<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
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 Rule 14a-11(c) or Rule 14a-12
musicmaker.com, Inc.
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(Name of Registrant as Specified in its Charter)
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(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)(4) 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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MUSICMAKER.COM, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 12, 2000
----------------
TO THE STOCKHOLDERS OF MUSICMAKER.COM, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of musicmaker.com, Inc. (the "Company"), will be held at the
Sheraton Premier, 8661 Leesburg Pike, Vienna, Virginia 22180 at 10:00 a.m. on
Tuesday, September 12, 2000 for the following purposes:
1. To elect one Class A director to serve on the Board of Directors for a
term of three years;
2. To ratify the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending December 31, 2000;
3. To approve an amendment to the Company's Amended Stock Option Plan (the
"Plan") to increase the number of shares of common stock authorized for
issuance under the Plan from 4,200,000 shares to 6,500,000 shares; and
4. To consider and transact such other business as may properly and
lawfully come before the Annual Meeting or any adjournment thereof.
All of the foregoing is more fully set forth in the Proxy Statement
accompanying this Notice.
The transfer books of the Company will close as of the end of business on
August 10, 2000 for purposes of determining stockholders who are entitled to
notice of and to vote at the Annual Meeting, but will not be closed for any
other purpose.
All stockholders are cordially invited to attend the Annual Meeting in
person. IF YOU CANNOT ATTEND THE ANNUAL MEETING, PLEASE TAKE THE TIME TO
PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE THE COMPANY
HAS PROVIDED. If you attend the Annual Meeting and decide that you want to
vote in person, you may revoke your proxy.
By Order of the Board of Directors
August 14, 2000 Devarajan S. Puthukarai,
New York, New York Chief Executive Officer, President
and Chief Operating Officer
<PAGE>
MUSICMAKER.COM, INC.
1740 Broadway
23rd Floor
New York, New York 10019
Annual Meeting of Stockholders
September 12, 2000
----------------
PROXY STATEMENT
----------------
Information Concerning Solicitation and Voting
General
The enclosed proxy is solicited on behalf of musicmaker.com, Inc. (the
"Company") for the annual meeting of stockholders (the "Annual Meeting") to be
held at 10:00 a.m. on Tuesday, September 12, 2000 at the Sheraton Premier,
8661 Leesburg Pike, Vienna, Virginia 22180 or any adjournment or adjournments
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting.
These proxy solicitation materials were mailed on or about August 14, 2000
to all stockholders entitled to vote at the meeting.
Record Date; Outstanding Shares
Only stockholders of record at the close of business on August 10, 2000 (the
"Record Date"), are entitled to receive notice of and to vote at the Annual
Meeting. The outstanding voting securities of the Company as of such date
consisted of 33,140,421 shares of Common Stock, $.01 par value (the "Common
Stock"). For information regarding holders of more than 5% of the outstanding
Common Stock, see "Securities Ownership of Certain Beneficial Owners and
Management."
Revocability of Proxies
The enclosed proxy is revocable at any time before its use by delivering to
the Company a written notice of revocation or a duly executed proxy bearing a
later date. If a person who has executed and returned a proxy is present at
the Annual Meeting and wishes to vote in person, he or she may elect to do so
and thereby rescind the power of the proxy holders to vote his or her proxy.
Voting and Solicitation
Every stockholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the meeting. The
election of the Class A director will require an affirmative vote of a
plurality of the votes of shares present in person or represented by proxy at
the meeting and entitled to vote. Proposals 2 and 3 will require the
affirmative vote of a majority of the shares of the Company's Common Stock
present or represented and entitled to vote at the Annual Meeting.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain
of the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telecopy, or electronic mail.
1
<PAGE>
Quorum; Abstentions; Broker Non-Votes
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to be voted generally at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting. Under the Delaware General
Corporation Law (the "DGCL"), an abstaining vote and a broker "non-vote" are
counted as present and entitled to vote and are, therefore, included for
purposes of determining whether a quorum of shares exists. Abstentions are
also counted in tabulating the total number of votes cast on matters voted on
by the stockholders at the Annual Meeting. Broker "non-votes" are not counted
for purposes of determining the number of votes cast on any matter voted on by
stockholders.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 2001 annual meeting must be received by
the Company no later than April 16, 2001 in order that they may be included in
the proxy statement and form of proxy relating to that meeting. Any such
proposal should be addressed to the Company's Secretary and delivered to the
Company's principal executive offices at 1740 Broadway, 23rd Floor, New York,
NY 10019.
If a stockholder of the Company wishes to present a proposal before the 2001
annual meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder
must also give written notice to the Secretary of the Company at the address
noted above. The Secretary must receive such notice no later than June 30,
2001. If a stockholder fails to provide timely notice of a proposal to be
presented at the 2001 annual meeting, the proxies designated by the Board of
Directors of the Company will have discretionary authority to vote on any such
proposal.
Annual Report
The Company's Annual Report to Stockholders, which includes its Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 1999,
is enclosed with this Proxy Statement.
ELECTION OF DIRECTOR
(Proposal 1)
General
The Amended Bylaws of the Company provide that the number of members of the
Board of Directors shall consist of not less than one nor more than seven. The
Board of Directors of the Company currently consists of seven directors. The
Board of Directors is divided into three classes of directors, designated
Class A, Class B and Class C directors, serving staggered three year terms.
With respect to the present board, the terms of the Class B directors, William
W. Scranton III, Irwin H. Steinberg and Jonathan A. B. Smith, will expire at
the 2001 annual meeting of stockholders and the terms of the Class C
directors, Robert Bernardi, Devarajan Puthukarai and Jay A. Samit, will expire
at the 2002 annual meeting of stockholders. The term of the Class A director,
John A. Skolas, will expire at the Annual Meeting. Mr. Skolas has been
nominated for election at the Annual Meeting. On May 17, 2000, the Board
appointed William W. Scranton III as a Class B director to fill the vacancy
created by the resignation of Edward J. Mathias.
