vote at the 2000 Annual Meeting of Stockholders to be held at
Loews Santa Monica Hotel located at 1700 Ocean Avenue, Santa Monica, California
90401 on June 7, 2000 at 10:30 a.m. Pacific Time, and at any adjournment thereof
(1) as hereinafter specified upon the proposals listed below and as more
particularly described in Launch Media's proxy statement, receipt of which is
hereby acknowledged and (2) in their discretion upon such other matters as may
properly come before the meeting.
A vote FOR the following proposals is recommended by the Board of Directors:
1. Election of directors listed below.
Nominees: David R. Goldberg, Robert D. Roback, Thomas C. Hoegh, Richard D.
Synder, Warren Littlefield and James M. Koshland.
[ ] FOR [ ] WITHHELD
- --------------------------------------------------------------------------------
[ ] INSTRUCTION: To withhold authority to vote for any nominee, mark the above
box and list the name(s) of the nominee(s) in the space provided.
2. To approve amendments to our 1998 Stock Option Plan to (i) increase the
number of shares reserved for issuance under our 1998 Stock Option Plan from
2,000,000 shares to 3,200,000 shares of common stock and (ii) limit to
250,000 the maximum number of shares for which options may be granted to any
employee in any fiscal year.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
3. To approve an amendment to our 1998 Stock Option Plan to provide that the
number of shares issuable under our 1998 Stock Option Plan is automatically
increased on the first day of each of our fiscal years beginning on and after
January 1, 2001 by (i) 3% of the number of shares of our common stock issued
and outstanding on the last day of the preceding fiscal year or (ii) such
lesser number of shares as determined by the Board of Directors or a
committee of the Board.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
4. To ratify the appointment of PricewaterhouseCoopers LLP as our independent
auditors for the fiscal year ending December 31, 2000.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE> 31
(Continued from other side)
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted FOR proposals 1, 2, 3 and 4.
Dated , 2000
(Be sure to date Proxy)
------------------------
Signatures(s)
------------------------
Print Name(s)
Sign exactly as your
name(s) appears on your
stock certificate. If
shares of stock stand on
record in the names of
two or more persons or
in the name of husband
and wife, whether as
joint tenants or
otherwise, both or all
of such persons should
sign the above proxy. If
shares of stock are held
of record by a
corporation, the proxy
should be executed by
the President or Vice
President and the
Secretary or Assistant
Secretary, and the
corporate seal should be
affixed thereto.
Executors or
administrators or other
fiduciaries who execute
the above proxy for a
deceased stockholder
should give their full
title. PLEASE DATE THE
PROXY.
Even if you are planning to attend the meeting in person, you are urged to sign
and mail the proxy in the return envelope so that your stock may be represented
at the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LAUNCH MEDIA, INC.