At the Annual Meeting, stockholders are asked to elect Mr. Skolas as a Class
A director. In the event that Mr. Skolas shall become unavailable, the proxy
holders will vote in their discretion for a substitute nominee. It is not
expected that Mr. Skolas will be unavailable.
Officers are elected by the Board of Directors. Each officer serves at the
discretion of the Board of Directors. There are no family relationships among
any of the directors or executive officers. In December 1999, Mr. Puthukarai
became the sole Chief Executive Officer of the Company.
2
<PAGE>
Mr. Skolas will be elected by the affirmative vote of a plurality of the
votes of shares present in person or represented by proxy at the meeting and
entitled to vote.
The Board of Directors recommends that stockholders vote "For" Mr. Skolas.
Directors and Executive Officers
Set forth below is certain information regarding the directors (including
Mr. Skolas), and executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Devarajan S. Puthukarai 56 Chief Executive Officer, President, Chief Operating Officer
Robert P. Bernardi 47 Chairman of the Board of Directors
William Crowley 45 Senior Vice President of Marketing
Mark A. Fowler 39 Chief Financial Officer, Vice President of Finance and Administration
Lawrence A. Lieberman 38 President, Global Marketing Group
Jay A. Samit 38 Director
William W. Scranton, III 53 Director
John A. Skolas 48 Director
Jonathan A. B. Smith 37 Director
John A. Skolas 48 Director
Irwin H. Steinberg 78 Director, Vice Chairman of the Board of Directors
</TABLE>
Executive Officers and Directors
Devarajan S. Puthukarai. Mr. Puthukarai is the Company's President, Chief
Executive Officer, Chief Operating Officer and served as the Company's Co-
Chief Executive Officer from April 1997 until December 1999. Mr. Puthukarai
has served as a director since April 1997. From 1991 to April 1997, Mr.
Puthukarai was President of Warner Music Media, a division of Warner Music
Enterprises, a Time Warner Inc. company engaged in the business of promoting
new and upcoming artists. From 1984 to 1990, Mr. Puthukarai was President of
RCA Direct Marketing Inc./BMG Direct Marketing Inc., launching one of the
country's first CD music clubs and building the world's largest classical
music club. Mr. Puthukarai earned his Bachelor of Science and Bachelor of Law
degrees from Madras University in India. Mr. Puthukarai earned a Master of
Business Administration degree from the Indian Institute of Management, a
Harvard/Ford Foundation school in Ahemadabad, India.
Robert P. Bernardi. Mr. Bernardi is the Company's co-founder and Chairman of
the Board of Directors. Mr. Bernardi has served as a director since the
Company's inception and served as the Company's Co-Chief Executive Officer
until December 1999. From 1990 to 1996, Mr. Bernardi was a co-founder,
Chairman of the Board of Directors and Chief Executive Officer of TREEV, Inc.
(formerly Network Imaging Corporation), a publicly-held software company for
which he continues to serve as a director. From 1988 to 1990, Mr. Bernardi was
an independent consultant in the document imaging and telecommunications
fields. From 1987 to 1988, Mr. Bernardi was a co-founder, President and Chief
Executive Officer of TranSwitch Corporation, a publicly-held company that
designed high- speed telecommunications chips. From March 1984 to December
1987, Mr. Bernardi was Chairman of the Board of Directors and Chief Executive
Officer of Spectrum Digital Corporation, a publicly-held telecommunications
equipment manufacturing company. From 1984 to 1987, Mr. Bernardi was a co-
founder and director of PictureTel Corporation, a publicly-held manufacturer
of full-motion video conferencing systems. Prior to 1984, Mr. Bernardi held
various executive management positions with MCI Communications Corporation,
Mobil Corporation, Booz, Allen & Hamilton, Inc. and The MITRE 3 Corporation.
Mr. Bernardi earned a Bachelor of Science degree in Physics and a Master of
Science degree in Business and Economics from the State University of New York
at Stonybrook.
William Crowley. Mr. Crowley has served as the Company's Senior Vice
President of Marketing since January 2000 and served as the Company's Vice
President of Marketing and Sales from August 1996 to January
3
<PAGE>
2000. From 1995 to 1996, Mr. Crowley was a Vice President at Warner Music
Enterprises where he was responsible for advertising, creative services and
circulation marketing for its sampling programs and roster of music magazines.
From 1993 to 1995, Mr. Crowley was a Vice President at PolyGram Group
Distribution, Inc. where he was responsible for direct development of both
music products and new channels of distribution for PolyGram labels. From 1990
to 1993, Mr. Crowley was the Director of Marketing and Product Development at
Time Life Music where he was responsible for new product and business
activities for popular and classical music products. From 1981 to 1990, Mr.
Crowley was Director of Artists Repertoire and Merchandising at BMG Direct
Marketing, Inc. where he was responsible for product selection and
development, and merchandising and market research for BMG music clubs. Mr.
Crowley earned a Masters degree in Business Administration from New York
University and a Bachelors degree in Political Science and Economics from
Northwestern University.
Mark A. Fowler. Mr. Fowler has served as the Company's Chief Financial
Officer and Vice President of Finance and Administration since January 1999
and was the Company's Director of Finance and Administration from April 1998
to January 1999. From 1995 to 1998, Mr. Fowler was the Controller at
BioReliance Corporation, a publicly-held international contract research
organization. From 1994 to 1995, Mr. Fowler was the Controller at Fusion
Lighting, Inc., an international research and development company. From 1991
to 1994, Mr. Fowler was the Controller at Excalibur Technologies Corporation,
a publicly-held software development firm. Prior to 1991, Mr. Fowler held
several positions, including a consultant position with Booz, Allen &
Hamilton, Inc. Mr. Fowler is a certified public accountant in the Commonwealth
of Virginia. He earned a Bachelor of Science degree in Finance from Radford
University and is currently enrolled at the Johns Hopkins University pursuing
a Masters degree in Business Administration.
Lawrence A. Lieberman. Mr. Lieberman has served as the Company's President,
Global Marketing Group since January 2000 and was the Company's Vice President
of Internet Marketing from May 1999 to January 2000. From September 1996 to
May 1999, Mr. Lieberman was Vice President of Strategic Planning and New
Business Development at Comedy Central, a cable television network owned
jointly by Time Warner and Viacom, where he was responsible for business
activities ancillary to its regular cable operations and managed all aspects
of the comedycentral.com site. Mr. Lieberman was the Executive Producer of the
multi-million selling "Chef Aid: The South Park Album," developed the "South
Park" home video line with sales in excess of three million units, and
initiated South Park's worldwide merchandise program including T-shirts, video
games, books and CD-ROMs. From February 1996 to September 1996, Mr. Lieberman
was with Time Inc. New Media developing content for its various Internet
sites. From August 1992 to February 1996, Mr. Lieberman was Vice President of
Marketing and Artist Relations at Warner Music Enterprises, and from April
1989 to August 1992, Mr. Lieberman was Director of Merchandising and Marketing
at MTV. Mr. Lieberman currently serves as an associate overseer at the Leonard
N. Stern School of Business at New York University and as a trustee of the
Hudson Valley Children's Museum. Mr. Lieberman earned a Masters degree in
Business Administration from the Leonard N. Stern School of Business at New
York University, and a Bachelors degree in Economics from Union College in
Schenectady, New York.
Jay A. Samit. Mr. Samit has served as a Company director since June 1999.
Mr. Samit has been the Senior Vice President of Worldwide New Media for EMI
Recorded Music since April 1999, responsible for the strategy and
implementation of all business development, strategic alliances, marketing
partnerships and creative development of internet, online and website
activities. From October 1996 to March 1999, Mr. Samit was Vice President of
Original Content for Universal Studios New Media Group and also President of
animalhouse.com, a Universal joint venture targeted at the online college
community. Prior to October 1996, Mr. Samit was the President of Jasmine
Multimedia Publishing, a new media publishing company founded by him in 1981.
Mr. Samit graduated magna cum laude from the University of California at Los
Angeles and received the Presidential Fellowship in 1981.
William W. Scranton, III. Mr. Scranton has served as a Company director
since May 2000. Since 1994, Mr. Scranton has headed the Scranton Family
Office, a family office managing investments and civic intiatives. From 1987
to 1994, he served in various senior executive officer positions at two direct
marketing companies
4
<PAGE>
and one mail order company. Mr. Scranton served as Lieutenant Governor of
Pennsylvania from 1979 to 1987. Mr. Scranton received a Bachelor of Arts
degree in American Studies from Yale University.
John A. Skolas. Mr. Skolas has served as a Company director since June 1999.
Mr. Skolas also serves as Chief Financial Officer of Coelacanth Corporation,
where he is responsible for oversight of its financial and administrative
matters. From February 1998 until June 1999, Mr. Skolas served as Chief
Financial Officer and General Counsel of PhytoWorks Inc., responsible for
writing significant portions of the company's business plan, negotiating
transactions, structuring intellectual property licenses and handling a wide
range of financial and administrative matters. From February 1992 until March
1997, Mr. Skolas served as President/Corporate Officer of the Americas of EMI
Group, Inc., the finance, treasury, tax and administrative subsidiary of EMI
Group plc serving its U.S. subsidiaries. From February 1992 until January
1999, Mr. Skolas also served as President and General Counsel of EMI Group
North America Inc., responsible for overseeing licensing of semiconductor
patents held by EMI Group. Mr. Skolas holds a Masters degree in Business
Administration from Harvard Business School, a Juris Doctor from the
University of Wisconsin Law School and a Bachelor of Arts degree from Luther
College. He holds a certified public accountant certificate from the Iowa
Board of Accountancy and is admitted to practice law in Minnesota and
Wisconsin.
Jonathan A. B. Smith. Mr. Smith has served as a Company director since June
1999. Since January 1999, Mr. Smith has been the Vice President of Finance and
Planning for EMI Recorded Music North America, responsible for overseeing
corporate finance functions for EMI Recorded Music in North America. From May
1995 to December 1998, Mr. Smith served as the Head of Business Planning
Support for EMI Records (U.K.). Mr. Smith graduated with honors from The
University of Hull, in Hull, United Kingdom, with degrees in Economics and
Politics and he has been a member of the Chartered Institute of Certified
Accountants since 1989.
Irwin H. Steinberg. Mr. Steinberg has served as a Company director and Vice
Chairman of the Board of Directors since January 1997. Mr. Steinberg also
serves as a consultant to the Company. Since 1982, Mr. Steinberg has been
President of IHS Corporation, a consulting firm specializing in the music
industry. From 1975 to 1982, Mr. Steinberg was Chairman and Chief Executive
Officer of PolyGram Records, Inc. Mr. Steinberg was co-founder of Mercury
Records Corporation. From 1946 to 1975, Mr. Steinberg was employed with
Mercury Records Corporation where he progressed from Chief Financial Officer
to Executive Vice President to President, which later position he held from
1968 to 1975. Mr. Steinberg currently serves as an adjunct Professor at
Columbia College of the Arts in Chicago, where he teaches graduate courses in
music business. Mr. Steinberg holds a Bachelors degree from the University of
Chicago Business School and a Masters degree from the California State
University at Domingo Hills.
Description of Stockholders' Agreement
On June 8, 1999, the Company entered into a stockholders' agreement with
Virgin Holdings, Rho Management Trust I, Messrs. Bernardi, Puthukarai,
Steinberg and RHL Ventures, LLC. The parties to the stockholders' agreement
are required to vote their shares of common stock to ensure that the number of
directors on the Board remains at seven and includes three directors
designated by Virgin Holdings, two directors designated by the Company and two
independent directors. Each class of directors must include one Virgin
Holdings director. Directors will be elected at annual meetings of
stockholders to serve three year terms and until their respective successors
are duly elected and qualify, or until their earlier resignation, removal from
office, or death. The remaining directors may fill any vacancy on the Board of
Directors for an unexpired term.
Committees of the Board of Directors and Compensation
The Board of Directors has designated an Audit Committee of the Board of
Directors, which consists of Mr. Skolas, Mr. Steinberg and Mr. Scranton. The
Audit Committee is responsible for reviewing, along with the Company's
independent public accountants, the scope of the Company's accounting audits,
as well as the Company's corporate accounting practices and policies. The
Audit Committee reviews the Company's accounting and financial controls, and
makes themselves available to the Company's independent public accountants for
any necessary consultation.
5
<PAGE>
The Board of Directors has also designated a Compensation Committee of the
Board of Directors, which consists of Mr. Samit, Mr. Bernardi and Mr.
Scranton. The Compensation Committee reviews the performance of our management
and recommends and approves the compensation of and the issuance of stock
options to executive officers and employees under our stock option plan.
There is no standing Nominating Committee of the Board of Directors.
Under the terms of his consulting agreement, Mr. Steinberg, the Company's
Vice Chairman of the Board, receives compensation of $1,200 per meeting of the
Board of Directors or any committee. The Company's other directors currently
do not receive a fee for their service on the Board of Directors or any
committee of the board. Directors are eligible to receive stock options under
the Company's stock option plan. Members of the Board of Directors have
received options under the Company's stock option plan as disclosed in
"Security Ownership of Certain Beneficial Owners and Management" herein. All
of these options were issued with an exercise price equal to the fair market
value of the common stock on the date of grant. Directors receive
reimbursement to cover their reasonable expenses incurred in attending Board
meetings.
During 1999, there were seven meetings of the Board of Directors, one
meeting of the Audit Committee and three meetings of the Compensation
Committee. Each director attended 75% or more of the meetings of the Board of
Directors and of the committees of the Board on which the director served
during the period for which he was director or committee member.
Compensation Interlocks and Insider Participation
The current members of the Compensation Committee are Mr. Samit, Mr.
Bernardi and Mr. Scranton. To date, the Compensation Committee, including
directors who are or were executive officers of the Company, has made all
determinations concerning compensation of the Company's executive officers.
Mr. Bernardi does not participate in Compensation Committee decisions
regarding his own compensation
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than 10% of the Company's Common Stock to file reports of ownership
and changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission and Nasdaq. Based solely on a review of the copies of such
reports and written representations from the reporting persons that no other
reports were required, the Company believes that during the fiscal year ended
December 31, 1999, its executive officers, directors and greater than 10%
stockholders filed on a timely basis all reports due under Section 16(a) of
the Exchange Act with the following exceptions: each of the executive officers
and directors failed to timely file Form 3's by the date of effectiveness of
the Company's registration statement, July 6, 1999.
6
<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities by the Company's
chief executive officer and other executive officers whose salary and bonus
exceeded $100,000 (the "Named Executive Officers") during the fiscal years
ended December 31, 1998 and 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Number of
Shares
Underlying
Name and Principal Position Salary($) Bonus($) Options
--------------------------- --------- -------- ------------
<S> <C> <C> <C> <C>
Devarajan S. Puthukarai............... 1999 $250,000 $100,000 --
President, Chief Executive Officer and 1998 $250,000 $100,000 151,297
Chief Operating Officer
Robert P. Bernardi.................... 1999 $175,000 0 --
Chairman of the Board of Directors 1998 $175,000 0 151,297
Mark A. Fowler........................ 1999 $125,000 $ 50,000(1) 30,259
Chief Financial Officer, Vice
President of Finance
and Administration
Lawrence A. Lieberman................. 1999 $ 85,962 $ 50,000 349,500
President, Global Marketing Group
William Crowley....................... 1999 $144,230 $ 50,000 --
Senior Vice President, U.S. Marketing
</TABLE>
--------
(1) Net of $20,000 used for the payment of taxes.
The following table sets forth information regarding the grant of options to
purchase the Company's Common Stock to each of the Named Executive Officers
during the fiscal year ended December 31, 1999. Potential realizable value
assumes that the Common Stock appreciates at the indicated annual rate
(compounded annually) from the grant date until the expiration of the option
term and is calculated based on the requirements of the Securities and
Exchange Commission. Potential realizable value does not represent the
Company's estimate of future stock price growth.
Option Grants in 1999
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at
------------------------ Assumed Annual
Percentage Rates of
Number of of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term (1)
Options Employees in Price Expiration --------------------
Name Granted Fiscal 1999 Per Share Date 5% 10%
---- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lawrence A. Lieberman... 349,500 32% $2.07 2004 $202,570 $441,314
Mark A. Fowler.......... 30,259 3% $3.43 2004 $ 17,538 $ 38,208
</TABLE>
--------
(1) Potential Realizable Value assumes that the Common Stock appreciates at
the indicated annual rate (compounded annually) from the grant date until
the expiration of the option term and is calculated based on the
requirements promulgated by the Securities and Exchange Commission.
Potential Realizable Value does not represent the Company's estimate of
future stock price growth.
7
<PAGE>
The following table sets forth information regarding the number and value of
securities underlying options held by each of the Named Executive Officers at
the end of the fiscal year ended December 31, 1999. No options were exercised
by any of the Named Executive Officers during the fiscal year ended December
31, 1999.
Aggregate Option Exercises and Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at December 31, "In-the-Money" Options
1999 at December 31, 1999(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Bernardi......... 151,299 151,298 $556,327 $556,324
Devarajan S. Puthukarai.... 151,299 151,298 $556,327 $556,324
Lawrence A. Lieberman...... 58,250 291,250 $ 42,421 $712,106
Mark A. Fowler............. 10,086 50,432 $ 39,285 $193,709
William Crowley............ 15,129 90,779 $ 86,387 $345,414
</TABLE>
--------
(1) Value for "in-the-money" options represents the positive spread between
the exercise price of outstanding options and the fair market value of
$5.875 per share on December 31, 1999.
Employment Agreements and Consulting Agreements
Mr. Bernardi and Mr. Puthukarai each have employment agreements with initial
terms through December 7, 2002. These agreements require that each commit
substantially all of his time and effort to furthering the Company's interests
and restrict competition with the Company during the term of the agreement and
for one year following termination. Under their employment agreements, Mr.
Bernardi receives a base salary of $175,000 per annum and Mr. Puthukarai
receives a base salary of $250,000 per annum. Each is eligible for payment of
bonuses and stock options as determined by the Compensation Committee of the
Board of Directors. Mr. Puthukarai is guaranteed a minimum annual bonus of
$100,000. Upon termination by the Company without cause, or termination by Mr.
Bernardi or Mr. Puthukarai upon non-compliance by the Company with a material
provision of the employment agreement, their respective employment agreements
provide for payment of all accrued salary, benefits and bonuses plus a sum
equal to the salary, benefits and bonuses that would have been received if the
initial or any renewal term had been completed, discounted by three percent.
Each agreement is automatically renewable on a year-to-year basis following
expiration of the initial term and any renewal term, unless written notice of
non-renewal is given by either party 90 days before expiration of any term.
Should the Company decide not to renew their respective agreements, Mr.
Bernardi and Mr. Puthukarai are each entitled to a severance payment equal to
one year's salary and benefits, as in effect prior to termination. Each
agreement restricts the ability of Mr. Bernardi and Mr. Puthukarai to solicit
customers or call upon employees of the Company for one year after the
expiration of the term of each of their agreements. The agreements further
restrict ownership in excess of 5% of any U.S. publicly traded company which
is engaged in the Company's business.
Under a consulting agreement between the Company and IHS Corporation, Mr.
Steinberg is required to provide consulting services to the Company for not
less than fifteen days in any given month. Mr. Steinberg seeks to obtain, on
the Company's behalf, additional license agreements and content relationships
with record labels in an effort to expand the Company's music library. Mr.
Steinberg's consulting agreement is non-exclusive; however, Mr. Steinberg is
restricted from providing consulting services to any of the Company's
competitors. For his services, Mr. Steinberg is paid a minimum monthly payment
of $9,000. Mr. Steinberg also receives compensation of $1,200 per meeting in
connection with his attendance at meetings of the Company's Board of Directors
or any committee thereof.
Key Man Insurance
The Company has key man insurance covering Messrs. Bernardi and Puthukarai
in the amount of $1 million. The Company is named as beneficiary for each
policy.
8
<PAGE>
Indemnification of Directors and Officers
The Company's Charter and Bylaws provide that it shall indemnify all of its
directors and officers to the full extent permitted by the Delaware General
Corporation Law. Under these provisions, any director or officer who, in his
or her capacity as such, is made or threatened to be made a party to any suit
or proceeding, may be indemnified if the Board determines the director or
officer acted in good faith and in a manner the director reasonably believed
to be in, or not opposed to, the best interests of the Company. The Charter,
Bylaws, and Delaware law further provide that indemnification is not exclusive
of any other rights to which directors and officers may be entitled under our
Charter, Bylaws, any agreement, any vote of stockholders or disinterested
directors, or otherwise.
The Company has the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any expense, liability, or loss incurred
by that person in the capacity he served for the Company or arising out of his
status as such, whether or not the Company would have the power to indemnify
that person against similar liability under Delaware law. The Company has
director and officer insurance coverage. Our directors and officers are
insured against liability of up to $10,000,000 in the aggregate each policy
year.
9
<PAGE>
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding shares of our Common
Stock beneficially owned as of August 7, 2000. Beneficial ownership is
calculated in accordance with Rule 13d-3(d) under the Securities Exchange Act
of 1934. Shares of Common Stock subject to options and warrants that are
currently exercisable or are exercisable within 60 days of August 7, 2000, are
deemed outstanding with respect to the person holding those options but are
not deemed outstanding for purposes of computing the percentage ownership of
any other person. Unless otherwise indicated, each person possesses sole
voting and investment power with respect to the shares identified as
beneficially owned. Except as otherwise indicated in the table, the address of
the stockholders listed below is that of the Company's principal executive
office. Directors not included in the table below do not hold Company
securities.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
As of July ,
2000
----------------------
Name and Address Number Percent
---------------- ---------- -------
<S> <C> <C>
Virgin Holdings, Inc..................................... 12,098,663 36.5%
338 North Foothill Road
Beverly Hills, CA 90210
Rho Management Trust I................................... 2,814,322(1) 8.5%
767 Fifth Avenue
New York, NY 10053
Robert P. Bernardi....................................... 2,443,093(2) 7.4%
Zomba Record Holdings, B.V............................... 1,997,008 6.0%
Devarajan S. Puthukarai.................................. 1,344,404(3) 4.1%
Irwin H. Steinberg....................................... 388,513(4) 1.2%
William Crowley.......................................... 199,758(5) *
Lawrence A. Lieberman.................................... 221,759(6) *
Jay A. Samit............................................. 106,250(7) *
Mark Fowler.............................................. 75,257(8) *
Jonathan A. B. Smith..................................... 60,417(9) *
John A. Skolas........................................... 60,417(10) *
William W. Scranton, III................................. 8,333(11) *
All executive officers and directors as a group
(10 persons)............................................ 4,908,201(12) 13.7%
</TABLE>
--------
* Less than 1%.
(1) Includes 787,904 shares of Common Stock issuable upon exercise of Series B
warrants and 438,280 shares of Common Stock issuable upon exercise of
Series C warrants. Rho Management Partners L.P., a Delaware limited
partnership may be deemed the beneficial owner of shares registered in the
name of Rho Management Trust I, under an investment advisory relationship
by which Rho Management Partners L.P. exercises sole voting and investment
control over Rho Management Trust I's shares and warrants.
(2) Includes 272,817 shares of Common Stock issuable upon exercise of Series B
warrants, 60,600 shares of Common Stock issuable upon exercise of Series C
warrants and 450,280 shares of Common Stock issuable in connection with
vested options with exercise prices ranging from $2.06 to $5.94 per share.
(3) Includes 453,896 shares of Common Stock issuable upon the exercise of
warrants with an exercise price of $1.65 per share, 68,204 shares of
Common Stock issuable upon the exercise of Series B warrants, 15,150
shares of Common Stock issuable in connection with Series C warrants, and
450,280 shares of Common Stock issuable upon exercise of vested options
with exercise prices ranging from $2.06 to $5.94 per share.
(4) Includes 246,637 shares of Common Stock issuable upon the exercise of
warrants with exercise prices ranging from $1.65 to $1.98 per share.
10
<PAGE>
(5) Includes 78,720 shares of Common Stock issuable upon the exercise of
vested options.
(6) Includes 191,500 shares of Common Stock issuable upon the exercise of
vested options.
(7) Includes 106,250 shares of Common Stock issuable upon the exercise of
vested options.
(8) Includes 75,257 shares of Common Stock issuable upon the exercise of
vested options.
(9) Includes 60,417 shares of Common Stock issuable upon the exercise of
vested options.
(10) Includes 60,417 shares of Common Stock issuable upon the exercise of
vested options.
(11) Includes 8,333 shares of Common Stock issuable upon exercise of vested
options with an exercise price of $1.98 per share.
(12) Includes 341,021 shares of Common Stock issuable upon the exercise of
Series B warrants, 75,750 shares of Common Stock issuable upon the
exercise of Series C warrants, 683,870 shares of Common Stock issuable
upon the exercise of outstanding common stock warrants and 1,711,588
shares of Common Stock issuable upon the exercise of vested options.
Certain Relationships and Related Transactions.
On June 8, 1999, the Company executed a license agreement with EMI. Under
this agreement, the Company will make royalty payments in connection with
sales of our custom CDs including any music content provided under license by
EMI. In exchange for our rights under the license agreement, the Company
issued 15,170,860 shares of our Common Stock to Virgin Holdings. Virgin
Holdings received approximately $40,000,000 from the sale of 3,072,197 shares
of its stock by participating as a selling shareholder in our initial public
offering. Jay A. Samit and Jonathan A.B. Smith, directors serving on the
Company's Board of Directors, also serve as executive officers of EMI Recorded
Music.
On July 1, 1999, the Company issued a demand promissory note to Rho
Management Trust I for financing in the principal amount of $1,000,000 in the
form of a subordinated note bearing interest at 12% and maturing on January 1,
2000. The Company repaid the principal and interest on the above loan
immediately following its initial public offering out of the proceeds
therefrom.
The Company believes that the above-described transactions are as fair to
the Company as could have been obtained with unaffiliated parties. The Company
intends that all future transactions with officers, directors or principal
stockholders of the Company will be approved or ratified by a majority of the
Board of Directors, including a majority of the disinterested, independent
directors. Moreover, the Company intends that future transactions with
affiliates will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Report of the Compensation Committee of the Board of Directors.
The Compensation Committee of the Board of Directors reviews the performance
of the Company's management and recommends and approves the compensation of
and the issuance of stock options to executive officers and employees under
the Company's stock option plan. In addition, the Compensation Committee
reviews compensation levels of other management level employees and reviews
other compensation-related issues.
General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers with competitive
compensation opportunities based upon their contribution to the Company's
development and financial success and their personal performance. The
compensation package for each executive officer is comprised of three
elements: (i) base salary, (ii) bonus and (ii) equity incentive awards.
Base Salary. The Compensation Committee strives to offer salaries to its
executive officers, which are competitive with salaries offered by companies
of similar size and capitalization in the Company's industry. Base salaries
are reviewed on an annual basis and are subject to adjustment based upon the
individual's contribution
11
<PAGE>
to the Company and changes in salary levels offered by comparable companies.
Executive officers' salaries are determined by the Chief Executive Officer
based on information from various sources and approved by the Compensation
Committee.
Bonuses. The amount of awards granted to the executive officers are
contingent upon the Company achieving certain performance goals established by
the Board of Directors. For executive officers, awards are also contingent on
the achievement of individual performance objectives. Target and minimum
amounts of bonuses for each executive officer are set annually by the
Compensation Committee and are specifically weighted for identified financial,
management, strategic and operational goals. The minimum annual bonus for
Mr. Puthukarai as set forth in his employment agreement is $100,000. The
minimum bonus for all other executive officers is $50,000. The Compensation
Committee reviews performance against the goals and approves payment of the
bonuses.
Equity Incentives. The Compensation Committee believes that employee equity
ownership is highly motivating, provides a major incentive to employees to
build stockholder value and serves to align the interests of employees with
the interests of the Company's stockholders. In determining the amount of
equity compensation to be awarded to executive officers in any fiscal year,
the Compensation Committee considers the position of the officer, the current
stock ownership of the officer, the number of shares which continue to be
subject to vesting under outstanding options and the expected future
contribution of the officer to the Company's performance, giving primary
weight to the officer's position and his expected future contributions. In
addition, the Compensation Committee compares the stock ownership and options
held by each officer with the other officers' equity positions and each
officer's experience and value to the Company.
CEO Compensation. In accordance with his employment agreement, the Company's
Chief Executive Officer, Mr. Puthukarai received a base salary of $250,000 for
the fiscal year ended December 31, 1999 and a bonus of $100,000. The
Compensation Committee believes that Mr. Puthukarai's salary and bonus are
competitive with that paid by other companies in the same or similar
industries as the Company.
Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code, which was enacted into law in 1993, the
Company will not be allowed a federal income tax deduction for compensation
paid to certain executive officers to the extent that compensation exceeds $1
million per officer in any one year. This limitation will apply to all
compensation paid to the covered executive officers which is not considered to
be performance-based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. The Company's stock option plan contains certain provisions which
are intended to assure that any compensation deemed paid in connection with
the exercise of stock options granted under that plan with an exercise price
equal to the market price of the option shares on the grant date will qualify
as performance-based compensation. The Compensation Committee does not expect
that the compensation to be paid to any of the Company's executive officers
for 1999 will exceed the $1 million limit per officer.
THE COMPENSATION COMMITTEE
Jay A. Samit
William W. Scranton, III
Robert Bernardi
12
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Company's Common Stock, the Russell 2000 Index and the S&P Retail (Specialty)
Index. Cumulative total stockholder return represents share value appreciation
through December 31, 1999, assuming the investment of $100 in the Common Stock
of the Company at the intial public offering on July 7, 1999 and in each of
the other indexes on the same date, and reinvestment to all dividends. The
comparisions in the graph below are based on historical data and are not
intended to forecast the possible future performance of our common stock.
[Stock Performance Graph Appears Here]
The above graph was plotted using the following data:
<TABLE>
<CAPTION>
Cumulative
Total Return
---------------
7/7/99 12/31/99
<S> <C> <C>
MUSICMAKER.COM, INC....................................... 100.00 41.96
RUSEELL 2000.............................................. 100.00 93.59
S & P RETAIL (SPECIALTY).................................. 100.00 67.66
</TABLE>
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT ACCOUNTANTS
(Proposal 2)
Management has selected Ernst & Young LLP as the independent accountants to
audit the books, records and accounts of the Company for the current fiscal
year ending December 31, 2000. Ernst & Young LLP has audited the Company's
financial statements since 1998.
13
<PAGE>
The affirmative vote of the holders of a majority of the Company's Common
Stock represented and voting at the meeting will be required to ratify the
Board of Director's selection of Ernst & Young LLP.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement, and will be
available to answer questions from stockholders.
The Board of Directors recommends that the stockholders vote "For"
ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants.
APPROVAL OF THE AMENDMENT TO THE
AMENDED STOCK OPTION PLAN
(Proposal 3)
The Board of Directors has unanimously adopted and recommends that the
shareholders approve an amendment to the Company's Amended Stock Option Plan
(the "Plan") to increase the number of shares of Common Stock available for
issuance thereunder from a maximum of 4,200,000 shares to a maximum of
6,500,000 shares.
The essential terms of the Plan are summarized below. The following
discussion is qualified in its entirety by reference to the Plan. The Company
will provide, upon request, a copy of the full text of the Plan to each person
to whom a copy of this Proxy Statement is delivered. Requests should be
directed to Mark A. Fowler, Chief Financial Officer, 10780 Parkridge
Boulevard, Suite 50, Reston, Virginia, 20191.
General Information. The Plan was adopted for the purpose of promoting the
Company's long-term growth and profitability by:
. Providing key people with incentives to improve stockholder value and
contribute to the growth and financial success of the Company.
. Enabling the Company to attract, retain and reward talented and skilled
persons for positions of substantial responsibility.
The Company has used stock options as a significant component of compensation
for its officers and key employees.
The Plan provides for the award to eligible participants, including
employees, officers, directors and consultants, of stock options including
non-qualified stock options and incentive stock options under Section 422 of
the Internal Revenue Code. The Plan also provides for the award of stock
appreciation rights, including free standing, tandem and limited stock
appreciation rights. Under the current Plan 4,200,000 shares of Common Stock
are reserved for issuance, representing 12.7% of the shares of common stock
outstanding as of the Record Date. At the Record Date, options to purchase a
total of 4,543,053 shares of common stock were outstanding, at exercise prices
ranging from $0.1652 to $13 per share.
Administration. The Plan is administered by the Compensation Committee of
the Board of Directors, which consists of Messrs. Samit, Bernardi and
Scranton. Messrs. Samit and Scranton are "disinterested persons," for purposes
of Rule 16b-3 under the Exchange Act, and "outside directors," within the
meaning of Section 162(m) of the Internal Revenue Code. The Compensation
Committee selects the participants and establishes the terms and conditions of
each option or other rights granted under the Plan, including the exercise
price, the number of shares subject to options or other equity rights and the
time at which the options become exercisable.
14
<PAGE>
Stock Options. The exercise price of all "incentive stock options," or
"ISO's" within the meaning of Section 422 of the Internal Revenue Code,
granted under the Plan must be at least equal to 100% of the fair market value
of the option shares on the date of grant. The term of any incentive stock
option granted under the stock option plan may not exceed ten years. Where the
eligible stock option plan participant owns over 10% of the total combined
voting power of all classes of stock of the Company, however, the exercise
price must be at least equal to 110% of the fair market value of the option
shares on the date of grant and the term cannot exceed five years.
Transferability. To the extent required to comply with Rule 16b-3 under the
Exchange Act, if applicable, and in any event in the case of an incentive
stock option or stock appreciation right granted with respect to an incentive
stock option, no award granted under the Plan shall be transferable by a
grantee otherwise than by will or by the laws of descent and distribution.
Other terms and conditions of each award are set forth in the grant agreement
governing that award and determined by the Compensation Committee.
Amendments and Termination. The Board of Directors, without further approval
of the stockholders, may modify or terminate the Plan or any portion thereof
at any time, except that no modification shall become effective without prior
approval of the stockholders of the Company if stockholder approval is
necessary to comply with any tax or regulatory requirement or rule of any
exchange or Nasdaq upon which the Common Stock is listed or quoted; including
stockholder approval that is a required for continued compliance with
Rule 16b-3 or stockholder approval that is required to enable the Compensation
Committee to grant incentive stock options pursuant to the Plan.
Change in Control. In the event of any proposed (i) sale, exchange or other
disposition of substantially all of the Company's assets; or (ii) any merger,
share exchange, consolidation or other reorganization or business combination
in which the Company is not the surviving corporation, the Compensation
Committee has the authority to take such action as it deems appropriate and
equitable to effectuate the purposes of the Plan and to protect the grantees
of awards.
New Plan Benefits. Awards, if any, that will be paid to participants for any
fiscal year are subject to the discretion of the Compensation Committee.
Consequently, it is not possible to determine at this time the amount of
awards that will be paid in the fiscal year ended December 31, 2000.
Federal Tax Consequences
The following is a brief summary of the tax consequences of the grant and
exercise of stock options, stock appreciation rights and restricted stock
awards under the federal income tax laws. This summary does not, among other
things, purport to describe state or local tax consequences or to describe all
federal income tax consequences.
ISO's and Non-Qualified Options. Recipients of ISOs generally are not
subject to income tax at the time the option is granted or exercised. However,
upon the exercise of any ISO, any excess of the fair market value of shares
received over the exercise price may be subject to the alternative minimum
tax. Upon disposition of any shares obtained through the exercise of an ISO,
long-term capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the aggregate exercise price, provided
that the participant has held the shares for at least one year from the date
the ISO was exercised and at least two years from the date the ISO was
granted. If the participant disposes of the shares within that time period (a
"Disqualifying Disposition"), the participant will recognize ordinary income
to the extent of the difference between the exercise price and the lesser of
the fair market value on the date the ISO is exercised or the amount realized
on the Disqualifying Disposition. Any remaining gain or loss is treated as a
short-term or long-term capital gain or loss, depending on the period the
shares were held by the participant. The Company is not entitled to any tax
deduction upon either the exercise of any such ISO or upon any subsequent
disposition of the shares acquired pursuant to such exercise, except to the
extent that the participant recognizes ordinary income pursuant to a
Disqualifying Disposition.
15
<PAGE>
A participant receiving nonqualified stock options does not recognize income
at the time the option is granted. However, when the option is exercised, the
participant will recognize ordinary income equal to the difference between the
fair market value of the shares on the exercise date and the exercise price.
The Company receives a tax deduction equal to the amount of ordinary income
recognized by the participant. The participant's basis in the shares is equal
to the exercise price plus any recognized ordinary income.
To the extent that the participant pays some or all of the exercise price of
an ISO or nonqualified stock option by tendering shares already owned, the tax
consequences will remain the same as discussed above except that a like number
of shares received will have the same basis and holding period as the shares
tendered and the remaining shares received shall have a basis equal to the
cash tendered plus the ordinary income recognized, if any, on the exercise. If
the tendered shares were received pursuant to the exercise of an ISO, such
tender may be a Disqualifying Disposition if made prior to the end of the
required holding periods.
Stock Appreciation Rights. An employee will not recognize taxable income at
the time of the grant of a stock appreciation right ("SAR"). A SAR is the
right to cash or stock in the amount of the appreciation of a share of the
Common Stock from the grant date to the exercise date. Upon exercise, however,
the employee will generally recognize ordinary income for each SAR in the
amount that the fair market value of the common stock on the exercise date
exceeds its fair market value on the date of grant. The Company generally will
be entitled to a corresponding deduction in the year of exercise.
Restricted Stock Awards. No income will be recognized by an employee in
connection with the grant of a restricted stock award. When the restrictions
lapse, the employee would be required to include as taxable ordinary income
the fair market value of such shares at the time the restrictions lapse. The
Company would be entitled to a deduction for federal income tax purposes equal
to the amount so included in such employee's income. An employee may, by
making a Section 83(b) election within 30 days after the transfer of stock,
choose to recognize income upon the grant of a restricted stock award. If a
Section 83(b) election is made, any appreciation in the stock value after the
grant date may be eligible for capital gain treatment upon the subsequent sale
of the stock. However, if the stock is forfeited later, the loss allowable is
limited to the price paid for the stock (if any) minus any amounts received
upon such forfeiture.
The affirmative vote of the holders of a majority of the Company's Common
Stock represented and voting at the meeting will be required to approve the
amendment to the Plan.
The Board of Directors recommends that the stockholders vote "For" the
amendment to the Plan.
OTHER MATTERS
There is no reason to believe that any other business will be presented at
the Annual Meeting; however, if any other business should properly and
lawfully come before the Annual Meeting, the proxies will vote in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
August 14, 2000 Devarajan Puthukarai, Chief
New York, New York Executive Officer, President,
and Chief Operating Officer
16
<PAGE>
PROXY CARD
MUSICMAKER.COM, INC.
1740 Broadway, 23rd Floor
New York, New York 10019
The undersigned hereby appoints Devarajan S. Puthukarai and Mark A. Fowler,
or either of them, as proxies with full powers of substitution, to vote all
shares of the Common Stock of musicmaker.com, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on September 12, 2000 (the "Annual Meeting") and at any
adjournment thereof, upon the items described in the Proxy Statement. The
undersigned acknowledges receipt of notice of the meeting and the Proxy
Statement.
A. ELECTION OF CLASS A DIRECTOR (JOHN A. SKOLAS) (PROPOSAL 1)
FOR WITHHOLD AUTHORITY FOR
[ ] [ ]
B. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000
(PROPOSAL 2)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
C. PROPOSAL TO AMEND THE COMPANY'S AMENDED STOCK OPTION PLAN (PROPOSAL 3)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
D. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
This Proxy, when properly executed will be voted as directed herein. If no
instructions are given, the shares represented by this proxy will be voted
"FOR" the nominee set forth in proposal no. 1, "FOR" proposal No. 2 and proposal
No. 3 and in the discretion of the proxy holders as to other business.
Please date and sign this proxy exactly as your name appears hereon.
______________________________ ______________________________
Date Signature of Owner Signature of Owner
-------------------------------------------
Additional Signature of Joint Owner (if any)
If stock is jointly held, each joint owner
should sign. When signing as attorney-in-
fact, executor, administrator, trustee,
guardian, corporate officer or partner,
please give full title.
